Question

1. A survey of Australian organisations on the degree of satisfaction with budgeting systems found that many organisations (almost 40%) were negative about the value of their firm’s budgeting system. What are some possible reasons for this negativity about the value of budgeting systems? Given this negativity, should firms simply reduce their focus on budgets? Discuss.

2. The following information has been obtained from the financial records of Albury Ltd, a retailer of cosmetic products:

	Sales	Purchases
June	$60,000	$36,000
July	$78,000	$54,000
August	$66,000	$60,000

• Receipts from customers are normally 70 percent in the month of sale, 20 percent in the month following the sale, and 9 percent in the second month following the sale. One percent of all sales are expected to be uncollectable.
• All purchases are paid for in the month following the purchase.
• Cash payments for expenses (other than purchases) are expected to be $14,400 for the month of August.
• Albury’s cash balance on 1 August was $22,000.

Required

Prepare a cash budget for August that identifies the expected cash receipts, cash payments and ending cash balance on 31 August.

Answer 1

Cash Budget for August
Opening Cash Balance	22,000
Add: Expected Cash Receipts*	67,200
Total Available Cash	89,200
Less: Expected Cash Payments for Purchases**	54,000	(Payment made for July Purchases)
Less: Expected Cash Payments for Others	14,400
Ending Cash Balance	20,800
Expected Cash Receipts*:
For August Sales(66000*70%)	46,200
For July Sales(78000*20%)	15,600
For June Sales(60000*9%)	5,400
Total	67,200