- 10 Marks
PSAF – Nov 2020 – L2 – Q4a – The Budgeting Process in the Public Sector
Prepare a monthly cash budget for the fishpond from January to March 2020, considering expected sales, purchases, and allocation.
Question
The Chairman of Okoko Local Government set up pond farming to fulfill a campaign promise. However, the Chairman is concerned about the project’s viability and its ability to finance itself due to increasing production costs. The expected cash-in-hand as of January 1, 2020, is N3,300,000.
The following information concerns the budgeted sales and purchases of the fish farm.
| Month | Sales (N’000) | Purchases (N’000) |
|---|---|---|
| November 2019 | 55,000 | 35,000 |
| December 2019 | 100,000 | 55,000 |
| January 2020 | 114,000 | 75,000 |
| February 2020 | 142,000 | 95,000 |
| March 2020 | 145,000 | 80,000 |
Analysis of records shows that debtors settle according to the following pattern:
- 70% within the month of sale
- 30% in the following month
All purchases are on credit. Past experience shows that 80% of the purchase costs are settled in the month of the transaction, and the balance is settled in the subsequent month. Overhead costs amounting to 65% of the purchases of the month are to be paid monthly. Additionally, the Local Government will receive a monthly allocation of N15,000,000.
Required:
Prepare for the Chairman of Okoko Local Government a monthly cash budget for the fish pond for the first quarter (January to March) of 2020. (10 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Budgeting, Cash Budget, Debtors, Fish Farm, Monthly Allocation, Purchases
- Level: Level 2
- Topic: The Budgeting Process in the Public Sector
- Series: NOV 2020