Question 2 (20 marks; 36 minutes) The management of Beck Company have been informed that the...

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Question 2 (20 marks; 36 minutes) The management of Beck Company have been informed that the union representing the direct production workers at one of their factories, where a standard product is produced, intends to call a strike. The accountant has been asked to advise the management of the effect the strike will have on cash flow. The following data has been made available: Week 1 Week 2 Week 3 Budgeted sales 400 units Budgeted production 600 units 500 units 400 units 400 units Zero units The strike will commence at the beginning of week 3 and is should be assumed that it will continue for at least four weeks. Sales at 400 units per week will continue to be made during the period of the strike until inventory of finished goods are exhausted. Production will stop at the end of week 2. The current inventory level of finished goods is 600 units. The selling price of the product is R60 and the budgeted manufacturing cost is made up as follows: Direct materials Direct wages R 15.00 7.00 Variable overheads 8.00 Fixed overheads 18.00 Total 48.00 Direct wages are regarded as a variable cost. It takes one hour to produce a unit. The company operates a full absorption costing system, and the fixed overhead absorption rate is based on the budgeted fixed overhead of R9 000 per week. Included in the total fixed overhead is R700 per week for depreciation of equipment. During the period of the strike direct wages and variable overhead would not be incurred and the cash expended on fixed overhead would be reduced by R1 500 per week. Done The current inventory of raw materials is worth R7 500: it is intended that these stocks should increase to R11 000 by the end of week 1 and then remain at this level during the period of the strike. All direct materials are paid for one week after they have been received. Direct wages are paid one week in arrears. It should be assumed that all overheads are paid for in the week that the expense is incurred. All sales are on credit. 70% of the sales value is received in cash from the debtors at the end of the first week following the sale and the balance at the end of the second week following the sale. The current amount outstanding to material suppliers is R8 000 and direct wage accruals amount to R3 200. Both of these will be paid in week 1. The current balance owing from debtors is R31-200 of which R21.840 will be received during week 1 and the remainder during week 2. The current balance of cash at the bank and in hand is R1 000. Required: 2.1 Prepare a cash budget for weeks 1 and 2. Provide supporting schedules for accounts receivable and accounts payable. NB: Show all calculations. (20) Question 2 (20 marks; 36 minutes) The management of Beck Company have been informed that the union representing the direct production workers at one of their factories, where a standard product is produced, intends to call a strike. The accountant has been asked to advise the management of the effect the strike will have on cash flow. The following data has been made available: Week 1 Week 2 Week 3 Budgeted sales 400 units Budgeted production 600 units 500 units 400 units 400 units Zero units The strike will commence at the beginning of week 3 and is should be assumed that it will continue for at least four weeks. Sales at 400 units per week will continue to be made during the period of the strike until inventory of finished goods are exhausted. Production will stop at the end of week 2. The current inventory level of finished goods is 600 units. The selling price of the product is R60 and the budgeted manufacturing cost is made up as follows: Direct materials Direct wages R 15.00 7.00 Variable overheads 8.00 Fixed overheads 18.00 Total 48.00 Direct wages are regarded as a variable cost. It takes one hour to produce a unit. The company operates a full absorption costing system, and the fixed overhead absorption rate is based on the budgeted fixed overhead of R9 000 per week. Included in the total fixed overhead is R700 per week for depreciation of equipment. During the period of the strike direct wages and variable overhead would not be incurred and the cash expended on fixed overhead would be reduced by R1 500 per week. Done The current inventory of raw materials is worth R7 500: it is intended that these stocks should increase to R11 000 by the end of week 1 and then remain at this level during the period of the strike. All direct materials are paid for one week after they have been received. Direct wages are paid one week in arrears. It should be assumed that all overheads are paid for in the week that the expense is incurred. All sales are on credit. 70% of the sales value is received in cash from the debtors at the end of the first week following the sale and the balance at the end of the second week following the sale. The current amount outstanding to material suppliers is R8 000 and direct wage accruals amount to R3 200. Both of these will be paid in week 1. The current balance owing from debtors is R31-200 of which R21.840 will be received during week 1 and the remainder during week 2. The current balance of cash at the bank and in hand is R1 000. Required: 2.1 Prepare a cash budget for weeks 1 and 2. Provide supporting schedules for accounts receivable and accounts payable. NB: Show all calculations. (20)