PALATIAL Ltd will commence trading in September 2021 with Share Capital of £45,000. It is forecasted in September 2021 that the company will spend £140,000 on equipment and will take out a loan of £125,000. Repayments of principal and interest are £3,650 per month. Sales are expected to be £60,000 per month for the first three months. All sales are for cash. Opening Inventory at the beginning of September is forecasted to be £30,000 and is paid in September. Inventory purchases are estimated to be 30% of sales each month. Suppliers are paid one month in arrears. Wages are forecast to be £20,000 per month, payable in the month they are incurred. Salaries will be £10,000 per month payable in the month they are incurred. Overheads are forecast to be £10,000 per month and paid one month in arrears. Rent is £28,000 per year payable annually in advance. Required: a) Produce a Cash budget for the period September to November 2021 which shows the cash balance at the end of each month. b) Discuss the cash flow problems will the company face over the next three months and how might the company deal with them? c) Discuss the differences between fixed and flexible budgets
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
PALATIAL Ltd will commence trading in September 2021 with Share Capital of £45,000. It is forecasted in September 2021 that the company will spend £140,000 on equipment and will take out a loan of £125,000. Repayments of principal and interest are £3,650 per month.
Sales are expected to be £60,000 per month for the first three months.
All sales are for cash.
Opening Inventory at the beginning of September is forecasted to be £30,000 and is paid in September. Inventory purchases are estimated to be 30% of sales each month. Suppliers are paid one month in arrears.
Wages are
Rent is £28,000 per year payable annually in advance.
Required:
a) Produce a
b) Discuss the
c) Discuss the differences between fixed and flexible budgets.
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