Prepare a Cash Budget for the months June to August showing clearly opening and closing bank balances for each month

Aidan Connelly runs a successful business in St Andrews. Demand for his products is
expected to increase in the coming months. Aidan has estimated the following for
the months May to August Year 2:
(1) The estimated opening balance at 31 May is £5,000.
(2) Sales (in units) will be:
May June July August
3,200 3,500 4,000 3,800
• The selling price for credit sales will be £80 per unit and cash sales will be
£10 less per unit.
• 40% of monthly sales units will be sold on a cash basis, with the remainder
sold on one month’s credit.
(3) Production (in units) will be:
May June July August
3,600 3,700 4,100 3,850
(4) Unit data:
• Labour – £32 per unit
• Material – £18 per unit
• Variable overheads – £8 per unit
(5) Labour will be paid for in the same month as production.
(6) A bonus of £16 per unit will be paid for production above 3,500 units. The bonus
payment will be paid in the month following production.
(7) Materials will be purchased in the same month as production and paid for one
month later.
(8) Variable overheads will be paid for in the same month as production.
(9) Fixed costs will be £7,000 per month.
(10) Aidan currently leases equipment for £1,200 per month. He has signed a new
contract to lease more equipment from July and the new total monthly cost will
be 50% higher than the current monthly cost.
(11) Aidan receives an enterprise grant for £10,000 in July.
(a) Prepare a Cash Budget for the months June to August showing clearly opening
and closing bank balances for each month.
(b) Describe 2 benefits to Aidan of preparing a Cash Budget.
(c) Other than Cash Budgeting, state 2 roles of a Management Accountant.


 

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