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21-08-2018

Product code: Accounts-AW344

 

Accounting for Managers

 

 1 You have the following information about a H Ltd, a new business:

 

 

Budgeted sales

Credit

 

Budgeted Cash sales

 

 

 January, 2014

 

 

 

 

 

 

 

 

 

 

 

 

40,000

 

30,000

 

February

45,000

 

20,000

 

March

 

 

50,000

 

 

 

 

25,000

April

55,000

 

30,000

 

 

 

 Collections on credit sales average 40 percent in the month of sales and the remaining 60 percent in the month following the sales.

 

Cost of sales (purchases) averages 60% of total sales revenue.

Twenty percent of cost of sales is on cash basis, and 80 percent is paid in the month following purchases.

Other operating expenses according to the forecasted income statement follow:

 

January

 

 

February

 

March

 

 

 Wages and salaries

 

 

 

 

 

 

 

$18,000

 

 

 

 

 

 

 

$18,000

 

 

 

 

 

 

 

$18,000

 

 

 

 

 

 

 

Office rent

 

 

 

 

 

 

6,000

 

 

 

 

 

 

6,000

 

 

 

 

 

 

6,000

 

 

 

 

 

 

Insurance

 

 

 

 

 

1,000

 

 

 

 

 

1,000

 

 

 

 

 

1,000

 

 

 

 

 

Utilities

 

 

 

 

2,000

 

 

 

 

2,000

 

 

 

 

2,000

 

 

 

 

Other operating costs

 

 

 

5,000

 

 

 

5,000

 

 

 

5,000

 

 

 

Depreciation

 

 

3,000

 

 

3,000

 

 

3,000

 

 

Interest expense

 

500

 

500

500

 

The insurance expense is paid in January each year in advance for the whole year ($12,000 per year).

The office rent is paid quarterly in advance starting January each year.

In March, the company plans to sell some old equipment and estimates it will received $10,000 from the sale.

 

At the same time, it must spend $30,000 on new equipment. The beginning cash balance on Jan 1 is $10,000. (Cash payment : March)

Required:

a) Prepare the business’s cash budget for each of the three months: January,

 

b) Give three recommendations on how you could improve the cash flow of H Ltd.

Download Questions

Three Recommendations are:- a) Improve credit sales collection from 40% to 60%. b) Improve credit period to 30 days. c) New equipment payment shoudl be made in instalments.

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