the entity and have been tasked to prepare the cash budget for the business for the quarter ending Mar
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.
Pelican Merchandising & More is a family-owned store. The business is now approaching the
end of the year and is in the process of identifying its cash needs for the first quarter of the new
year. You are the
budget
(i) Extracts from the sales and purchases budgets are as follows:
Month
2021 - 2022
Cash
Sales
Sales
On
Account
Cash
Purchases
Purchases
On
Account
November 2021 $138,100 $480,000 $345,000
December 2021 $156,500 $600,000 $25,800 $380,000
January 2022 $170,975 $650,000 $44,625 $400,000
February 2022 $135,740 $700,000 $30,400 $480,000
March 2022 $226,420 $800,000 $55,100 $540,000
Upon receipt of the budget, the team manager, June Jackson, has now informed you that, in
keeping with industry players, the management of Pelican Merchandising have indicated an
industry requirement to maintain a minimum cash balance of $185,000 each month. She
has also noted that management is very keen on keeping the gearing ratio of the business
as low as possible and would therefore prefer to cushion any gaps internally using equity
financing.
Based on the budget prepared, will the business be achieving this desired target? Suggest
three (3) internal strategies that may be employed by management to improve the
organization’s monthly cash flow and militate against or reduce any possible shortfall
reflected in the budget prepared. Each strategy must be fully explained.
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