(See attached file for full problem description)
The directors of Sperrabuck Ltd were concerned about the company's cash flows.They requested the account to prepare a cash budget for the four months ending 31 October 2005.
The following information was availabe:
Actual Sales2005 $
Sales are made as folows
40% of sales are cash
50% of total sales are on credit and are paid for in the month after sale
10% of total sales are on credit and are paid for two months after sales
111) Customers purchasing on credit are allowed a discount of 2% if they pay with in one
month of purchase.
iv) Supplies are purchased two months before sale and paid for one month after purchase
V) The selling price is fixed by adding a mark-up of 40% the the cost of goods sold.
Vi) Wages of $8000 per month are paid in the month in which they are earned. It is expected
that wages will be increased bya pay award of 5% deom 1 September 2005. that wages will be increased by a pay award of 5% from 1 September 2005.
Viii) Staff are paid a bonus 4% on all sales in excess of $80,000 each month.The bounus is paid in the
Viii) Other expenses currently amount to $7000 per month and are paid in the month in which
the incurred.These expenses are expected to increase by 8% from 1 September 2005.
ix) The company will pay a final dividend of $30,000 in August 2005.
X) Sperrabuck Ltd will purchase fixed assets for $20,000 in September 2005.
Xi The balance at bank on 30 June 2005 is $12000.
Prepare a cash budget for Sperrabuck Ltd for each of the four months July, August, September and October 2005. Prepare the budget in columnar form and make all calcualtions to the nearest $.
State three benefits which may be obtained from the preparation of budgets.
State three advantages that arise from preparing budgets from standard costs.
Please find the solution attached.
Three benefits which may be obtained from the preparation of budgets are:
1) Budgets provide a means of communicating management's plans throughout the organization
2) Budgets force managers to think and plan for the future. In the absence of budgets, managers would spend all of their time ...
The solution includes a word file and an excel file that answer the questions relating to the problem: The directors of Sperrabuck Ltd were concerned about the company's cash flows.They requested the account to prepare a cash budget for the four months ending 31 October 2005.