Question

The management accountant of Bucks Ltd has prepared its draft budgeted profit statement for the quarter ended 30^th September 2023, as shown below.

	July	August	September
Sales	114,000	102,000	118,000
Purchases	72,000	65,000	88,000
Gross Profit	42,000	37,000	30,000
Wages	25,000	25,000	24,000
Overheads	16,000	15,000	16,000
Net Profit / (Loss)	1,000	(3,000)	(10,000)

The following additional information is relevant:

• Forty percent of sales are on cash basis, with the remainder being collected the month after. Bucks Ltd allows a 5% discount on all its cash sales. Sales in June amounted to 120,000 and no bad debts are anticipated.
• Purchases are settled one month in arrears. Purchases in June were 76,000.
• Wages are paid in the month they are incurred.
• Overheads include a fixed monthly depreciation charge of 2,000 and are paid one month in advance. Overheads in October 2023 are expected to be 14,000.
• The company intends to pay a dividend of 5,000 in September.
• The cash balance on 1^st of July 2023 is 2,000.

(a) Given the above information, prepare a cash budget for the 3 months July to September 2023.

(b) Critically evaluate the cash budget that you have prepared for Bucks Ltd above. In your answer, you should also discuss possible remedial action that Bucks Ltd could take in relation to the cash budget you have produced.