Question
DeLux Brothers (Pty) Ltd intends to expand its Palapye based operations by acquiring a new plant. The Finance Manger has been asked by the owners
DeLux Brothers (Pty) Ltd intends to expand its Palapye based operations by acquiring a new plant.
The Finance Manger has been asked by the owners of the company to prepare cash flow forecasts
for the business for the period December 2017 to May 2018. The marketing department has
prepared the following forecasts
Month Sales BWP
October 2017 Actual 180 000
November 180 000
December 360 000
January 2018 450 000
February 500 000
March 360 000
April 360 000
May 280 000
Collection estimates from the credit department are as follows:
O Collections within the month of sale (cash sales) 10%
O Collection in the month following the sale 75%
O Collection in the second month following the sale 15%
Total labour and raw materials costs are estimated for each month as follows:
Month BWP
December 2017 216 000
January 2018 270 000
February 300 000
March 250 000
April 216 000
May 168 000
General and administrative expenses will amount to approximately P27 000 per month, lease
payments will amount to P9 000 per month; depreciation will be P34 000 per month; miscellaneous
payments will be 2 700 per month; income tax payment of P300 000 will be due in March 2018 and
a deposit of P180 000 on a new vehicle will be required in December 2017. The bank charges
interest on overdraft of 7% (assume the interest is charged on closing balance for the previous
month). The cash balance at the end of November will be P40 000.
Required:
a) Prepare a cash budget for the period December 2017 to May 2018 (21 marks)
b) Briefly outline any five advantages of a zero based budgeting (ZBB) (5 marks
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started