Reference no: EM133015512
Question - Red Ltd prepares monthly cash budgets. Relevant data from operating budgets for 2021 are:
|
|
January
|
February
|
|
Sales
|
$160,000
|
$195,000
|
|
Direct materials purchases
|
60,000
|
70,000
|
|
Direct labour
|
30,000
|
35,000
|
|
Manufacturing overheads
|
20,000
|
25,000
|
|
Selling and administrative expenses
|
15,000
|
18,000
|
All sales are on credit basis. Collections are expected to be 40% in the month of sale, 30% in the first month following the sale, and 25% in the second month following the sale. Direct material purchases are paid in cash in the month following the month of purchase.
All other items are paid in the month incurred.
Depreciation $12,000 has been excluded from manufacturing overhead.
Other relevant data are:
Credit sales: November 2020, $140,000; December 2020, $150,000.
Purchases of direct materials: December 2020, $ 65,000
Other receipts: Proceeds from the sale of investments $15,000 will be collected in February 2021.
Other disbursements: Payment for the purchase of office furniture $20,000 will be paid in February 2021.
The cash balance on 1 January 2021 is expected to be $30,000.
Red Ltd wishes to maintain a minimum cash balance of $60,000 and any shortage will be met by way of a bank loan. The loan will be repaid with interest at 5% per annum.
Required -
1. Prepare cash budget for January and February 2021 for Red Ltd.
2. What is the key difference between a Cash Budget and a Cash Flow Statement?