Hana Bakery: cash budget for three months

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• January receipts = 40% x 50,000 + 60% x 40,000 = 20,000 + 24,000 = $44,000.
• February receipts = 40% x 60,000 + 60% x 50,000 = 24,000 + 30,000 = $54,000.
• March receipts = 40% x 70,000 + 60% x 60,000 = 28,000 + 36,000 = $64,000.
• Purchases are paid a month later: January $18,000, February $20,000, March $24,000.
• Wages of $12,000 are shown in each month.
• Overheads in cash are 8,000 - 2,000 = $6,000 a month, because depreciation is not a cash flow. (2 marks)
• The oven of $15,000 is shown as a payment in February.
• January net cash flow = 44,000 - 18,000 - 12,000 - 6,000 = $8,000, and the closing balance is 6,000 + 8,000 = $14,000.
• February net cash flow = 54,000 - 20,000 - 12,000 - 6,000 - 15,000 = $1,000, and the closing balance is $15,000.
• March net cash flow = 64,000 - 24,000 - 12,000 - 6,000 = $22,000, and the closing balance is $37,000.
• The opening balance of each month is the closing balance of the previous month.
• The layout is clear, with months in columns and receipts and payments in separate sections.

Marks counted: 0 of 12

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Profit is based on sales when they are made, but cash is received later, and 60% of each month's sales is received in the next month.
• Depreciation of $2,000 reduces profit but is not a cash payment.
• The oven costs $15,000 in cash in February, but it will be charged to profit gradually through depreciation.
• Purchases are paid a month after the sale, so the cash paid in a month is not the cost of the goods sold in that month.

Marks counted: 0 of 4

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• The balance of $37,000 is more than the business needs for its payments, so some of it could be put into a savings account, used for the next investment, or kept as a cushion.
• The owner should keep enough cash for the following months, since the budget stops in March.
• The budget depends on estimates of sales and of customers paying on time, so late payers and bad debts could reduce the cash.
• Prices of ingredients or wages may change, so a few different scenarios should be tested.

Marks counted: 0 of 4