Cash Budget Preparation for Nada Ltd in February and March 2023

a) Cash Budget Preparation for Nada Ltd

Nada Ltd produces light weight backpacks made of durable and waterproof material. Below is the information required to prepare a cash budget for the months of February and March 2023:

The cash balance at the beginning of February 2023 is $60,850. The business aims to keep a cash balance of at least $10,000 at the end of each month.

Sales revenue for January 2023 is expected to be $555,000; expected sales for February 2023 are $640,000 and for March 2023 are $665,000. All sales are expected to be cash sales.

Expected purchases in February 2023 are $516,000 and March 2023 are $485,000. The business pays its suppliers 75% of the purchases cost in the same month and the remaining amount in the month after purchase. No purchases were made in January 2023 due to sufficient stock from the previous year.

Wage costs are expected as follows: January 2023 $88,000; February 2023 $90,000 and March 2023 $102,000. Wages are paid in the same month.

Manufacturing overhead paid for January 2023 is expected to be $58,000; expected for February 2023 are $60,700; expected for March 2023 are $53,800 which includes $5,500 for online advertising via social media that will take place in April 2023.

Administration and selling expenses paid for January 2023 are expected to be $76,000; expected for February 2023 are $83,000; expected for March 2023 are $77,000 including an amount of $4,000 for an advertising campaign to be conducted in March 2023.

Nada Ltd is anticipating a major upgrade to their IT system for enhanced security and additional payroll features for $68,000 to be paid for in cash expected in February 2023.

b) Evaluation of the Cash Budget

Potential issues with the cash budget need to be addressed and adjustments may be necessary to meet the target ending cash balance.