Friday, October 18, 2019

Sharpe's Budget Problem Essay Example | Topics and Well Written Essays - 750 words

Sharpe's Budget Problem - Essay Example The cash budget should include the all the costs likely to be paid and cash to be received (Crosson, Power, and Needles, 2011). The direct cost are the expenses incurable which are directly associated with the revenue sources, and/or can be directly apportioned to that source of the revenue with a high degree of accuracy. The cash budget should be monitored closely so as to establish how closely the company has adhered to meeting its objectives with respects to its finances (Hilton, Thorne and Lang field-Smith, 2006). In order to achieve this, it is expedient to prepare a variance report. A variance statement will contrasts the expected cash outflow and expenditure. ... It will be imprudent for a company to fail to produce a cash budget. In this case, the sales of the company are increasing and collections are made at a rate of 10% of sales during the month, 60% of the sales during the month presiding the month of sales, and 30% in the second month following the sale. Rent and other expenditures are made each month and do not vary. Tax is paid only in the month of March and June, 2004 at the rate of $ 22,500 during the period under consideration. Workings NOTE 1 cash collections Jan Feb Mar Apr May Jun Jul Aug Sales 90,000 120,000 135,000 240,000 300,000 270,000 225,000 150,000 Cash sales 10% of sales 9,000 12,000 13,500 24,000 30,000 27,000 22,500 15,000 Notes – 2 collections Nov Dec Jan Feb Mar Apr May Jun Jul Aug sales 220,000 175,000 90,000 120,000 135,000 240,000 300,000 270,000 225,000 150,000 60% of sales 132,000 105,000 54,000 72,000 81,000 144,000 180,000 162,000 135,000 30% of sales 66,000 52,500 27,000 36,000 40,500 72,000 90,000 8 1,000 Total collections for the month 171,000 106,500 99,000 117,000 184,500 252,000 252,000 216,000 Notes – 3 purchases payments Nov Dec Jan Feb Mar Apr May Jun Jul Aug sales 220,000 175,000 90,000 120,000 135,000 240,000 300,000 270,000 225,000 150,000 Purchases 60% 54,000 72,000 81,000 144,000 180,000 162,000 135,000 90,000 - - Payments 54,000 72,000 81,000 144,000 180,000 162,000 135,000 90,000 - Payment of notes payable of $ 200,000 Sharpe requires cash of $ 200,000 to pay notes payable. There are two scenarios in this case, the first case is where the not payable are paid without interest. In this case, the company has ample cash to repay the notes. The following is the cash budget after factoring in the notes payable at the end of July. The assumption that the

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