Management Accounting and Cash Budget Assignment Sample

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Introduction Of Management Accounting Assignment

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CASH BUDGET

Monthly Cash Budget

 

July

August

September

Units

4000

4400

4840

Per Unit Price

70

70

70

Sales

280000

308000

338800

Cash Collection

266000

280000

308000

Total cash

266000

280000

308000

Expenses

     

Material

120000

132000

145200

Labour

48000

52800

58080

Fixed overheads

16000

17600

19360

Variable overheads

8000

8800

9680

Selling expenses

28000

30800

33880

Administrative expenses

1800

1800

1800

Total Cash Expenses

221800

243800

268000

Ending cash balance

44200

36200

40000

Cash Collection

July

August

September

 

126000

126000

138600

 

140000

154000

169400

Total

266000

280000

308000

Report

Significant issues revealed by the cash budget

The report mainly and solely consists the finances about the company Pompido Ltd for the year 30 June, 2022. It talks about the cash budget mainly which also includes the cash transactions that have taken place in the previous month. By analysing all the above verifacts it has been clearly seen that the amount which is to be taken by the debtors is very much as the cash collected by them is also distributed among the following months, and the irrecoverable amount in that is also too high when compared (Mariana, 2018). The cash collected in the month of July, August and September has increased up to some extent considering the cash discount also but it should make provisions regarding this also. With this it has also been clearly observed that with the increasing prices the unit cost has also increased in terms of the overheads which are also leading to the deduction. It has also been visible by the analysis that some of the major expenses have been intact and there is no increase in the amount of them. With this it can be said that a proper monitoring of all these facts can lead to the proper and sustainable growth of the company in the long run when compared with the other companies so far in this area (DeFranco et al, 2017).

Sensitivity of the cash flows to changes in monthly demand

The cash flows in the following months play a vital role in the company as it is always assumed to have a great amount of cash at the ending of the month so that there is no problem in carrying out the future transactions but here, it has been seen that the cash amount at the end of the month is decreasing drastically. The expenses are also increasing making a great impact in the operating income and not leaving sufficient fund behind (Mariana, 2018). It also keeps the investment as a major part which is to be also increased in the following months leading to the increase in the expenses. The total cash balance as on the first month was high and then kept on declining with the increase in the expenses. This could be the reason that the debtors collection period in not going as expected (Njeru Mugambi Duncan et al., 2015). The financing activities in the cash flow are also affected by the accrual amount in the company and should be cleared as soon as possible. In addition to this it can be said that these activities will only determine the cash and cash equivalents at the end of the months keeping everything in place so the cash flow should not be neglected as it is the blood in any organisation (Chang et al, 2014).

Appropriate advice to the directors of Pompido Ltd to improve the cash flow

Yes, it is very crucial and important decision which the directors of the Pompido Ltd should take upon the cash flows in the company. They should clearly and closely monitor all the activities going on in the organisation and keep a track on the cash transactions and the amount that is to be taken by debtors (Mariana, 2018). They should also try to reduce the expenses so far as by limiting this they will have a good amount of cash left at the end of the month which could be utilised in the following or the further months in the year. In addition to this, the Board of Directors should also try to reduce the other major variable expenses which will also lead to the increase in the cash collected amount (Njeru Mugambi Duncan et al., 2015). The personal vigilance among record with the debtors’ collection period should be reviewed and reduced so that the amount gets rotated very now and then and there is no backlog among the amount. They should also look in the irrecoverable or the bad debt amount if anything should be recovered from them and also with this the amount of accrual should also not be neglected.

REFERENCES

Chang, X., Dasgupta, S., Wong, G. and Yao, J., 2014. Cash-flow sensitivities and the allocation of internal cash flow. The Review of Financial Studies27(12), pp.3628-3657.

DeFranco, A.L. and Schmidgall, R.S., 2017. Cash Budgets, Controls, and Management in Clubs. The Journal of Hospitality Financial Management25(2), pp.112-122.

Mariana, Z., 2018. THE CASH BUDGET–A SHORT-TERM FORECAST TOOL FOR THE FINANCIAL STATEMENTS OF ECONOMIC ENTITIES. Ecoforum Journal7(2).

Njeru Mugambi Duncan, D., Njeru, A., Member, F. and Tirimba, O.I., 2015. Effect of Cash Management on Financial Performance of Deposit Taking SACCOs in Mount Kenya Region. International Journal of Scientific and Research Publications5(2), pp.1-6.

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