TUTORIAL TOPIC 5 - Cash Budget

Management Accounting/January 2021
QUESTION 1
BJ Catering Supply sells various equipment and supplies to restaurants in the local and
surrounding communities. The company’s executive, Mr. Amer Khan, has requested your
help in preparing a cash budget for the month of June. Mr. Amer Khan accumulated the
following information for you:
i. The cash balance at June 1 was estimated to be RM20,000.
ii. Actual sales of April and May and budgeted sales for June are as follows:
April (RM) May (RM) June (RM)

Cash sales 33,000 31,000 35,000
Credit sales 60,000 80,000 100,000
Total sales 93,000 111,000 135,000
iii. Credit sales are collected over a two-month period. With 60% being collected in the
first month during the sales incurred and the remainder being collected in the
second month
iv. Inventory purchased are expected to be RM70,000 in June. The company pays for
inventory purchases in the month following purchase. The balance of May’s
purchases is RM144,000.
v. Selling and administrative expenses are budgeted to be RM28,000 for June. Of that
the amount, 50% is depreciation.
vi. Equipment costing RM30,000 will be purchased in June by cash.
vii. Dividends in the amount of RM7,000 will be paid.
viii. Loan received from Bank for the month of June is RM 68,000
Required:
A. Prepare cash budget for the month of June.
B. Identify SIX (6) different purposes of budgeting.
C. State FOUR (4) of the criticisms of budgeting.

QUESTION 2
Baby ABC Company manufactures Baby clothes for various hypermarket chains. However,
due to high competition, the demand for baby clothes has dropped for the next two months.
You have been asked to advise the management of Baby ABC Company on the effect of this
situation on cash flow.
The following data has been made available
Month Budgeted sales (units) Budgeted production
(units)
January 9,000 9,000
February 8,000 9,000
The selling price of the baby clothes is RM 25.00 per unit and the variable production cost
per unit is RM 10.00 which comprises of:
Direct materials RM 5.00
Direct labour RM 3.00
Production overheads RM 2.00
Additional information:
a) The current balances of cash is RM 15,000
b) The customers will pay the company 50% in cash and the customers are given two
months credit. 30% credit is given for the first month after the sales incurred and the
remaining sales balances will be paid during second month.
c) The company policy is to pay creditors for materials one month after purchases are
made. The current amount outstanding to materials supplier is RM 5,000 which will
be paid during January.
d) Wages of RM 20,000 are paid at the end of each month. During the month of
January and February, the company also paid 30% bonus on top management of the
wages earned by the employees
e) The current balances owing from debtors is RM 4,000 of which RM 3,000 will
received during January and the remainder during February.
f) Fixed production overhead cost is RM 10,000 per month includes RM 1,500 for
depreciation of machinery and equipment
Required:
Prepare a cash budget for the months of January and February 2016. Showing the cash
balances at the end of each month.
QUESTION 3
Based on the following data, prepare a cash budget for ABC Kitchen and discuss three (3)
usage of cash budget.
a) The cash balance at July was estimated to be RM 40,000
b) Actual sales of May and June and budgeted sales for July are as follows:
May (RM) June (RM) July (RM)

Cash sales 66,000 62,000 70,000
Credit sales 120,000 160,000 200,000
Total sales 186,000 222,000 270,000
c) Credit sales are collected over a two-month period. With 80% being collected in the
first month after sales incurred and the remainder being collected in the second
month
d) Inventory purchased are expected to be RM 200,000 in July. The company pays for
inventory purchases in the month following purchase. The balance of June’s
purchase is RM 250,000
e) Selling and administrative expenses are budgeted to be RM 18,000 for July. Of that
amount 30% is depreciation
f) Motor vehicle costing RM 50,000 will be purchased in July by cash
QUESTION 4
(a) Based on the following data, you are required to prepare a cash budget for the month
of August for Ali Rasa Supply.
i. The cash balance at 1st August was estimated to be RM60,000.
ii. Actual sales of June and July and budgeted sales for August are as follows:
June (RM) July (RM) August (RM)
Cash sales 66,000 62,000 70,000
Credit sales 120,000 160,000 200,000
Total sales 186,000 222,000 270,000
iii. Credit sales are collected over a two-month period. With 80% being collected
in the first month during the sales incurred and the remainder being collected
in the second month.
iv. Inventory purchased are expected to be RM200,000 in August. The company
pays for inventory purchases in the month following purchase. The balance of
July’s purchases is RM250,000.
v. Selling and administrative expenses are budgeted to be RM18,000 for
August. Of that amount, 30% is depreciation.
vi. Two vans costing RM50,000 will be purchased in August by cash.

vii. 50% of RM10,000 dividends declared for the year will be paid in August.

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Management Accounting/January 2021

i. The cash balance at June 1 was estimated to be RM20,000.

April (RM) May (RM) June (RM)

inventory purchases in the month following purchase. The balance of May’s

vi. Equipment costing RM30,000 will be purchased in June by cash.

vii. Dividends in the amount of RM7,000 will be paid.

A. Prepare cash budget for the month of June.

B. Identify SIX (6) different purposes of budgeting.

C. State FOUR (4) of the criticisms of budgeting.

May (RM) June (RM) July (RM)

vi. Two vans costing RM50,000 will be purchased in August by cash.

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