[samirsaffari]

fortunate sdn bhd produces and sells a single product.they prepared the following budgeted profit and loss account for the 6 months from July to December 2010.
[jul] [aug] [sep] [oct] [nov] [dec]
$ $ $ $ $ $
sales 18000 25200 19600 21600 26000 26000
cost of sales:
direct materials 12000 16800 13200 14400 18000 18000
direct wages 2000 2800 2200 2400 3000 3000
electricity 1200 1200 1200 1000 800 800
office expenses 300 340 200 320 360 360
depreciation 900 900 1800 1800 1800 1800
total costs 16400 22040 18600 19920 23960 23960]
profit 1600 3160 1000 1680 2040 2040
1- opening cash balance on 1 July 2010 is expected to be $4000 in hand
2- all sales are made on credit.past experience has shown that 60% of debtors pay in the month after sales has been made.the remainders usually take two months to pay . However,some 2% of these sales become bad debts.the bad debts have not been included in the budgeted p & l account as yet.sales in the months of may 2010 and June 2010 are expected to be $16,000 and $18,000 respectively.
3-material purchases are made on credit ; creditors allow one month's credit.when material costs exceed $15,000 a discount of 3% is available if payment is made within one month.fortunate sdn bhd will take up any discount where available.the discounts have not been included in the p & l figures yet.the purchases for the month of June 2010 are expected to be $12,000.
4- wages and office expenses are paid in the month in which they are incurred.
5- fortunate sdn bhd will be replacing a piece of equipment in August 2010 . The new machine costs $44,000 and the old machinery will be sold for a cash scrap value of $2,000 in August.payment for the new machine is to be made in two equal instalments in October and noember 2010.
6- electricity is paid quarterly ,in arrears , in September and December.
7- tax will have to be paid in December amounting to $1,600.
8- fortunate sdn bhd is repay a loan in August for $3,000 but will replace with a new loan of $8,0000.
required
a) prepare a monthly cash budget for July to December 2010.
b)advice fortunate sdn bhd on the possible actions they might take to overcome any cash deficit.use the monthly cash budget you have prepared in (a) to illustrate the advice and to emphasize the importance of preparing cash budgets.
c) discuss the purpose of budgeting in organizations.