unit 15

hanapospis

Hi,
could anyone please help me with the cash budget forecast task. I cannot get around with it.

How can I calculate value of purchases if I am given only projected credit sales and forecast production quantities? I am not give opening nor the closing stock???

anyone please help!

mikes

This has to be done in 3 stages.

First you take the forecast sales and deduct the opening stock, as they are already made and you dont want to duplicate them, then add the closing stock. This gives the total for the production budget, ie how many items are to be made that month.

Second
For the materials usage, you calculate the previous total, by how much each item costs in terms of the raw materials.

Third
For the materials purchases, which is what you are finaly getting at. You take the usage figure and like the sales, you deduct the opening stock of raw materials (not the finished stock) and add the closing stock. This tells you how much you need to buy that month and multiply it by the unit price, to give you the months total.

Dont forget, you will need to account for it in the month that they are going to be paid, not when you have calculated it. Ie something that is on 30 day terms, when purchased in January, will show in February's figures. Unless the say otherwise.

You will need to do a lot of careful reading in the memos and other information given. This can be like doing some detective work, or solving a difficult jigsaw puzzle.

All the best

hanapospis

Hi,
Thank you for your reply. I was quite confident with this unit untill now. I do understand your post but the thing is I was not given any opening or closing stock figure.. I was given only the forecast sale and foreceast production (how many item is budgeted to be produced) I am so confused....

mikes

Are you doing a question or a practice exam from the Osborn book? If you are let us know what one you are doing and i will see if i can find the information. It won't be tonight i'm afraid, but hopefully i will try to come back tomorrow or Thursday. if that's ok.

hanapospis

Hi Mike,
I am doing a question for my college. I am really struggling with this unit. I have sent you PM last night.

Thank you