You are provided with the subsequent information relating to Cello Ltd. The accountant is currently preparing the budget for the next three months ending 30 June 2010.
|
Month
|
Sales ($)
|
Materials ($)
|
Wages ($)
|
Overheads
|
|
February
|
14 000
|
9 600
|
3 000
|
1 700
|
|
March
|
15 000
|
9 000
|
3 000
|
1 900
|
|
April
|
16 000
|
9 200
|
3 200
|
2 000
|
|
May
|
17 000
|
10 000
|
3 600
|
2 200
|
|
June
|
18 000
|
10 400
|
4 000
|
2 300
|
a) The credit terms are as provided: 10% sales are cash, 50% of the credit sales are collected next month and the balance in the given month.
b) For the subsequent items of expenditure, the credit terms are as follows:
|
Materials
|
2 months
|
|
Wages
|
1 month
|
|
Overheads
|
1 month
|
c) Cash and bank balance on 1st April 2010 is expected to be $6 000.
d) Other relevant information:
i. Plant and Machinery will be installed in February 2010 at a cost of $96 000. The monthly instalments of $2 000 is payable as from April onwards,
ii. A dividend of 5% on the ordinary share capital of $200 000 will be paid on 1st June.
iii. An advance receipt of $9 000 is expected in June and will relate to the sale of vehicles.
iv. Dividends from investments amounting to $1 000 are to be received in May.
v. An advance payment of income tax is to be paid in June of $2 000.
Required:
a. Create a cash budget for the three months ending 30 June 2010.
b. Briefly decribe the benefits of a cash budget.