3.1 Preparation of receipts from accounts receivable schedule and cash budget

Rainbow Enterprises has presented the following estimates relating to 2018 activities.

Sales in the December quarter of 2017 were $690000. All sales are on credit, of which 55 per cent are collected in the quarter of sale and 45 per cent in the following quarter. Purchases are on credit, and entity policy is such that all purchases are paid for in the same quarter. The marketing and administration expenses incurred and paid are the same. Occupancy expenses incurred and paid are usually the same, except that the electricity bill (estimated to be $700) for December 2018 will not be paid until January 2019. A major IT hardware acquisition of $27 300, to be paid for in cash, is expected in the December quarter. The bank balance at 31 December 2017 was $18 450.

Required

a. Prepare a schedule of receipts from accounts receivable showing cash collections for each quarter of 2018.

b. Prepare a cash budget (on a quarterly basis) for the 12 months ending 31 December 2018.

c. Assess the cash position of the entity for 2018.

3.2 Preparation of sales and operating expenses budgets and budgeted statement of profit or loss.

Mike Triump is the owner/manager for Online Logistic Solutions, which is a small transport and courier company that provides logistic services to business. Mike is about to start the budget process for 2018. His marketing manager has contacted customers and analysed market trends, and expects sales to online traders to increase by 30 per cent in 2018. One of the major customers has predicted that their sales will increase 109 per cent next year. Mike is very confident that his business will meet the estimated sales growth for 2018. In contrast, transport to local traders is expected to increase by no more than 3 per cent in 2018. The sales activity for 2017 was as follows:

Operating expenses

Given the expected increase in sales volumes for 2018, the Office Manager has held meetings with the drivers and sales personnel to identify resources needed to support the increased activity. To assist their deliberations, the statement of profit or loss for 2017 was used as a basis for discussion.

Additional information

The following changes are expected in 2018:

 A new enterprise bargaining agreement is expected to be approved which will increase salaries by 4 per cent.

 Due to uncertainty regarding the cost of fuel an expected increase of 1 per cent is to be allowed in the budget.

 The fuel is included in the vehicle-related expenses and is 50 per cent of the expense.

 Utilities are expected to increase by 2 per cent.

 To encourage sales staff to boost sales to the expected levels, the sales commission will increase from 5 per cent to 5.5 per cent of sales.

 Marketing-related expenses are expected to increase 25 per cent.

 General administration expenses are expected to increase by 1 per cent.

 Loan interest and depreciation for 2018 will be the same as for 2017.

Required

Prepare budgets for 2018 taking in consideration revenue and cost changes identified by the business.

a. a sales budget,

b. an operating expenses budget and

c. budgeted statement of profit or loss for Online Logistic Solutions.