Top 20 Questions and Answers-Flexible Budget With PDF

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It can result in missing out on handsome profits for the company. Also, the management may plan to repay part of its debt and reduce its interest burden during periods with a cash surplus. The installation of the necessary ovens and purchase of the necessary equipment would cost GH¢18, ii. The current investment in North Unit totals GH¢89,000. The unit revenue are GH¢110,050 and expenses are GH¢92,442.

The bought-in- price quotation received from the external supplier is GH¢8 per component. The marginal cost of producing the component is GH¢6 per unit of the component which will be produced on a machine currently working at full capacity. The finished product is currently sold at GH ¢100 per unit with a total cost of GH¢75 per unit in which GH¢15 per unit represent a fixed cost. Profit 3, The monthly information provided relates to the company’s routine monthly operations.

Jackson Company is now making a small part that is used in one of its products. The company’s accounting department reports the following per unit costs of producing the part internally. You must go over the budgeting strategy and financial goals together at the start.

Keep an eye on your business budget and changing business goals to stay on top of and avoid issues. Here are some common budget challenges and their solutions. Variable overheads amounted to GHȼ260 and fixed overheads amounted to GHȼ730.

cash budget problems with solution

In case of businesses facing seasonal variations in demand, the cash budget can be made for small durations, say weekly or monthly. This will help to achieve realistic budget goals. A company can go for a longer period budget, say even a year, if its cash flows are relatively stable with little fluctuations. The cash budget gives a broad view of the company’s cash requirements in the near future. If the receipts seem to be falling short of the future expenditure, the company can plan to raise or arrange for more cash from other sources in time.

Finance Strategies to Grow your Small Business

Sale of the components to the new retailer is not expected to affect the company’s normal sales. In this article, we will learn the top 20 questions and answers-Flexible budget. After reading this article you will get the brief idea about the flexible budget which enhance your accounting knowledge and skill. The special equipment has no resale value and does not wear out through use. The supervisory salaries could be avoided if production of the part were discontinued. An outside supplier has offered to sell the part to Jackson Company for GH¢30 each, based on an order of 5,000 parts per year.

Asua Ltd evaluates its managers based on investment. Managers and individual units have right over the pizza expansion. Suppose the company has ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is GH¢75 per unit.

The fixed overhead costs are attributed to three products on the basis of direct labour hours. A budget is based on a set of assumptions that are generally not too far distant from the operating conditions under which it was formulated. Unless management acts quickly to override the budget, managers will continue to spend under their original budgetary authorizations, thereby rupturing any possibility of earning a profit. Other conditions that can also cause results to vary suddenly from budgeted expectations include changes in interest rates, currency exchange rates, and commodity prices. The cash budget helps the management in proper planning.

The Cash Flow statement is an integral part of the Financial Statements. It shows the amount and timing of money in and outflows, i.E., Cash received and paid to suppliers, employees, investors, etc. The Cash Flow statement reports how much cash was generated or used by the firm, not how much profit was made. These problems will help students clarify key concepts about cash flow statements and to ready themselves for their exams and interviews.

  • The other overhead comprising both fixed and variable overhead is allocated as GH¢36800 plus 10% of direct labour cost.
  • You must create an avenue for addressing the probability of a delayed payment.
  • It can result in missing out on handsome profits for the company.

And, make sure to add budgetary line items for expenses such as accounting software, an accountant, or both. The combination of these may help you to stay cash budget problems with solution on track with your financial goals . From the summarized cash book of Zenith Ltd. shown below, calculate net cash flow from operating activities.

All overheads are absorbed on direct labour hours. 90% are settled in the month following purchase and the balance settled in the second month after purchase. The key to financial security lies in proper budgeting. The tricky part comes when you have to stick to your budget, given the day-to-day financial challenges you face. Money shortages, materialistic temptations, and other typical problems can ultimately jeopardize your financial objectives. If your business is new, every time you receive a payment from a client, you can put 30% of it into a business savings account.

Similar to Cash budget (

This will help it to avoid the unpleasant situation of being short in cash and hindrance of business activities. A cash budget acts as a tool to correctly time expenditures of the company as per its cash resources. Also, as said earlier, it gives the management time to be prepared for utilizing surplus cash when available. This results in building goodwill and brand value of the business.

The good news is that budgeting is not a befuddling algebra problem you cannot solve. All you need to know is basic addition and subtraction to total up your income and subtract your estimated expenditure to arrive at a sum you can save. Maintain a physical record of everything you earn and spend to make budgeting easier. You could also opt for a user-friendly budgeting app that does the hard work for you. • The cash balance at the beginning of Quarter 1 is estimated to be $49,400 positive. Material purchases will be $60,000 at the beginning of Quarter 1.


It will know in advance the possible cash surplus or deficit scenario in near future. In both cases, it can stay prepared in advance to avoid sudden crisis or loss of investment opportunity. A consistent surplus budget may signal the management to look for other investment opportunities.

Ou are required to prepare a cash budget for each of June, July and August. The space being used to produce the milk jugs could be used to store empty jugs, eliminating a rented warehouse and reducing common fixed costs by 20%. The rest of the space could be rented to another company for GH ¢30,000 per year. Actual results for June 2014 were as follows; 485 units of the product were produced and sold at GHȼ9 per unit. Material consumed in production amounts to 280 kg at a cost of GHȼ980 and labour cost of GHȼ1680 for 672 hours was incurred. You are required to prepare a cash budget for each of June, July and August.

It is estimated that trade receivables will be $125,000 at the beginning of Quarter 1. This is one of the biggest challenges small businesses face. Here is a list of the common cash flow problems and how you can resolve them.

cash budget problems with solution

They also allow you to better forecast future budgets. Another option you can consider is zero-based budgeting, especially if you have a small business. Zero-based budgeting means the budget starts at zero every year. This option is especially beneficial for start-ups in their first year. Some small businesses opt to use zero-based budgeting every few years and traditional budgets in-between. As a business owner, there are two important things you want to keep—time and money. (Souq al Mal is Arabic for ‘money market’) is the leading comparison website in the Middle East and lets you compare financial products before you say ‘I do’. Handling budgets can be stressful during times of financial instability. However, creating some wiggle-room to accommodate these instabilities is essential to managing your budget. Rising cost of living and steadily increasing expenses in this day and age are a genuine problem most people face. Failing to account for theses changes, can dampen the success of your budget.

Cash Outflow Forecast

Consider consulting with your accountant if any big changes happen that impact your business financially. From the following profit and loss account of Samarth Ltd., calculate net cash flows from operating activities. Plan for these inadequacies and make channels in your budget that can address chances of such shortfalls.

The nature of the budget is numeric, so it tends to focus management attention on the quantitative aspects of a business; this usually means an intent focus on improving or maintaining profitability. In reality, customers do not care about the profits of a business – they will only buy from the company as long as they are receiving good service and well-constructed products at a fair price. Unfortunately, it is quite difficult to build these concepts into a budget, since they are qualitative in nature. Thus, the budgeting concept does not necessarily support the needs of customers.

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