1

Chapter 8
Preparing the Master Budgets
Answer to End of Chapter Exercises

Q 8.1 a)
Cash budget - Milton Ltd

May June
opening balance 20,000 45,450
ADD RECEIPTS
from debtors 175450 151800
CASH
AVAILABLE 195,450 197,250

LESS
PAYMENTS
labour 30,000 30,000
raw materials 100,000 85,000
Overheads 20,000 20,000
capital
expenditure 100,000

TOTAL PAYMENTS 150000 235000

Closing balance 45,450 -37,750

WORKINGS
Cash receipts from sales
March April May June
Sales revenue 145,000 155,000 195,000 120,000
Cash receipts Total
March 79750
April 63800 85250 149050
May 68200 107250 175450
June 85800 66000 151800
July 52800 52800

Q 8.1 b) Increase sales by providing discounts or other incentives, provide cash discounts for prompt
payment. Reduce purchases; delay capital expenditure or lease rather than purchase
outright.

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Q 8.2 cash budget Pathos Ltd

November December January
opening balance 2000 1370 -2891
ADD RECEIPTS
from debtors 3270 3639 4087.5

CASH
AVAILABLE 5270 5009 1196.5

LESS
PAYMENTS
labour 1500 1500 1500
raw materials 2100 2100 2100
fixed costs 300 300 300
capital
expenditure 4000

TOTAL PAYMENTS 3900 7900 3900

Closing balance 1370 -2891 -2703.5

WORKINGS
Sales
September October November December January
sales units 200 240 250 300 310 280
revenue 3000 3600 3750 4500 4650 4200
cash
October 1500
november 1470 1800
December 1764 1875
January 1837.5 2250

production
September October November December January
production units 220 260 300 300 300
labour 1100 1300 1500 1500 1500

raw mat'l 1540 1820 2100 2100 2100

cost

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Q 8.3) Venus Ltd.

Production budget
May June July August September
Sales 4,000 5,200 7,200 7,500 8,000
closing stock 2,600 3,600 3,750 4,000
Required 6,600 8,800 10,950 11,500
opening stock 2,000 2,600 3,600 3,750
Production 4,600 6,200 7,350 7,750

Production cost budget June

units per unit 6,200

materials 24 148,800
labour 42 260,400
409,200

Profit and Loss a/c June

sales units per unit 5,200

Revenue 100 520,000
material 24 124,800
labour 42 218,400
Gross profit 176,800
administration 40,000
net profit 136,800

Budgeted cash flow June

August

opening balance 30,000
add receipts
from Trade receivables 472,000

cash available 502,000

less payments
Materials 148,800
labour 260,400
Fixed overheads 32,000
441,200
Closing cash balance 60,800

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Q 8.4 Able Components

Production budget (units)
June July August September october

sales 1400 1300 1300 1200 1200

cl. stock 130 130 120 120
required 1530 1430 1420 1320
op stock 140 130 130 120
production 1390 1300 1290 1200

Production cost budget

july august september
Materials 50.00 65000 64500 60000
labour 12.00 15600 15480 14400
Total cost 80600 79980 74400

Kg per unit 20
/kg 2.50
raw materials purchases
June July August September october
production 27800 26000 25800 24000
cl stock 2600 2580 2400 0
required 30400 28580 28200 24000
op. stock 2780 2600 2580 2400
purchases (kgs) 27620 25980 25620 21600
purchases 69050 64950 64050 54000

Budgeted P&L
August
sales units 1.00 1300

Sales 100.00 130000
labour 12.00 15600
material 50.00 65000 80600
gross profit 49400
fixed admin 18000
Net profit 31400

Budgeted cash flow

August

opening balance 10,000
add receipts
from debtors 140,000

cash available 150,000

less payments
labour 15,480
materials 64,950
fixed costs 17,000
Total payments 97,430
Closing balance 52,570

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Q 8.5 Production budget (units)

June July August September october

sales 1200 1800 2800 3200 3200

cl. stock 360 560 640 640
required 1560 2360 3440 3840
op stock 240 360 560 640
production 1320 2000 2880 3200

Production cost budget

June July August September
Materials 10/unit 13200 20000 28800 32000
Labour 6/ unit 7920 12000 17280 19200
Total cost 21120 32000 46080 51200

Kg per unit 2
/kg 5.00
raw materials purchases
June July August September october
production 2640 4000 5760 6400
cl stock 400 576 640 0
required 3040 4576 6400 6400
op. stock 264 400 576 640
purchases (kgs) 2776 4176 5824 5760
purchases 13880 20880 29120 28800

Budgeted P&L
August
sales units 1.00 2800

Sales 26.00 72800
labour 6.00 16800
material 10.00 28000 44800
gross profit 28000
fixed admin 18000
Net profit 10000

Budgeted cash flow

August

opening balance 10000
add receipts
from debtors 31200

cash available 41200

less payments
labour 16800
materials 20880
fixed costs 17000
54680
cash balance -13480

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Q 8.6
Profit and Loss Account
June July

Sales 275000 275000
less cost of goods 221250 221250
Gross profit 53750 53750
Commercial department 6,000 6,000
Administration costs 12,000 12,000
Net proft 35,750 35,750

Cost of goods sold

material 39 39
wages 27 27
Overhead 22.5 22.5
88.5 88.5

Q 8.7
Balance sheet as at 31st March 2008
31st March 30th April 31st May 30th June
20X8 20X8 20X8 20X8
Fixed Assets 2,080,000 2,080,000 2,080,000 2,080,000
less depreciation 1,130,000 1,140,000 1,150,000 1,160,000
Net book value 950,000 940,000 930,000 920,000
Current Assets
Stock of finished goods 88500 132750 132750 88500
stocks of raw materials 18,000 27,000 36,000 36,000
trade receivables 365,000 350,000 385,000 495,000
Cash 63,000 52000 43000 14000
534500 561750 596750 633500
current liabilities
trade payables 60,000 63,000 63,000 54,000
Net current assets 474,500 498,750 533,750 579,500

Net capital
employed 1,424,500 1,438,750 1,463,750 1,499,500

Share capital and

reserves 1,350,000 1,350,000 1,350,000 1,350,000
Profit and loss account 74,500 88750 113750 149500
Profit in month
1,424,500 1,438,750 1,463,750 1,499,500

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