Oman Mills SAOG wishes to arrange overdraft facilities with its banker -Bank Dhofar during the period July 2020 - June 2021 when it will be manufacturing mostly for stocks As cash budget is one of the crucial budgets for an organization, as it forecast cash position from time to time for a short period or a long period, as it helps coordinating activities of different segments because entire requirement of liquid funds needs to be taken into account while preparing this budget; as because this characteristic of the cash budget, the Manager of Bank Dhofar asked the CEO of Oman Mills SAOG to provide a Cash Budget for one year (July 2020-June 2021) to understand the company's cash position at the end of each month for next one year; to decide on overdraft facility to the company. For this purpose, the finance manager of the company asked you to forecasts a monthly cash position for one year based on the following information obtained from the books of accounts. (1) Sales forecast for different months are: Months Sales Amount in Months Sales Amount in OMR OMR July 2020 920,000 February 2021 1,000,000 August 2020 960,000 March 2021 960,000 September 2020 1,000,000 April 2021 840,000 October 2020 1,040,000 May 2021 800,000 November 2020 880,000 June 2021 720,000 December 2020 920,000 July 2021 800,000 January 2021 900,000 (1) Estimated cash balance on 1 July 2020 is OMR 600,000 (2) Share premium at 5% on OMR 400,000 Equity shares to be received on 1 August 2020, (3) The company has to pay the last installment of tax due for the previous year amounted to OMR 25,000 on 31 December 2020. (4) Realization from Sales as follows: 30% immediately, 20% one month later, 20% two months later, 25% three months later and balance represents anticipated bad debts. (5) A6% discount will be given to customers those paid cash immediately on sales. (6) The company adopts a uniform pricing policy for the materials purchased. The company estimates that cost of materials purchased would be 65% of following month's sales. The payment for purchases will be made in the month following month of receipt of materials (7) Estimated Direct Wages amount equals to 30% of sales amount. Wages will be paid in the month in which the production occurs. (8) Fixed overheads are estimated at OMR 72,000 per annum, are expected to be incurred in equal amounts each month. 70% of the fived overheads costs will be paid in the month in which they are incurred and 10% in the following month. The balance represents depreciation of noncurrent assets (9) Estimated that variable production overheads equals to 40% of sales amount And, Selling and Distribution overhead at 20% of Sales amount (10) 40% of Variable Production and 60% Selling and Distribution overheads will be paid in the month in which occurs and reminder will be paid in the subsequent month
