Accounting Business Reporting for Decision Making

CHAPTER 9 Budgeting 413

Required

a. Prepare a schedule of receipts from accounts receivable showing cash collections for

each quarter of 2018.

b. Prepare a cash budget (on a quarterly basis) for the 12 months ending 31 December 2018.

c. Assess the cash position of the entity for 2018.

9.51 Preparation of receipts from accounts receivable schedule and

cash budget    LO5, 6

Elvstrom Company prepares monthly cash budgets. Provided below is a set of relevant data

extracted from existing reports, and the sub-budgets for the two months of September and October

2018.

September October

Credit sales

Direct materials purchases

Direct labour

Manufacturing overhead

Marketing and administration expenses

Proceeds from sale of old equipment

Cash payment for new IT equipment

$314 000

162 000

51 400

21 600

39 000

16 500

$412 000

216 000

55 200

23 400

39 000

8 200

All sales are on credit. Collections from accounts receivable normally have the following pattern:

60 per cent in the month of sale, 30 per cent in the month following the sale, and 10 per cent in

the second month following the sale. Fortunately, Elvstrom Company does not have much trouble

with bad debts.

Sales in June, July and August were $295 000, $266 000 and $302 000 respectively. Direct

material purchases are paid for in the month following the purchase. Purchases in August were

$182 000. Manufacturing overhead includes $12 500 for depreciation expense, while the marketing

and administration expenses include an amount off $5600 for depreciation expenses. Elvstrom

Company expects to be able to repay the principal on a $150 000 loan in October.

Required

a. Prepare a schedule of receipts from accounts receivable for the two months ending 31 October

2018.

b. Prepare a cash budget for September and October 2018. The cash balance at 31 August 2018

was $12 600.

c. As part of its longer term plans, Elvstrom Company was hoping to commence a product

reinvention program for one of its core products. The project would require an initial cash

commitment of $30 000. Management was hoping to fund this from the cash flows of the

business. Does this seem feasible?

9.52 Budgeting and sales increase    LO4, 7

At the recent finance committee, the Chief Operating Officer advised the marketing department

that a 10 per cent increase in sales is expected for the coming year. The increase is to apply to all

product lines.

Required

a. How would this directive impact on the preparation of next year’s budget?

b. What are the potential behavioural effects on employees from this directive?

9.53 Preparation of receipts from accounts receivable schedule and

cash budget    LO5, 6

Ken Martin, manager of Lonnie Car Repairers, has requested that you prepare a cash budget for

the months of December and January. He has provided the following information to assist in this

task.