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Cash Budget For Overheads

Forums › FIA Forums › MA2 Managing Costs and Finance Forums › Cash Budget For Overheads

  • This topic has 1 reply, 2 voices, and was last updated 3 months ago by Ken Garrett.
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    Posts
  • June 11, 2023 at 3:01 pm #686789
    nptz
    Participant
    • Topics: 1
    • Replies: 0
    • ☆

    An overhead cost budget for the next calendar year includes:
    – Depreciation charged on a straight-line basis at $11,200 per month;
    – Machine maintenance of $5,900 per quarter, payable in advance in January, April, July and October.
    The remaining overheads, of $207,600 for the year, are budgeted to be incurred at an even rate per month, payable one month in arrears. The expected accrued overhead, at the end of the calendar year prior to the budget year, is $16,800.
    What amount of overhead should be included in the cash budget for January?

    A $23,200
    B $22,700
    C $33,900
    D $28,500

    I am quite unfamiliar with the concept of this exercise, could you explain how would the answer change if they changed the question to ask for the cash budget in April, July, or even October?

    June 28, 2023 at 5:47 pm #687499
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10332
    • ☆☆☆☆☆

    Depreciation is not cash, therefore ignore.

    Maintenance of 5900 will be paid in January.

    16800, owing at the end of December will be paid in January. None of the 207600 will be paid until February.

    So, cash outflow in January is 5900 + 16800 = 22700.

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