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Nookie1986 [14]
3 years ago
10

Health mart is a retail store selling home oxygen equipment. health mart also services home oxygen​ equipment, for which the com

pany bills customers monthly. health mart has budgeted for increases in service revenue of $ 200 each month due to a recent advertising campaign. the forecast of sales and service revenue for​ march-june 2018 is as​ follows:

Business
1 answer:
RUDIKE [14]3 years ago
7 0

Answer:

1. Cash budget from April to June are

April $12,120

May $11,820

June $13,420

2a. $10,850 minimum cash inflow from sales is required in May.

But the Business made an inflow of $11,820.

This is sufficient to cover its expense and leave the minimum balance of $250.

HealthMart won't have to borrow in May.

2b.I. Health Mart as a result of the 10% sales slump in May will require $40 loan to finance its cashflow

2b.ii. Health Mart will not be required to borrow to fund its cashflow requirement of $11,400 in May (5% expenditure increase) because it has sufficient inflow from revenue to cover it

3. The cash budget is a key requirement of the Financial Director of any business:

a. It guides the Business Investment decision (what to do with excess liquidity)

b. It guides the Business Finance decision (whether to Fund its working Capital through additional capital injection or Loans if the Cash Budget shows long period of cash drought, if the offload Assets or restructure the Business etc)

c. It serves as a guide in deciding its credit policy or approving additional credit days to its customers or seeking more Payable days from its Suppliers.

d. It helps in determining how to stock its inventory. How much inventory to retain on hand, how often to reorder etc

Explanation:

Health Mart

1.

Cash Budget from April to June

April

*Oxygen sales - $8,000 - Credit Card (97%) + Cash (3%) received before end of day

Cash inflow = $8,000

*Service cash inflow - $4,200 - Credit Sales received this month (60%) + $4,000 credit sales received from last month sales (40%)

Cash inflow = $2,520 + $1,600 = $4,120

Total inflow = $12,120

May

*Oxygen sales - $7,500 - Credit Card (97%) + Cash (3%) received before end of day

Cash inflow = $7,500

*Service cash inflow - $4,400 - Credit Sales received this month (60%) + $4,200 credit sales received from last month sales (40%)

Cash inflow = $2,640 + $1,680 = $4,320

Total inflow = $11,820

June

*Oxygen sales - $9,000 - Credit Card (97%) + Cash (3%) received before end of day

Cash inflow = $9,000

*Service cash inflow - $4,600 - Credit Sales received this month (60%) + $4,400 credit sales received from last month sales (40%)

Cash inflow = $2,760 + $1,760 = $4,420

Total inflow = $13,420

2a.

Expected expenditure = $11,000

Deduct: Opening cash Balance = $400

Add: Cash Balance projection = $250

= Minimum Cash inflow from Revenue in May 2018 = $10,850

Actual Cash inflow in May = $11,820

2b.i.

May (adjusted inflow)

*Oxygen sales - $6,750 - Credit Card (97%) + Cash (3%) received before end of day

Cash inflow = $6,750

*Service cash inflow - $3,960 - Credit Sales received this month (60%) + $4,200 credit sales received from last month sales (40%)

Cash inflow = $2,376 + $1,680 = $4,056

Adjusted Cash inflow = $10,806

Note:

Expected expenditure = $11,000

Deduct: Opening cash Balance = $400

Add: Cash Balance projection = $250

= Minimum Cash inflow from Revenue in May 2018 = $10,850

Actual Cash inflow in May (adjusted inflow) = $10,806

2b.ii.

Expected expenditure = $11,550

Deduct: Opening cash Balance = $400

Add: Cash Balance projection = $250

= Minimum Cash inflow from Revenue in May 2018 = $11,400

Actual Cash inflow in May = $11,820

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