Question 1

Steel Restaurant Supply sells various equipment and supplies to restaurants in the local and surrounding communities. The companys executive, Mr. Daniel, has requested your help in preparing a cash budget for the month of May and June. Mr. Daniel accumulated the following information for you.

1. The cash balance at May 1 was estimated to be RM120,000.

2. Actual sales of April and budgeted sales for May and June are as follows:

	April	May	June
	Actual	Budgeted
	RM	RM	RM
Cash sales	53,000	58,000	65,000
Credit sales	73,000	90,000	100,000
Total sales	126,000	148,000	165,000

3. Credit sales are collected over a two-month period. With 60% being collected in the first month and the remainder being collected in the second month.

4. Inventory purchased are expected to be 70% of total sales every month. The purchases are fully paid in the month of purchased.

5. Selling and administrative expenses are budgeted to be RM42,000 every month. Of that amount, 20% is depreciation.

6. Equipment costing RM42,000 will be purchased in May for cash.

7. Dividends in the amount of RM40,000 will be paid in the month of June.

8.The company wants to maintain a minimum cash balance of RM50,000 and has set up a line of credit at the local bank that can be used to cover any shortage. If the company must borrow, the loan will be made at the beginning of the month (that not achieve the minimum cash balance) and any repayment will be made on the following month.

Required:

(a) Prepare the Cash Collections Schedule for the month of May and June.

(b) Prepare the Cash Payments Schedule for the month of May and June.

(c) Prepare the Cash Budget for the month of May and June.

(d) Define the term budget. How are budget used in planning?