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Cash Budgets Practical Problems and Solutions - Desklib

   

Added on  2020-03-23

5 Pages770 Words603 Views
Answer 1.(a)The cash budget of the months March, April and May is as follows:Cash budgetParticularsMarchAprilMayOpening cash balance500007507500ReceiptsCash sales200003500045000Received from debtors8250096250103750Cash available152500132000156250PaymentsPurchase of motor van5000050005000Payment to creditors630007500082000Salaries105001200014000Fixed overhead270003150037800Salesman commission125010001750Total payments151750124500140550Closing balance750750015700(b) Budgeting means forecasting the expenses and revenues and planning accordingly forthe month. It is important to create a plan so that there is no lack of cash at the time ofneed (Shim, Siegel and Shim, 2013).The importance of cash budgeting are-(i)The company knows how much cash is available with it at present. It plans andlimits expenditures accordingly. This plan also helps to eliminate the wastefulexpenditures and helps the company in identifying the important areas ofexpenditure.(ii)Budgeting helps in creating plan for future growth. A company is able to developsavings habit with the help of this planning procedure which further helps thebusiness to grow and expand. Therefore, there is also an increase in the size of thecapital of the company(Lalli, 2012).(iii)Budgeting helps in creating a financial roadmap for the company. The companyreviews the past budgets prepared and studies the variances. The reason for thisvariance is identifies and the preventive measure is taken in order to improve. If itis observed that there is too much variance in the budget then it will depict theinefficiency of the management and that the business situation is negative.(iv)There are many companies that use accounting softwares but these softwares arenot very accurate in preparing budgets as there are lot of information that has to betaken into consideration for preparing an efficient budget (Izhar and Hontoir,2001).Answer 2.

(a)Calculation of total profit if order A is accepted.Normal productionParticularsSales75000Less: Variable costDirect material20000Direct labour10000Overhead5000Contribution40000Less: FixedOverhead8000Profit32000Order AParticularsSales12000Less: Variable costDirect material14000Direct labour7000Overhead3500Profit from order A-12500Total profit (A accepted)Profit from normal production32000Loss from acceptance of order A-12500Total profit (A accepted)19500(b)Calculation of total profit if order B is accepted.Normal productionParticularsSales75000

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