Question

List and discus components of master budegt (2%)

2.List and discus components of cash budget (2%)
3.ABC Company has a shortage of birr 100, 000 and the company must hold ending inventory of birr 35,000 at the end of period. What do you recommend ABC Company? (1%)

Answer 1

[AI-generated answer — Bot GPT 3.5]

1. Components of a master budget:

- Sales budget: This includes the expected sales for the period, broken down by product or service.
- Production budget: This outlines the production needs based on the sales budget and inventory levels.
- Direct materials budget: This details the materials needed for production and their costs.
- Direct labor budget: This outlines the labor costs required for production.
- Overhead budget: This includes all other production costs not accounted for in the direct materials and labor budgets.
- Selling and administrative budget: This includes all non-production expenses related to selling and administrative functions.
- Budgeted income statement: This summarizes the expected revenues and expenses for the period.
- Budgeted balance sheet: This details the expected assets, liabilities, and equity at the end of the period.

2. Components of a cash budget:
- Beginning cash balance: This is the amount of cash on hand at the beginning of the period.
- Cash receipts: This includes all expected cash inflows, such as sales revenue, loans, and investments.
- Cash disbursements: This includes all expected cash outflows, such as rent, utilities, and payroll.
- Cash surplus or deficit: This is calculated by subtracting cash disbursements from cash receipts to determine if there is a surplus or deficit for the period.
- Ending cash balance: This is the projected cash balance at the end of the period after all cash receipts and disbursements have been accounted for.

3. If ABC Company has a shortage of Birr 100,000 and must hold ending inventory of Birr 35,000 at the end of the period, it is recommended that the company look into ways to reduce expenses or increase revenues in order to cover the shortfall. This could include cutting costs, renegotiating contracts, increasing sales, or seeking additional financing. It may also be helpful to conduct a thorough analysis of the company's expenses and revenue streams to identify areas for improvement. Additionally, the company should ensure efficient inventory management to avoid excess inventory that ties up cash flow.