Reference no: EM133006680
Question - Green Ltd investigates budget variances on a quarterly basis. The following data is provided to you.
Estimated total sales: April $55,000 and May $50,000
Cash sales are estimated to be 20% of total sales. Debtors are expected to pay 50% in the month of sale and 45% in the month after the sale.
Estimated purchases: April $30,000 and May $36,000
All purchases are to be on credit and are to be paid for in the month following the purchase. Purchases for March were $22,000. Sales for the month of March were $14,000
Estimated operating expenses are:
Transport expenses paid in cash 15% of total sales.
Office salaries paid in cash: April $9,000, May $11,600.
Depreciation is charged at 25% per annum on new equipment purchased for $50,000 in April. The equipment was purchased on credit in April and will paid for in May.
Other information:
The owner contributed $75,000 as the opening balance of cash for the business in April.
The owner intends withdrawing $3,000 per month for private use.
The company wants to maintain a minimum cash balance of $25,000 and has set up a line of credit at the local bank that can be used to cover any shortage.
Required -
a. Prepare cash budget for the two months April and May.
b. List two problems that may be encountered in preparing a budget.
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