Question
You are the Management Accountant of Cari's shoe store and you are involved in the budgetary process, including operating and financial budgets, for the income
You are the Management Accountant of Cari's shoe store and you are involved in the budgetary process, including operating and financial budgets, for the income year ending December 2020. One component of the financial budget is the cash budget. The opening cash balance on 1st January was expected to be $30000. The sales budgeted were as follows:
Month $
November 80000
December 90000
January 75000
February 75000
March 80000
Analysis of records shows that debtors settle in the following pattern:
60%-------------Within the month of sale
25%-------------The month following
15%-------------The month following
Extracts from the purchases budget were as follows:
Month $
December 60000
January 55000
February 45000
March 55000
All purchases are on credit and past experience shows that 90% are settled in the month following purchase and the balance settled the month after.
Wages are $15000 per month and overheads are $20000 per month (including $5000 depreciation) are settled monthly.
Taxation of $8000 has to be settled in February and the company will receive settlement of an insurance claim of $25000 in March.
Required:
1. Prepare cash budget for each of the months January, February, and March (15 marks)
2. Prepare cash budget for the period January to March (5 marks)
3. Cari's need to maintain a minimum cash balance of $ 20000. Will Cari's be able to maintain such a minimum balance for each month? If not, what cash management strategy do you recommend and why? (10 marks)
4. What are the benefits of a detailed cash budget? (10 marks)
5. Provide three (3) differences between a cash budget and an Income statement. (10 marks)
6. How would an event such as a global pandemic affect the Budget process at Cari's? (10 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started