Question Tag: Projections

Orok Trading Company sells cement bags at N2,000 each. According to projections, it would sell 100 bags each in October, November, and December; and 120 bags per month in the succeeding months.

The company sells on credit, with customers paying 50% in the month following sale, and the balance 30 days later.

Other expected inflows are:

• Sale of plant, N80,000 in January and N50,000 in February
• Insurance claim, N50,000 in February
• Damages from a lawsuit, N60,000 in March

The company purchases its products from a supplier who gives two months’ credit. The company’s cost of sale is 60%.

Projected outflows are:

• Salaries of N30,000, paid monthly
• Rent of N25,000, paid monthly
• Other administrative expenses of N55,000 per month are settled as they arise.
• Income tax of N25,000 payable in January
• New asset, N40,000 to be purchased in January

The bank balance on December 31 is N235,000 negative.

You are required to:

• Prepare a monthly Cash Budget for January to March. Show all workings.