QUESTION $1[25]$

You have been provided with the following relevant information relating to a newly

established company that manufactures a range of office furniture, Durban Furniture $($Pty$)$

Ltd$.$

The budgeted sales for the calendar year $2024$ are expected to be R$7500000.$ It is

expected that $5\%$ of the sales will be achieved in January, $10\%$ in February and $15\%$ in

March. Sales for December $2023$ were R$1350000.$ On average clients pay $10\%$ in the

month of the sale and $85\%$ in the month after the sale.

Durban Furniture $($Pty$)$ Ltd has a contribution margin of $20\%.$ All variable costs are paid in

the month that they are utilized, except direct material which is paid a month in arrears.

Direct materials comprise $80\%$ of the total variable costs.

There are six people employed in the sales and administration department, each earning a

salary of R$5000$ per month, which is paid on the last day of the month.

The company intends purchasing a machine in January for R$1000000.$ A $50\%$ deposit will

be required in the month of purchase and the balance is payable in equal instalments over

the next two months.

The current factory rental is R$10000$ per month payable in advance. The company has been

notified that there will be a $10\%$ increase in rental from April. Advertising will amount to $5\%$

of turnover per month. The company had a bank overdraft of R$500000$ at the end of $2023.$

REQUIRED:

$1.$ Prepare a cash budget per month for the first quarter of $2024.(16$ marks$)$

$2.$ Identify and comment on the areas of the cash budget that require managements$$

attention and recommend actions to improve the cash flow in these areas. $(9$ marks$)$