QUESTION 2 (12 Marks)

The Accounts Manager of Farhan Enterprise has assembled the following data to prepare the firms cash budget for July, August and September.

• Cash balances on June 30, is RM10,000. Minimum cash balance required is RM10,000.

• Net sales:

Actual: April RM 80,000 Forecasted: July RM120,000

May 90,000 August 140,000

June 100,000 September 150,000

• All sales are on credit. The credit manager collects 50 percent of account receivable in the month of sale, 40 percent in the month following sale, and 8 percent in the second month following sale and 2 percent are uncollected.

• Cost of goods sold: 70 percent of monthly net sales.

• Purchase of raw materials and component parts account for 40 percent of the cost of goods sold. The firm pays for 80 percent of purchases in the month of purchases and 20 percent of purchases the month following purchase.

• Direct labor and factory overhead are 35 percent and 25 percent respectively of the cost of goods sold.

• Equipment purchased RM20,000 will be paid out in August.

Prepare the cash budget of Farhan Enterprise for July, August and September