Reference no: EM13341187
Budgeting
Pandorica Ltd has provided the estimates below for the October-December quarter in 2014:
October November December
$ $ $
Sales 55,000 63,000 57,000
Purchases 31,000 36,000 29,000
Operating expenses 20,000 21,000 23,500
You are also given the following additional information:
50% of sales are cash sales, the remaining 50% are credit sales and are collected as follows:
25% in the month of sale
40% in the month after sale
30% 2 months after sale
5% lost in bad debts
· Sales in the months of August and September were $53,000 and $51,500 respectively.
· Operating expenses include depreciation each month of $1,350. All expenses and purchases are paid for in the same month they are incurred.
· The firm expects to sell some old machinery for $11,000 in October. New machinery worth $38,000 will be purchased in November (depreciation expense will not change as a result).
· The cash balance on 30th September 2014 is $2,500.
REQUIRED:
a) Prepare a cash budget for PandoricaLtd for the three months October to December 2014. Show all workings.
b) Pandorica Ltd is budgeting for a cash deficit at the end of one of the months included in their cash budget. Explain how PandoricaLtd could prepare for this forecasted deficit. (maximum 150 words)
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