Improving Cash Budget for CooperWorld

This report aims to provide a comprehensive solution to CooperWorld's cash flow problems by implementing strategies such as making cash sales, reducing debtors' time, leasing equipment, and providing discounts on loans. By adopting these methods, CooperWorld can improve its cash budget, meet financial obligations easily, and contribute to a strong liquidity position.

RUNNING HEAD: PERFORMANCE MANAGEMENT
Budgeting

Performance management 1
Contents
Introduction...........................................................................................................................................2
Requirement 1.......................................................................................................................................2
Requirement 2.......................................................................................................................................5
Requirement 3.......................................................................................................................................6
Requirement 4.......................................................................................................................................6
Conclusion...........................................................................................................................................11
References...........................................................................................................................................12

Performance management 2
Introduction
The term budgeting is defined as a process of planning the use of cash and other resources for
future projects. A business prepares various types of budgets and planned its expenditures
and cash requirements for the projects that are going to happen in the near future. Types of
budgets include cash budget, sales and production budgets and the budgets for different types
of business overheads (Weikart, Chen and Sermier, 2012). This report contains preparation
various budgets along with the budgeted financial statements for the company which will be
incorporated on 1st January 2019, named as CooperWorld Ltd. It also explains the ways by
which CooperWorld can enhance its cash budget.
Requirement 1
(a) Production budget
CooperWorld
Ltd.
Production
Budget
Ja
n
Fe
b
Ma
r Apr May Jun Jul
Au
g
Se
p
Oc
t
No
v
De
c
Tot
al
Budgeted units
12
0
14
0
16
0 180 200 220
24
0
26
0
24
0
24
0
16
0
18
0
234
0
Add: closing
inventory 0 0 0 0 0 0 0 0 0 0 0 0 0
Total requirement
12
0
14
0
16
0 180 200 220
24
0
26
0
24
0
24
0
16
0
18
0
234
0
Less: opening
inventory 0 0 0 0 0 0 0 0 0 0 0 0 0
Required
production
12
0
14
0
16
0 180 200 220
24
0
26
0
24
0
24
0
16
0
18
0
234
0
Note:
It is assumed that there will be no opening and closing inventory because the company
will be producing only that much units which are required for sales
(b) Sales Budget
CooperWor
ld Ltd.
Sales

Performance management 3
Budget
Jan
Fe
b
Ma
r Apr May Jun Jul
Au
g
Se
p Oct
No
v
De
c
Tot
al
Budgeted
sales units
12
0
14
0
16
0 180 200
22
0
24
0
26
0
24
0
24
0
16
0
18
0
234
0
Selling
Price per
unit
30
0
30
0
30
0 300 300
30
0
30
0
30
0
30
0
30
0
30
0
30
0
Budgeted
sales (£)
36
00
0
42
00
0
48
00
0
5400
0
6000
0
66
00
0
72
00
0
78
00
0
72
00
0
72
00
0
48
00
0
54
00
0
702
000
(c) Material Purchase Budget
CooperWorld
Ltd.
Material
Purchase Budget
Ja
n
Fe
b
M
ar Apr May Jun Jul
Au
g
Se
p
Oc
t
No
v
De
c
Tot
al
Production
12
0
14
0
16
0 180 200 220
24
0 260
24
0
24
0
16
0
18
0
234
0
Material Per unit 1 1 1 1 1 1 1 1 1 1 1 1 1
Production
needed
12
0
14
0
16
0 180 200 220
24
0 260
24
0
24
0
16
0
18
0
234
0
Add: closing
inventory 0 0 0 0 0 0 0 0 0 0 0 0 0
Total needed
12
0
14
0
16
0 180 200 220
24
0 260
24
0
24
0
16
0
18
0
234
0
Less: opening
inventory 0 0 0 0 0 0 0 0 0 0 0 0 0
Material to be
purchased
12
0
14
0
16
0 180 200 220
24
0 260
24
0
24
0
16
0
18
0
234
0
Cost per unit 40 40 40 40 40 40 40 40 40 40 40 40
Budgeted
purchases (£)
48
00
56
00
64
00
720
0
800
0
880
0
96
00
104
00
96
00
96
00
64
00
72
00
936
00
Note:
It is assumed that material per unit required for producing desired units is £1 for each
and every month.
(d) Direct Labour budget
CooperWorld
Ltd.
Direct Labour
Budget
Jan Fe Ma Apr Ma Jun Jul Au Se Oc No De Tot

Performance management 4
b r y g p t v c al
Production units
12
0
14
0
16
0 180 200 220
24
0
26
0
24
0
24
0
16
0
18
0
234
0
Direct Labour
per unit 3 3 3 3 3 3 3 3 3 3 3 3
Labour hours
required
36
0
42
0
48
0 540 600 660
72
0
78
0
72
0
72
0
48
0
54
0
702
0
Hourly labour
cost 7 7 7 7 7 7 7 7 7 7 7 7
Total direct
labour cost
25
20
29
40
33
60
378
0
420
0
462
0
50
40
54
60
50
40
50
40
33
60
37
80
491
40
(e) Overheads budgets
CooperWorld
Ltd.
Production
overhead Budget
Jan
Fe
b
Ma
r Apr May Jun Jul
Au
g
Se
p
Oc
t
No
v
De
c
Tot
al
Budgeted
labour hours
36
0
42
0
48
0 540 600 660
72
0
78
0
72
0
72
0
48
0
54
0
702
0
Variable
production O/H
rate 5 5 5 5 5 5 5 5 5 5 5 5
Variable
production O/H
cost
18
00
21
00
24
00
270
0
300
0
330
0
36
00
39
00
36
00
36
00
24
00
27
00
351
00
Fixed
production O/H
99
00
99
00
99
00
990
0
990
0
990
0
99
00
99
00
99
00
99
00
99
00
99
00
118
800
Total
overheads
11
70
0
12
00
0
12
30
0
126
00
129
00
132
00
13
50
0
13
80
0
13
50
0
13
50
0
12
30
0
12
60
0
153
900
Less: non cash
item
60
0
60
0
60
0 600 600 600
60
0
60
0
60
0
60
0
60
0
60
0
Total
production
O/H
11
10
0
11
40
0
11
70
0
120
00
123
00
126
00
12
90
0
13
20
0
12
90
0
12
90
0
11
70
0
12
00
0
146
700
CooperWorld Ltd.
Distribution
overhead Budget
Ja
n
Fe
b
M
ar Apr May Jun Jul
Au
g
Se
p
Oc
t
No
v
De
c
Tot
al
Budgeted sales
12
0
14
0
16
0 180 200 220
24
0
26
0
24
0
24
0
16
0
18
0
234
0
Variable
overhead rate 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5

Performance management 5
Variable
expenses (£)
30
0
35
0
40
0 450 500 550
60
0
65
0
60
0
60
0
40
0
45
0
585
0
Fixed
expenses
39
00
39
00
39
00 3900 3900 3900
39
00
39
00
39
00
39
00
39
00
39
00
468
00
Total
distribution
O/H
42
00
42
50
43
00 4350 4400 4450
45
00
45
50
45
00
45
00
43
00
43
50
526
50
Requirement 2
CooperWorld
Ltd.
The Cash
Budget
Jan Feb
Ma
r
Ap
r
Ma
y
Ju
n Jul
Au
g Sep Oct
No
v Dec
Tot
al
Beginning
cash balance 0
-
820
-
248
10
-
143
70
50
0
19
80
0
435
30
716
90
104
280
142
840
188
200
230
640
Total cash
collections
Receivables
collection
360
00
420
00
48
00
0
54
00
0
600
00
660
00
720
00
780
00
720
00
720
00
600
000
Other income
108
900
108
900
Issue of
shares
20
00
0
200
00
Total
collections
20
00
0
-
820
111
90
276
30
48
50
0
73
80
0
103
530
137
690
176
280
220
840
260
200
411
540
728
900
Less: cash
disbursement
s
Direct
material
purchase
480
0
560
0
640
0
72
00
80
00
880
0
960
0
104
00
960
0
960
0
640
0
864
00
Direct labor
cost
25
20
294
0
336
0
378
0
42
00
46
20
504
0
546
0
504
0
504
0
336
0
378
0
491
40
Production
overhead
11
70
0
120
00
123
00
126
00
12
90
0
13
20
0
135
00
138
00
135
00
135
00
123
00
126
00
153
900
Distribution
overhead
42
00
425
0
430
0
435
0
44
00
44
50
450
0
455
0
450
0
450
0
430
0
435
0
526
50
Asset
purchase
24
00
240
0
Total
disbursemen
20
82
239
90
255
60
271
30
28
70
30
27
318
40
334
10
334
40
326
40
295
60
271
30
344
490

Performance management 6
ts 0 0 0
Excess
(deficiency)
-
82
0
-
248
10
-
143
70 500
19
80
0
43
53
0
716
90
104
280
142
840
188
200
230
640
384
410
384
410
Ending cash
balance
-
82
0
-
248
10
-
143
70 500
19
80
0
43
53
0
716
90
104
280
142
840
188
200
230
640
384
410
384
410
Requirement 3
CooperWorld Ltd.
Income statement
Particulars
Amoun
t
Sales (2340*300) 702000
Less: cost of goods sold (2340*76) 187740
Gross profit 514260
Distribution and administration expenses 52650
Depreciation 600
Net income 461010
CooperWorld Ltd.
Balance sheet as on December 2019
Particulars Amount
Assets
Cash 384410
Accounts receivables 102000
Property and Equipment 1800
Total assets 488210
Liabilities
Accounts payable 7200
Issued capital 20000
Net income 461010
Total Liabilities 488210
Requirement 4
(A) Budgeting is a considered as a very important function of a business. Companies that
does not prepare budgets for themselves, faces number of financial problems. It the most
commonly used management accounting tool and has many uses in the modern business
world. The key uses which are been stated in the academic literature are planning and

Performance management 7
controlling. Apart from these, use of budgets also produce some other benefits to the
business, in today’s era (Edey, 2014). Following are:
 Budgets are mostly used for the purpose of planning, which provides directions to the
business. They help the organization to collect the information required for making a
plan, including all the related items and expenses. By preparing a budget,
management comes to know about the cost and expenses which are to be incurred in
implementing the plan. Such planning helps in estimating the future business
conditions and avoiding the uncertainties (Dugdale and Lyne, 2010).
 They also help in establishing control within the organization and is used a tool for
measuring performance against the set and predetermined targets. The actual
performance of the business can easily be compared with the budgeted one by
preparing suitable and appropriate budgets. Such comparison helps in better
management and control of business activities (Dlabay and Burrow, 2007).
 Budgets are also used as a medium of communication and interaction between the
various departments and employees of an organization. As the departments are
interdependent of each other, budgets stimulates coordination in their activities. Every
division of the organization prepared a budget for itself which communicate the
financial plans across the different parts of the firm. Thus, reflecting how the different
units of the business are properly managed and are working together towards the
integrated plan of the organization, in order to achieve the set targets (Horner, 2017).
 If budgets are prepared correctly and appropriately, it may results into enhancing the
motivation among the employees and managers of the organization. Knowing the
predetermined target will motivate the employees to work in a correct direction and
also to increase their performance (Atrill, McLaney and Harvey, 2014).

Performance management 8
Thus, it can be said that, preparation of budgets is very necessary for the companies in
today’s business world. Reason being, they guide the business in correct direction and
help in achieving greater success. CooperWorld Ltd., being a new company, prepared
sales, cash production and overheads budgets. This will help the company to know about
their expected cash inflow and outflow along with the expenses and purchases required
for the purpose of production.
(B) Cash budget is basically a plan of expected cash receipts and cash payments made during
a specific period of time. The inflow of cash include items like cash collected from
receivables, cash receipts, sales made on cash basis and other income. On the other side, cash
outflow or disbursement include expenses related to inventory, selling and administrative
expenses, distribution expenses and other payments. The net effect is denoted by excess and
deficiency (Crosson and Needles, 2013). Figures included in the cash budget of CooperWorld
Ltd. are:
 Total cash collections: This item include figures related to the cash collected by
the business during a financial year. It consists of cash collection made from the
receivables and shares issued.
Receivable collection: It includes the figures of payments made by the debtors of the
company. In the coming year, CooperWorld will make credit sales and 2 month credit period
is been allowed to debtors. The sales of January will be collected in March and of February in
April. The series continues till the end of the year (Weil, Schipper and Francis, 2013).
Share issued: It includes 20000 ordinary shares issued by the company at par of £1 each. This
shows the inflow of cash and hence is recorded under the head ‘cash collections’ (Needles,
Powers and Crosson, 2013).

Performance management 9
Apart from these two, another item which is included is the beginning cash balance. It shows
the balance of cash at the starting of each month. In January, February and March
CooperWorld has negative cash balance in the starting which turns positive later on. Other
income is also there.
 Total Cash Disbursements: Under this head, all the payments made in cash are
included. It consists of material purchase, labour, distribution and production
overheads and the asset purchase. It basically shows the outflow of cash from the
business (Davis and Davis, 2011).
Direct material purchase: The figures of this item shows the payment made regarding the
material purchase by the company for the purpose of production. CooperWorld will be
purchasing the material in the year when production is been done and the payment regarding
the same will be made in the following month. In January, a purchase amount to £4800 is
been made which was paid in February and the amount of material purchase in February will
be paid out in March. This will continue till end of the year (DRURY, 2013).
Direct Labour cost: It shows the cost incurred on hiring labour for the purpose of producing
the required production units. The units produced in each month will require labour for 3
hours at the cost of £7 per hour. Through proper calculation and provided information, the
total direct labour cost for month of January is expected to be £2520 and of February is
£2940. Similarly, the cost is been calculated for other months also (Lal, 2009).
Production overhead: It include the amounts of variable and fixed expenditure incurred on the
production. The variable overhead consists of an absorption rate of £5 per hour for each
month and the fixed expense amounted to £9900. The variable production overhead cost
amounted to £1800 in month of January and £2100 in February and so on. Fixed cost remain
same for every month. The total production of overhead is expected to be £11700 in January,

Performance management 10
£12000 in February and so on. This expense has to be paid in the same month, when it has
occurred.
Distribution overhead: It also include the fixed and variable distribution expenses incurred
during the year. The variable distribution overhead is £2.5 per unit sold and fixed cost is
£3900. Total variable cost occurred in starting is 300 and then it continues to increase till
October. After that the cost reduces but fixed cost remains same. The total distribution
overhead reported in January is £4200 and is to be paid in the same month.
Asset purchase: CooperWorld will be purchasing an office equipment in January 2019 worth
£2400. The asset will depreciated at 25% per annum. This purchase shows the outflow of
cash.
(C) For a company, it is very necessary to have an appropriate cash budget which shows the
strong position company’s cash flow. It is very essential for the companies to timely review
their cash budget and should take necessary measures to improve the same. The cash budget
of CoopWorld Ltd. shows that company has negative cash balance in the starting three
months of the year 2019. There can be various reasons for such negative figure. But, the thing
which is taken into consideration is that it is important for the CoopWorld to take certain
steps for improving the position of cash. It can be done in following ways:
 First of all, company should make cash sales along with the credit sales. The
amount of cash sales will be treated as a cash inflow in the business and will also
increase the cash balance.
 The time given to debtors for making payments should be less than the time taken
by the company from creditors. Reason being, if payables got due before
receivables, then the company will have to face cash flow problems. Early and
timely collection of receivables will definitely improve the position of cash budget

Performance management 11
and also turns the negative figures into positive ones (Brigham and Houston,
2012).
 Another way is that instead of buying the equipment, CooperWorld should take
the same on lease. Leasing allows the company to pay the required amount in
small instalments which eventually improve its cash balance. Moreover, lease
payments are treated as business expense and hence, can be written off.
 Before selling goods on credit, company should do a credit check of its customers,
so as to know about their creditworthiness. Similarly, company should make early
payments to its suppliers and creditors and should maintain a healthy relationship
with them. All these efforts will directly and indirectly improve the cash budget
(Brigham and Houston, 2012).
Apart from the above steps, inventory management, providing discounts on loan can also
enhance the cash budget of the organization.
Conclusion
The above report concludes that budgets are very necessary for an organization to prepare.
Also by taking corrective steps, a company can improve its cash budget (Swain and Reed,
2014). CooperWorld should adopt the mentioned ways in order to increase and improve its
cash position. A suitable and appropriate cash budget can help in meeting the financial
obligation easily and also contributes in the strong position of liquidity.

Performance management 12
References
Atrill, P., McLaney, E. and Harvey, D., (2014). Accounting: An Introduction, 6/E (Vol. 6).
Australia: Pearson Higher Education AU.
Brigham, E.F. and Houston, J.F., (2012). Fundamentals of financial management. 13th ed.
USA: Cengage Learning.
Crosson, S.V. and Needles, B.E., (2013). Managerial accounting. 11th ed. USA: Cengage
Learning.
Davis, C.E. and Davis, E., (2011). Managerial accounting. Hoboken: John Wiley & Sons.
Dlabay, L. and Burrow, J.L., (2007). Business finance. USA: Cengage Learning.
DRURY, C.M., (2013). Management and cost accounting. 7th ed. London: Springer.
Dugdale, D. and Lyne, S., (2010). Budgeting practice and organisational structure. Oxford:
Elsevier.
Edey, H.C., (2014). Business Budgets and Accounts (RLE Accounting). New York:
Routledge.
Horner, D., (2017). Accounting for Non-accountants. 10th ed. United Kingdom: Kogan Page
Publishers.
Lal, J., (2009). Cost Accounting 4E. New Delhi: Tata McGraw-Hill Education.
Needles, B.E., Powers, M. and Crosson, S.V., (2013). Principles of accounting. 11th ed. USA:
Cengage Learning.
Swain, J.W. and Reed, B.J., (2014). Budgeting for public managers. New York: Routledge.
Weil, R.L., Schipper, K. and Francis, J.,( 2013). Financial accounting: an introduction to
concepts, methods and uses. 14th ed. USA: Cengage Learning.

Performance management 13
Weikart, L.A., Chen, G.G. and Sermier, E., (2012). Budgeting and financial management for
nonprofit organizations. California: CQ Press