From the information below, prepare a cash budget for the

period from January to April.

Expected Sales Expected Purchase

$ $

Jan. 60,000 Jan. 48,000

Feb. 40,000 Feb. 80,000

Mar. 45,000 Mar. 81,000

Apr. 40,000 Apr. 90,000

The wages to be paid to workers amount to $5,000 each month.

Also, the bank balance on 1st January was $8,000. The
management decided on the following:

Solution

Particulars Jan. Feb. Mar. Apr.

Receipts: $ $ $ $

Opening balance 8,000 15,000 - -

Sales 60,000 40,000 45,000 40,000

Issue of debentures - 30,000 41,000 -

Issue of shares - - - 55,000

Total 68,000 85,000 86,000 95,000

Less: Payments
 Purchases 48,000 80,000 81,000 90,000

Wages 5,000 5,000 5,000 5,000

Closing cash 53,000 85,000 86,000 95,000

15,000 - - -

Problem 2
From the information below, prepare a cash budget for a
company for April, May, and June 2024 in a columnar form.

Month Sales Purchases Wages Exp.

Jan.
80,000 45,000 20,000 5,000
(actual)

Feb.
80,000 40,000 18,000 6,000
(actual)

Mar.
75,000 42,000 22,000 6,000
(actual)

Apr.
90,000 50,000 24,000 6,000
Budget

May
85,000 45,000 20,000 6,000
Budget
 Jun.
80,000 35,000 18,000 5,000
Budget

You are further informed that:

 10% of purchases and 20% of sales are for cash.

 The average collection period of the company is half a month

and credit purchases are paid off regularly after one month.

 Wages are paid half monthly and the rent of $500, excluded
in expense, is paid monthly.

 Cash and bank balance on April 1 was $15,000, and the

company aims to keep it below this figure at the end of
every month. The excess cash is placed in fixed deposits.

Solution
Cash Budget for 2024

April ($) May ($) June ($)

Cash & bank balance 15,000 11,700 12,700

Add:

Cash sale (20%) 18,000 17,000 16,000

Cash collections from

66,000 70,000 66,000
Drs.

99,000 98,700 94,700

 Less:

Cash outflow

Cash flow (10%) 5,000 4,500 3,500

Payment of Crs. 37,800 45,000 40,500

Wages 23,000 22,000 19,000

Rent 500 500 500

Exp. 6,000 6,000 6,000

Fixed deposits 15,000 8,000 13,000

Cash balance (closing) 21,700 12,700 13,200

99,000 98,700 94,700

Problem 3
From the following information, prepare a monthly cash budget
for the three months ending 31st December 2024.

Mont Sale Materia Wage Productio Admin. Selling,

h s ls s n etc
 ($) ($) ($) ($) ($)

3,00
Jun. 1,800 650 225 160
0

3,25
Jul. 2,000 750 225 160
0

3,50
Aug. 2,400 750 250 175
0

3,75
Sep. 2,250 750 300 175
0

4,00
Oct. 2,300 800 300 200
0

4,25
Nov. 2,500 900 350 200
0

4,50
Dec. 2,600 1,000 350 225
0

The credit terms are as follows:

 Sales — 3 months to debtors. 10% of sales are in cash. On

average, 50% of credit sales are paid on the due dates, while
the other 50% are paid in the next month.

 Creditors for material — 2 months.

The lag in payment for wages is 1/4 month and 1/2 month
for overheads.
The cash and bank balance on 1st October is expected to be
$1,500.

Other information is given as follows:

 Plant and machinery are to be installed in August at a cost of

$24,000. This sum will be paid in monthly installments of
$500 each from 1st October.

 Preference share dividends @ 5% on $50,000 are to be

paid on 1st December.

 Calls on 250 equity shares @ $2 per share are expected on

1st November.

 Dividends from investments amounting to $250 are

expected on 31st December.
 Income tax (advance) is to be paid in December $500

Solution

Cash Budget for Three Months Ending 31 Dec. 2024

Details: Oct. ($) Nov. ($) Dec. ($)

Balance b/d 1,500.00 537.50 350.00

Receipts
(estimated):

Sales 3,212.50 3,462.50 3,712.50

Capital - 500.00 -

Dividends - - 250.00

Total (A) 4,712.50 4,500 4,312.50

 Payments:

Creditors 2,400.00 2,250.00 2,300.00

Wages 787.50 875.00 975.00

Overheads:

Production 300.00 325.00 350.00

Adm. S. & D. 187.50 200.00 212.50

Pref. Dividend - - 2,500.00

Income tax - - 500.00

Plant and Machinery

5,00.00 5,00.00 5,00.00
(500 each)

Total (B) Year 4,175.00 4,150.00 7,337.50

Balance c/d (A - B) 537.50 350 (-3,025)

Calculation of Amount of Sales

Month Sale ($) Oct. ($) Nov. ($) December ($)

Jun. 3,000 1,350.00 - -

Jul. 3,250 1,462.50 1,462.50 -

Aug. 3,500 - 1,575.00 1,575.00

 Sep. 3,750 - - 1,687.50

Oct. 4,000 400.00 - -

Nov. 4,250 - 4,250 -

Dec. 4,500 - - 450.00

Total - 3,212.50 3,462.50 3,712.50

Calculation of Wages
1/4 wages for September and 3/4 wages for October. Therefore, the calculation is:

(1/4 x 750) = 187.50

3/4 x 800 = 600

Total = 787.50

The wages for the other months can be calculated using the same approach.

Flexible Budget Practical Problems and Solutions

Problem 1
Using the following information, prepare a flexible budget for the
production of 80% and 100% activity.

Production at 50% Capacity 5,000 Units

Raw Materials $80 per unit

 Direct Labor $50 per unit

Direct Expenses $15 per unit

Factory Expenses $50,000 (50) (Fixed)

Administration Expenses $60,000 (Variable)

Solution

Flexible Budget at a Capacity of

Capacity of 50% 80% 100%

Output Units 5,000 8,000 10,000

$ $ $

Raw Materials 4,00,000 6,40,000 8,00,000

Labor 2,50,000 40,000 50,000

Direct Expenses 75,000 1,20,000 1,50,000

Prime Cost 7,25,000 11,60,000 14,50,000

Factory Expenses 50% Fixed (50,000) 25,000 40,000 50,000

Factory Cost 7,75,000 12,25,000 15,25,000

 Admin Expenses 40% Fixed (60,000) 24,000 24,000 24,000

Variable 60% 36,000 57,600 72,000

Total Cost 8,35,000 13,06,000 16,21,000

Problem 2

The following data is available in a manufacturing company for a yearly period.

Fixed Expenses

Wages and Salaries 9,50,000

Rent/Rates and Taxes 6,60,000

Depreciation 7,40,000

Sundry Admin Expenses 6,50,000

Semi-variable Expenses at 50% Capacity

Maintenance and Repairs 3,50,000

Indirect Labor 7,90,000

Sales Department Salaries, etc. 3,80,000

 Sundry Admin Salaries 2,80,000

Variable Expenses

Materials 21,70,000

Labor 20,40,000

Other Expenses 7,90,000

Total 98,00,000

You should assume that the fixed expenses remain constant for all levels of production.

Semi-variable expenses remain constant between 45% and 65% capacity, increasing by 10% between
65% and 80% capacity, and by 20% between 80% and 100% capacity.

The sales at various levels of capacity are the following:

50% Capacity 100

60% Capacity 120

75% Capacity 150

90% Capacity 180

100% Capacity 200

For this task, prepare a flexible budget for the year and forecast the profit at 60%, 75%, 90%, and
100% capacity.

Solution
Flexible Budget

50% ($) 60% ($) 75% ($) 90% ($) 100% ($)

(A)

Variable Expenses

Material 21,70,000 26,04,000 32,55,000 39,06,000 43,40,000

Labor 20,40,000 24,48,000 50,60,000 36,72,000 40,80,000

Other Expenses 7,90,000 9,48,000 11,85,000 14,22,000 15,80,000

Semi-variable
Expenses

Maintenance and
3,50,000 3,50,000 3,85,000 4,20,000 4,20,000
Repairs

Indirect labor 7,90,000 7,90,000 8,69,000 9,48,000 9,48,000

Sales Department
3,80,000 3,80,000 4,18,000 4,56,000 4,56,000
Salaries

Sundry Expenses 2,80,000 2,80,000 3,08,000 3,36,000 3,36,000

Fixed Expenses
Wages and Salaries 9,50,000 9,50,000 9,50,000 9,50,000 9,50,000

Rent/Rates and Taxes 6,60,000 6,60,000 6,60,000 6,60,000 6,60,000

Depreciation 7,40,000 7,40,000 7,40,000 7,40,000 7,40,000

Sundry Admin 6,50,000 6,50,000 6,50,000 6,50,000 6,50,000

Total Cost (A) 98,00,000 108,00,000 124,00,000 141,60,000 152,60,000

Sales (B) 100,00,000 120,00,000 150,00,000 180,00,000 200,00,000

Profit (A - B) 2,00,000 12,00,000 25,20,000 38,40,000 47,40,000