Cash Budget -
The cash budget is prepared to ensure that sufficient cash resources are available to meet the requirements of the operations outlined in the various budgets. Cash budgets are normally drawn up on a monthly or even a weekly basis.
1. What is meant by cash resources?
2. How may a business increase its cash resources?
3. Why might the cash resources of a business decrease?
Master Budget (Budgeted Income Statement and Budgeted Balance Sheet) -
When all the budgets have been prepared, the budgeted Income Statement (Profit and Loss Account) will show the overall effect of the planned performance of the organisation for the whole period and the budgeted Balance Sheet will summarise the assets, liabilities and equity expected at the end of the budget period.
Comprehensive Example of Budgeting - Celsius Ltd
Celsius Ltd. is a new company, which will be incorporated on 1st February. The company will operate one production department in which it will manufacture one product, for which the following standard costs per unit have been calculated for the company's first three months:
|
£
|
|
Direct Materials
Direct Labour
Variable Production Overhead
|
21.00
10.00
3.00
|
Production and sales targets for the first three months are as follows:
|
Month
|
Production (units)
|
Sales (Units)
|
|
February
March
April
|
2,200
1,500
2,600
|
1,800
1,200
1,400
|
|
Total
|
6,300
|
4,400
|
Fixed production costs of £24,000 and fixed administration expenses of £9,000 for the three month period are expected to be incurred on an even basis with no credit being received.
The overheads do not include depreciation of production fixed assets, which will be bought and paid for on 1st February for £48,000. The company's depreciation policy is 10% per annum using the straight-line method. Depreciation is to be treated as a fixed cost. All other fixed assets will be leased. The cost of leasing fixed assets is included in the above costs.
Direct materials will be purchased during the month they are required for production and paid for during the following month. All other variable costs will be paid for during the month in which they are incurred.
Selling price will be £80.00 per unit. All sales will be on credit terms, with debtors (receivables) taking two months credit.
The company will issue 100,000 ordinary shares of £1 each at par on 1st February.
Required:
a. Complete the operational budgets and the cash budget on a monthly basis for the quarter (3 months) ended 30th April in as much detail as the information allows.
b. One budgeted income statement (profit and loss account), in accordance with accounting standards, for the whole of the quarter (3 months) ended 30th April (ignore taxation).
c. Comment on the budgeted figures.
Attachment:- Assignment File.rar