Discuss the benefits and limitations of budgets

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Reference no: EM133627383

Assignment

After completing the first task, your supervisor has asked you to work with a client named Miss. Bennet to assist her in preparing a cash budget. It can be used to inform efficient resource allocation and support effective control and decision-making, Miss. Bennet starts a small business cleaning office on a trading estate in Amman, Jordan.

If you know that the Fiscal year begins on 01/01 and ends on 31/12, and the account balances of beginning year are as follows:

Account	£
Cash	400,000
Accounts receivable	50,000
Accounts payable	60,000
Selling and General administrative expenses	50,000

In addition, the company estimates its sales and purchases for the next three months, from the beginning of the January to the end of April according to the following schedules:

Month	Budgeted Sales	Budgeted Purchases
January	£120,000	£600,000
February	£250,000	£120,500
March	£160,000	£70,000
April	£260,000	£160,000
Total	790,000	415,000

Instructions:

From the data given above Prepare a cash budget using a spreadsheet. Considering the information listed below.

1) Preparing a Scheduled of expected cash collection proceeds from sales, if you know that the company's policy when selling states that 70% of sales are collected during the month of sale, and 30% of sales are collected during the following month.

2) Prepare a Scheduled of expected cash disbursement for purchases, if you know that the company pays 50% of the purchases during the month of purchase and pays 50% of the purchases during the following month.

3) Management would like to have a cash balance at least 3,000 at the beginning of each Month.

4) The board of director has approved cash dividend of 4,000 for March.

5) Management planes to spend 8,000 on equipment purchase on April.

Discuss the benefits and limitations of budgets and budgetary control systems for the given business. Identify the cash problem revealed by budgetary planning that might facing in businesses and recommend corrective actions that can be taken by management by justifying how that solution can ensure better decision making and efficient use of resources in business.

Reference no: EM133627383

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