Cash budget

This is a real situation, using real data. One of the authors was asked to prepare a budget for his child's pre-school. The data has been adjusted.

On attending its first meeting in 20X9 you have been appointed honorary treasurer of the Ashmont Pre-School Kindergarten. The previous treasurer was a bank officer's wife, who has now moved interstate and thus can give you no assistance. Your first task is to prepare an annual budget for 20X9, and set the fees to be charged.

Ongoing through the treasurer's cardboard box containing cheque books, bank deposit books, raffle tickets, fees book, invoices, monthly bank reconciliation statements, postage stamps, etc., you discover a statement of cash receipts and payments for the previous year (shown on next page).

After making various inquiries of the teacher, parents on the 20X8 school committee and others, you arrive at the following conclusions:

(i) Salaries and wages are expected to increase by an average of 4% for 20X9.

(ii) You decide to allow 9% for general cost increases in 20X9 on recurrent expenditures other than salaries and wages and repairs and maintenance (to the building).

(iii) Repairs and maintenance should be about $2,000.

(iv) The Fete and other fund raising activities are unknowns and last year's results are your best guess for this year.

(v) Staff has been asked to purchase their own coffee and biscuits.

(vi) Government subsidies are likely to be reduced by $4,000 on last year's subsidies.

(vii) Purchases of assets to the sum of $5,000 are contemplated by the teacher, if the money is available.

(viii) A cash balance of at least $12,000 as at 31 December, 20X9 is necessary to cover salaries in January 20Y0 over the Christmas vacation.

(ix) No debtors' or creditors' balances exist at 1 January 20X9.

(x) The school can accept 75 children, 25 in each of three groups per week:

Group A: 3 mornings per week (9-12) Mon., Tue., Wed.

Group B: 2 mornings per week (9-12) Thu. Fri.

Group C: 4 afternoons per week (1.00-3.30) M,T,W,T.

It is expected that, because of heavy demand, each group will be filled to capacity. Friday afternoon is free for the teacher to carry out administrative duties.

Note that the problem presented here is adapted from the text data.

1. There are no bank or government charges levied on this account.

2. Past experience indicates that the piano needs tuning once every three years.

3. During the last 20 weeks of the year the lawns were mowed on 10 occasions at $40 per time. Previously parents had taken turns to mow the lawns but it had become increasingly difficult to get volunteers so that the mowing was contracted out.

4. Orange cordial and fresh fruit for children mid-morning and mid-afternoon, and includes $100 for coffee and biscuits for staff and visitors.

Required:

(a) Prepare a cash budget for the kindergarten to determine the total fees revenue required in 20X9.

(b) Calculate the annual fees required per child from each group, where the different groups are charged on the basis of their fair share of the total teaching time available.

(c) It is possible that some of these forecasts could change. Discuss the role of sensitivity analysis in budgeting.

The following spreadsheet template will be useful.