Question 4:

a) You are presented with the following information relating to the preparation of Jones Ltd.s cash budget for the period ending 31 December 2021:

• Budgeted sales are as follows: $800,000 (Quarter 1), $920,000 (Quarter 2), $960,000 (Quarter 3) and, $1,000,000 (Quarter 4). The total sales for Quarter 4 of the previous period were $720,000. 60% of sales are for cash. Collections of credit sales from customers are 75% of credit sales in the quarter of sale and 23% of credit sales in the quarter following the sale. The remaining 2% of credit sales are considered uncollectable and are written off as bad debts at the end of the quarter after the credit sale occurred.
• Jones Ltd has a 30% investment interest in Jemma Ltd. It is expected that Jemma Ltd will declare dividends on 31 March 2021. Dividends declared are paid within 4 weeks after the end of the financial reporting period. Jemma Ltd has a 31 March end-of-financial reporting period. The total estimated dividend to be paid by Jemma Ltd is $450,000. Jones Ltd is entitled to 30% of this dividend.
• Budgeted material purchases are as follows: $140,000 (Quarter 1), $174,000 (Quarter 2), $200,000 (Quarter 3), and $210,000 (Quarter 4). The total material purchases in Quarter 4 of the previous period were $150,000. All material purchases are made on credit. 80% of purchases are paid in the quarter they are purchased in and 20% in the quarter following purchase.
• The following costs/expenses were budgeted for:

	Quarter
	1	2	3	4
Direct labour (hours)	10,000	11,500	12,500	13,000
Marketing expenses ($)	50,000	45,000	40,000	65,000
Administrative expenses ($)	200,000	220,000	220,000	230,000
Income tax payment ($)		300,000

• The cost of direct labour is $20 per hour.
• Manufacturing overhead is applied to products based on direct labour hours. The total budgeted manufacturing overhead cost is $1,175,000 which includes $45,000 per quarter depreciation expenses. Total budgeted labour hours is 47,000 hours.
• Marketing expenses include $5,000 depreciation per quarter and administration expenses include quarterly depreciation of $50,000.
• All expenses and labour costs are paid in the quarter incurred.
• Jones Ltd will pay dividends of $130,000 in Quarter 2.
• To innovate and grow, Jones Ltd is planning to build a new plant shortly. In anticipation of these changes, Jones Ltd purchased equipment at a cost of $130,000. The equipment will be paid for in full in Quarter 2.
• Jones Ltd has a cash balance of $350,000 at the start of Quarter 1 and would like to maintain a minimum end-of-quarter cash balance of $40,000.
• Short-term finance is available in multiples of $10,000 at an 8% per annum interest rate. Borrowings take place at the beginning of the quarter, while all repayments take place at the end of the quarter. Interest payments are made for the amount outstanding at the beginning of the quarter (including new borrowing for the quarter) Repayments are made in multiples of $10,000.

Task

Prepare a cash budget of Jones Ltd for the period ending 31 December 2021. Use whole numbers when rounding.