Question

Glob and Dream Company provides the budgeting information for the first two quarters of the coming year 2020;

	First quarter	Second quarter
No of sales	unit 22,500	unit 20,800
Purchasing costs	RM 290,000	RM 350,000
Capital Additions (new machine)	RM 250,000	__--------___
Selling and Administrative expenses	RM 41,400	RM 46,400

The company expects to sell their units in the first quarter by RM 20 per unit and the price will increase by 25% in the second quarter. Based on the past experiences, the sales department in the company expects to sell about 35% of the total products for cash and only 80% of the sales on account will be collected in full in the first quarter and the remainder in the second quarter.

The company comes to an agreement with the suppliers that one-fourth of the total purchase in each quarter will be paid in the same quarter and the balance will be paid in the following quarter. Amongst the quarterly selling and administration expenses RM6,400 presents property taxes and depreciation. The property tax will be paid by the end of the third quarter however, RM40,000 part of income taxes will be paid on the second quarter. Of the remainder of the selling and administrative expenses; 50% will be paid in the quarter in which they are incurred and the other 50% will be paid in the following quarter. The company has a plan to expand its business and buy a new machine which will cost RM250,000 and it will be paid in the first

The beginning balances in the first quarter are Cash RM45000, Accounts receivable RM51000 and Account payable RM121,500 (RM102,000 for materials purchases and RM19,500 for selling and administrative expenses). Based on the company policy, it is important to maintain a minimum cash balance of RM 25,000 at the end of each quarter.

Required:

Prepare the cash budget of this company for the first and second quarter of the year 2020

Answer 1

Solution:

Workings: