Question (1)

5 Marks

The treasurer of Systems Company has accumulated the following budget information for the first two months of the coming year:

March April

Sales. Dh450,000 Dh520,000

Manufacturing costs 290,000 350,000

Selling and administrative expenses 41,400 46,400

Capital additions 250,000

The company expects to sell about 35% of its merchandise for cash. Of sales on account, 80% are expected to be collected in full in the month of the sale and the remainder in the month following the sale. One-fourth of the manufacturing costs are expected to be paid in the month in which they are incurred and the other three-fourths in the following month. Depreciation, insurance, and property taxes represent Dh 6,400 of the probable monthly selling and administrative expenses. Insurance is paid in February and a Dh 40,000 installment on income taxes is expected to be paid in April. Of the remainder of the selling and administrative expenses, one-half are expected to be paid in the month in which they are incurred and the balance in the following month. Capital additions of Dh 250,000 are expected to be paid in March.

Current assets as of March 1 are composed of cash of Dh 45,000 and accounts receivable of Dh 51,000. Current liabilities as of March 1 are composed of accounts payable of Dh 121,500 (Dh 102,000 for materials purchases and Dh 19,500 for operating expenses). Management desires to maintain a minimum cash balance of Dh 20,000.

Prepare a monthly cash budget for March and April.