Cash Budget and Report Analysis

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Introduction
For this piece of assignment, a cash budget will be made for Doomy Corporation for the second quarter of the year. For this budget, all the sales figures for the second quarter and some of the expenditure have been given. Hence, to prepare a cash budget, the sales figure given will be used and some calculations will be worked out in order to fully prepare an outstanding budget for Doomy Corporation the following information will be used efficiently. “Doomy Corporation, a rapidly expanding specialist photocopier manufacturer, is in the process of formulating plans for next year. The director of marketing has completed his sales budget and is confident that sales estimates will be met or exceeded. The following budgeted sales figures show the growth expected and will provide the planning basis for other corporate departments”. Sales figures of (April £2 200 000, May £2 500 000 and June £2 800 000) The rest of the budget was calculated from the information below: Doomy Corporation has experienced an excellent record in debtors’ (accounts receivable) collection and expects this trend to continue. 60% of billings are collected in the month after the sale and 40% in the second month after the sale. The purchase of raw materials is Doomy’s largest expenditure; the cost of these items equals 50% of sales. 60% of the raw materials are received and paid in the month they are purchased and 40% are paid in the second month of purchase. Hourly wages depend on sales volume and are equal to 20% of the current month’s sales. General and administrative expenses are budgeted to be £2 640 000 for the year. Salaries £480 000, Promotion £660 000, Property taxes £240 000, Insurance £360 000, Utilities£300 000 and Depreciation £600 000. Corporation tax payments are made by Doomy in the first month of each quarter based on the profit for the prior quarter. Doomy’s tax rate is 40%. Doomy’s taxable profit for the first quarter is projected to be £612 000. Equipment and warehouse facilities are being acquired to support the company’s rapidly growing sales. Purchases of equipment and facilities are budgeted at £28 000 for April and £324 000 for May. Doomy has a corporate policy of maintaining an end-of-month cash balance of £100 000. Cash is borrowed or invested monthly, as needed, to maintain this balance. Interest expense on borrowed funds is budgeted at £8 000 for the second quarter, all of which will be paid during June.

1) Cash budget for Doomy Corporation
Below is a cash budget for Doomy Corporation by month and in total for the second quarter starting from April to June only.

Income| April| May| June| Total|
| | | | |
Opening Balance| £100,000| £2,407,200| £4,644,200| £7,151,400| Sales| £2,200,000| £2,500,000| £2,800,000| £7,500,000| collection of customers (account receivable)| £2,040,000| £880,000| £100,000| £3,020,000| | | | | |

TOTAL INCOME | £4,340,000| £5,787,200| £7,544,200| £17,671,400| Expenditure| | | | |
General Administration| | | | |
Salaries | £40,000| £40,000| £40,000| £120,000| Promotion| £55,000| £55,000| £55,000| £165,000| Property taxes| | | £60,000| £60,000|
Insurance| £30,000| £30,000| £30,000| £90,000| Utilities| £25,000| £25,000| £25,000| £75,000| Depreciation| £50,000| £50,000| £50,000| £150,000| Equipment and warehouse facilities | £28,000| £324,000|  |  | Purchase of raw materials| £1,020,000| £119,000| £114,000| £1,253,000| Hourly wages | £440,000| £500,000| £560,000| £1,500,000| Tax rate| £244,800| | | £244,800|

| | | | |
TOTAL EXPENDITURE| £1,932,800| £1,143,000| £934,000| £4,009,800| | | | | |
Closing stock| £2,407,200| £4,644,200| £6,610,200| £13,661,600|

2. The importance of budgeting for Doomy Corporation
Cash budgets is important for...
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