problem 1: Given below are details of some of the budgets of Calissse Limited for the eight months ending 28 February 2012:

Notes:

A) Units are purchased at standard cost of Rs 60 each. Purchases are planned and hence at the end of each month the stock is adequate to meet the forecast sales target for the given two months.

B) All sales are made at a price of Rs 100 per unit. One half of sales are made for instant cash settlement. The remainder of sales is on credit. Receipts from credit sales are as shown: 75 % in the month following sale and 25 % in the month after that.

C) All purchases of units are made on one month’s credit.

D) Wages and overheads are paid as incurred. From 01 October 2011 a wages increase of 10 % has been agreed. This pay rise was agreed only after the budget was prepared and is not comprised in the figure given above.

E) The company is repaying a bank loan at the rate Rs 30,000 per month Interest on the loan is paid in September and December 2011 that is expected to be Rs 45,000 and Rs 40,000 correspondingly. Interest on the bank overdraft due in December 2011 is estimated to be Rs 3,000.

F) In September 2011 Rs 40,000 will be paid as a 10 % deposit on a new machine. In December 2011 whenever the machine is to be installed the balance due will be paid.

G) Tax of Rs 150,000 has to be paid by the company on 1 December 2011.

H) This is estimated that the stock at 1 July 2011 will be 17,500 units and at 1 September 2011 the cash at the bank will be Rs 24,000.

Required:

a) A cash budget for the four months of September, October, November and December 2011.

b) In brief describe the significance of preparing a cash budget.