Question 1: – Cash Budget:
| Estimated sales | January | February | March | April | May |
| Total Coffee sales (units) | 15,000 | 16,000 | 17,500 | 18,000 | 14,500 |
Your friend, Chris Coffee, has been running a successful coffee shop for the last couple of years. He has asked you to put together a cash budget. His regular accountant was too busy to help, but told Chris his depreciation expense was going to be $1,800 per year, using the straight-line method. He has supplied you with the following information (above) to help you put together his cash budget.
The revenue for a coffee is $5 for a large, $4 for a medium and $3 for a small. 50% of his sales are Large coffees, 25% medium and 25% smalls. Chris has a deal with an accounting company and half of the coffees sold are on account, the other half pay cash. The accounting company pays for the coffees the month after the sale. Assume credit sales are half of the total coffee sales.
Material and Labour information Chris has provided:
| Large | Medium | Small | |
| Labour hours | 0.1 | 0.05 | 0.05 |
| Coffee pods | 3 | 2 | 1 |
| Cost of a Coffee pod | $0.90 | ||
Labour is paid at $20/hour. The Coffee pods need to be ordered a month in advance. He requires 10% of next months total coffee pods to be on hand. The beginning coffee pod inventory, February 1, was 3,000 pods. 50% of the Coffee pods are paid in the month they are ordered, 50% are paid the following month.
Other information Chris has provided:
| February | March | April | May | |
| Rent | 2,500 | 2,500 | 2,500 | 2,500 |
| Dividend | 3,000 | 15,000 | ||
| Office and Admin | 3,500 | 3,500 | 3,500 | 3,500 |
NOTE: Chris requires a minimum bank balance of $5,000 at the end of the month and the ending January bank balance is $10,000. Chris has access to a line of credit of $500,000 at an interest rate of 30%. Borrowings are made at the beginning of the month and repayments are made at the end of the month.
REQUIRED:
Using the Excel file included with the exam, for the months of February, March and April prepare
- Sales Budget, with a cash receipts.
- What is the A/R at the end of the month?
- Materials Budget, with cash disbursements.
- What is the A/P at the end of the month?
- Direct Labour Budget
- Cash budget
Question 2: Flexible Budget
You have recently taken over as the General Manager for Eagle Point golf club. The most recent monthly Budget versus Actual Income Statement ended June has been supplied below (as well in the excel template file).
| Eagle Point Golf Club | |||
| Income Statement | |||
| For the Month ended June | |||
| Budget | Actual | ||
| Number of golf rounds | 6,000 | 5,000 | |
| Revenue | |||
| Golf Rounds | 270,000 | 220,000 | |
| Power Carts | 150,000 | 125,000 | |
| 420,000 | 345,000 | ||
| Variable Costs | |||
| Labour | 114,000 | 105,000 | |
| Golf Cart fuel | 3,000 | 2,500 | |
| Maintenance | 108,000 | 70,000 | |
| Small Tools | 25,000 | 20,000 | |
| Depreciation | 2,400 | 2,000 | |
| 252,400 | 199,500 | ||
| Fixed Costs | |||
| Management Fees | 35,000 | 35,000 | |
| Rent | 35,000 | 35,000 | |
| Utilities | 7,500 | 8,000 | |
| 77,500 | 78,000 | ||
| Income (Loss) before taxes | 90,100 | 67,500 | |
The owner of the golf course is mad about the results, however you are not so confident on that assumption.
Required:
- Prepare a flexible budget to actual income statement
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