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Homework answers / question archive / Doon 2 Kabelo and Thembi are the owners of Jozl Arts and Crafts
Doon 2 Kabelo and Thembi are the owners of Jozl Arts and Crafts. They have come to realize that effective cash management is one of the most critical responsibilities a business owner han. To improve their cash management, they decided to prepare cash budgets every quarter and approached you to assist them with the drafting of the first of these planned cash budgets. The business caters to customers who pay cash for their purchases and also extends credit to approved customers. Page 5 of Assignment SBS STADIO SUMMATIVE ASSESSMENT (ASSIGNMENT) - 2020 SECOND SEMESTER FMA400 FINANCIAL MANAGEMENT IV They have prepared the following estimates of income and expenditure for April, May and June 2020 for this purpose: March February 50 000 April 49 000 June 52 000 Actual and estimated sales May 40 000 26 000 58 000 estimated 33 000 38 000 32 000 34 000 Actual and purchases Additional information: Based on their experience, the owners have indicated that 60% of estimated monthly sales are for cash and the balance are credit sales. Customers settle 80% of their credit purchases one month after they have made their purchases and the remaining balances two months after the month of purchase. Debtors' payments for February and March are still outstanding. Jozi Arts and Crafts pays 50% of its monthly inventory purchases for cash. The remaining purchases are credit purchases. The business pays 40% of its credit purchases in the month following the month of purchases and the remaining balances two months after the month of purchase The business has no unpaid credit purchases for January February or March 2020 The business also has the following planned monthly expenses Wages amount to R6 000 per month The tent of the premises for the business is R8 000 per month with a contractual increase of 5% in May 2020 Monthly consumables are R1-000 and telephone costs are equal to R900 per month The owners plan to purchase additional display cabinets at a cost of R30 000 in May, The cash balance at the end of March 2020 was R22 000 Ignore VAT and taxation2.1. Prepare the cash budget for Jozi Arts and Crafts for the quarter of April to June.
Note: Prepare the cash budget in the format set out in the prescribed text book, showing all monthly amounts for all categories of receipts and disbursements. (25)
2.2. What can the owner conclude about the cash position of the business at the end of April. May and June 2020? (5)
| Feb | Mar | Apr | May | June | |
| Cash balance at beginning | 22000 | 29160 | 380 | ||
| Cash inflows: | |||||
| Total sales | 50000 | 58000 | 49000 | 40000 | 52000 |
| Cash sales @60% of total sales | 30000 | 34800 | 29400 | 24000 | 31200 |
| Account receivable :Balance amount for credit sales = total-(60% of total) | 20000 | 23200 | 19600 | 16000 | 20800 |
| Account receivable :80% of credit amount realised after 1 month | 16000 | 18560 | 15680 | 12800 | |
| Account receivable :Balance credit realised after 2 months = total credit balance before 2 months-80% of total credit paid in last month | 4000 | 4640 | 3920 | ||
| Total cash inflows = sum of all inflows | 50000 | 74000 | 71560 | 60320 | 68720 |
| Cash ouflows: | |||||
| Purchases | 33000 | 38000 | 32000 | 26000 | 34000 |
| Cash purchases @ 50% of total purchases | 16500 | 19000 | 16000 | 13000 | 17000 |
| Accounts payables :Remaining amount for credit purchase | 16500 | 19000 | 16000 | 13000 | 17000 |
| Accounts payables :40% of credit purchase done after 1 month | 6600 | 7600 | 6400 | 5200 | |
| Accounts payables :Remaining amount of credit done after 2 months = total balance credit - 40% of credit paid till last month | 9900 | 11400 | 9600 | ||
| Wages | 5000 | 5000 | 5000 | 5000 | 5000 |
| Rent | 8000 | 8000 | 8000 | 8400 | 8400 |
| Monthly consumables | 1000 | 1000 | 1000 | 1000 | 1000 |
| Telephone costs | 900 | 900 | 900 | 900 | 900 |
| Display cabinet (planned purchase) | 30000 | ||||
| Total cash outflows = sum of all outflows | 47900 | 59500 | 64400 | 89100 | 64100 |
| Cash surplus (deficit) = total inflows - total outflows | 2100 | 14500 | 7160 | -28780 | 4620 |
| Cash balance at the end of the period = Cash surplus (deficit) + cash balance at the beginning of period | 29160 | 380 | 5000 |
2.2 The cash balance shows the figures at the end of April, May and June has the capability to be sufficient enough to enable the company have positive cash in hand. However, it must be noted that debtors payments (accounts receivables) of February and March are still outstanding. This could be a concern while implementing the planned purchase of display cabinet worth 30000. To make it happen, it must realise those payments. If, unable to receive, it will fall short of cash, and hence, would require loan for the cabinet purchase.
