Week 5 Simple Budget Examples
Simple Budget Examples
Please consider the following examples:
Simple Expense Budget Example
The Turner Home Building Products company manufactures bricks and tiles. Imagine that Turner’s administrative department has been asked to prepare an expense budget for the coming year. Administration’s actual figures for the last financial year were:
| Expense Category | Amount |
| Salaries | $323,400 |
| Stationery | 14,000 |
| Telephone | 15,120 |
| Electricity | 15,850 |
| Rates | 7,780 |
| Depreciation | 12,600 |
| Total | $388,750 |
After carefully considering relevant factors it was estimated that the following changes are likely to occur in the next financial year:
- Salaries are expected to increase by 5%.
- Due to a new online facility installed by Turner, stationery is expected to decrease by 10%.
- Telephone and depreciation should remain the same.
- Tariff increases will mean that electricity will rise by 6%.
- Rate increases will be 8%.
Incorporating these assumptions into a forecast produces the following expense budget for the administration department for next year:
| Expense Category | Last Year | Change | Next Year | |||||||
| Salaries | $323,400 | 5% | increase | = | $323,400 | x | 1.05 | = | $339,570 | |
| Stationery | 14,000 | 10% | decrease | = | $14,000 | x | .90 | = | 12,600 | |
| Telephone | 15,120 | 15,120 | ||||||||
| Electricity | 15,850 | 6% | increase | = | $15, 850 | x | 1.06 | = | 16,801 | |
| Rates | 7,780 | increase | = | $7,780 | x | 1.08 | = | 8,402 | ||
| Depreciation | 12,600 | 12,600 | ||||||||
| Total | $388,750 | Total | $405,093 | |||||||
Cash Collections Budget Example
Deadliest Catch Crab Supply expects sales of $6,000, $7,000, and $8,000 during October, November, and December. The company lets all customers buy on credit, and all do so. In the past, 50% of the company's sales have been collected during the month of sale, 40% are collected the following month, and 10% the month after that. If this trend continues, what will be the total cash collections in the month of December?
Answer:
| October | November | December | |||
| Sales ($000s) | $6,000 | $7,000 | $8,000 | ||
| Cash Collections: | |||||
| in month of sale | 50% | $3,000 | $3,500 | $4,000 | |
| first month after sale | 40% | 2, 400 | 2,800 | ||
| second month after sale | 10% | 600 | |||
| Total Monthly Cash Collections | $7,400 | ||||
Cash Flow Summary Budget Example
Deadliest Catch Crab Supply expects to have $1,000 in cash on hand at the beginning of October, and the company's target cash balance is $1,000. Net cash flow for October is minus $3,000. The company borrows to meet short term cash needs. Given these conditions, what will the company's ending cash balance after financing be at the end of October?
Answer:
| October | |
| Beginning Cash | $1,000 |
| Net cash flow (receipts less disbursements) | ($3,000) |
| = Ending cash before financing | ($2,000) |
| Minimum cash balance desired | $1,000 |
| Required financing | $3,000 |
| End cash balance after financing | $1,000 |