2. The following budget data relates to the firm of M & M plc for the period July to
December Year 2.
July August September October November December
Sales (units) 5,600 6,000 6,400 6,100 6,200 6,300
Production (units) 6,000 6,500 6,200 6,300 5,900 6,100
The following information is also available:
1. Cash and Cash Equivalents balance at 1 September is expected to be £9,500.
2. The retail selling price per unit is £50.
• Credit sales account for 75% of all sales, these are sold to trade customers
who receive a 10% discount on the retail selling price providing they pay
within one month.
• 80% of all credit sales are paid for one month after sale, the remainder of
the credit sales are paid two months after sale, however, 5% of the amounts
due from these customers are expected to be bad debts.
3. Sales expenses of £2 per unit are to be paid on all sales in the month following
4. Unit costs are as follows:
• Materials – £25 per unit, payable in the month before production;
• Labour – £11 per unit, payable in the month of production;
• Labour Bonus – £3 per unit will be paid on all units produced over 6,300.
This will be paid in the month following production.
5. Fixed Overheads are £4,000 per month, excluding depreciation of £1,000.
6. New machinery is to be bought and paid for in September for £120,000. A loan
of £80,000 will be received from the bank in September to help finance this. The
loan will be repaid in 10 equal monthly instalments beginning in October, 5%
interest will be added to the monthly repayment.
(a) Prepare the Cash Budget for September to November Year 2.
(b) Explain 2 advantages for a management accountant of using a spreadsheet to
prepare a Cash Budget.
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