Describe briefly the advantages of preparing cash budgets.


Question Description:

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Preparation of cash budgets The following data and estimates are available for ABC Limited for June, July and August. June July August (£) (£) (£) Sales 45000 50000 60000 Wages 12000 13000 14500 Overheads 8500 9500 9000 The following information is available regarding direct materials: June July August September (£) (£) (£) (£) Opening stock 5000 3500 6000 4000 Material usage 8000 9000 10000 Notes: 1. 10% of sales are for cash, the balance is received the following month. The amount received in June for May’s sales is £29 500. 2. Wages are paid in the month they are incurred. 3. Overheads include £1500 per month for depreciation. Overheads are settled the month following. £6500 is to be paid in June for May’s overheads. 4. Purchases of direct materials are paid for in the month purchased. 5. The opening cash balance in June is £11 750. 6. A tax bill of £25 000 is to be paid in July. Required: (a) Calculate the amount of direct material purchases in each of the months of June, July and August. (b) Prepare cash budgets for June, July and August. (c) Describe briefly the advantages of preparing cash budgets.

Answer

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