cash budget

Hi John,

two simple questions abount cash budget:
1. it is likely to be asked in the exam?
2. Don’t understand two points in this exercise:

a. 40% of sales is calculated also in the current month (the text says cash will be received from previous month and I sould assume at the end of may we will issue receipts for june, which will give cash referedd to may)

b. formula component used in the solution: (70% x 60% x $70,000 x 98%). I understand the 98% is due to the discount, 70% is due to the cash as percentage of sales, but don’t get the 60%. The texts says cash are 40% of sales.

EXERCISE TEST

BDL plc is currently preparing its cash budget for the year to 31 March 20X8. An extract from its sales budget for the same year shows the following sales values.
$
March 60,000
April 70,000
May 55,000
June 65,000

40% of its sales are expected to be for cash. Of its credit sales, 70% are expected to pay in the month after sale and take a 2% discount; 27% are expected to pay in the second month after the sale, and the
remaining 3% are expected to be bad debts.

SOLUTION

40% of May sales for cash (40% x $55,000) 22,000
70% of April credit sales less 2% discount (70% x 60% x $70,000 x 98%) 28,812
27% of March credit sales (27% x 60% x $60,000) 9,720
60,532

thanks a lot.