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610 Question 2 Elma Ltd has provided the following budgeted figures for the four months commencing February 2019: Units Sales Production February 600 March 700 720 April 900 910 May 1,000 990 The company makes and sells one product only, the standard unit costs and selling price of which are: Selling price 60 Material 5 kilos at $2 per kilo 10 Labour - 2 hours at $10 per hour 20 Variable overhead - $8 per labour hour 16 The following information is also available: Customers are allowed Two month's credit however, 20% of customers pay in cash in the month of sale and the remainder is paid in two equal instalments Received Interest and dividends in March and April amounting to N$10,000 and N$7,500 respectively. Materials are purchased in the month before use and are paid for one month after use. Labour costs are paid for in the month of production. Settled N$12,000 tax liability in Paid tax in Variable overhead is paid one month after production Total fixed overhead is $5,000 per month (including depreciation of $500) payable after one month. Bought a photocopying machine N$5,250 The opening cash balance at 1 March 2019 is expected to be $8,000 in hand. Finished stock is valued at standard variable cost per unit. There is no stock of work-in-progress. Required: a) Prepare the Cash Budget for the months of March and April only. (19 marks) b) Explain the importance of budgeting. (6 marks) c) Discuss the purpose and/or benefits of using a budget (6 marks) d) Explain the difference between a fixed and flexible budget (3 marks) 610 Question 2 Elma Ltd has provided the following budgeted figures for the four months commencing February 2019: Units Sales Production February 600 March 700 720 April 900 910 May 1,000 990 The company makes and sells one product only, the standard unit costs and selling price of which are: Selling price 60 Material 5 kilos at $2 per kilo 10 Labour - 2 hours at $10 per hour 20 Variable overhead - $8 per labour hour 16 The following information is also available: Customers are allowed Two month's credit however, 20% of customers pay in cash in the month of sale and the remainder is paid in two equal instalments Received Interest and dividends in March and April amounting to N$10,000 and N$7,500 respectively. Materials are purchased in the month before use and are paid for one month after use. Labour costs are paid for in the month of production. Settled N$12,000 tax liability in Paid tax in Variable overhead is paid one month after production Total fixed overhead is $5,000 per month (including depreciation of $500) payable after one month. Bought a photocopying machine N$5,250 The opening cash balance at 1 March 2019 is expected to be $8,000 in hand. Finished stock is valued at standard variable cost per unit. There is no stock of work-in-progress. Required: a) Prepare the Cash Budget for the months of March and April only. (19 marks) b) Explain the importance of budgeting. (6 marks) c) Discuss the purpose and/or benefits of using a budget (6 marks) d) Explain the difference between a fixed and flexible budget