Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 2 (50 marks) ACME Ltd. Is expected to commence business on January 1, 2020, selling a variety of pharmaceuticals. The company will start operations

image text in transcribed
Question 2 (50 marks) ACME Ltd. Is expected to commence business on January 1, 2020, selling a variety of pharmaceuticals. The company will start operations with the following assets: s Cash 112,000 Inventory 232,000 Equipment 400,000 Land 248,000 Buildings 1,600,000 Projected sales for the first four months of 2020 are as follows: January 1,120 000 February 2,240,000 March 2,600,000 April 3.200,000 Twenty per cent of the company's sales will be for cash and the remaining 80 per cent will be on credit. Seventy-five per cent of the receivables (credit sales) will be collected in the month of the sale and 23 per cent in the following month. The remaining receivables will be deemed bad. Some expenses are expected to vary with the sales in each month as follows: Cost of goods sold 60% of sales Bad debts 2% of sales Variable selling expenses 4% of sales Variable administration expenses 5% of sales Sixty per cent of the merchandise purchased will be paid for in the month in which the purchase is made and the balance will be paid for in the following month. Seventy-five per cent of the variable expenses will be paid for in the month in which they were incurred and the balance the following month. The ending inventory of each month should be equal to one-third of the amount estimated for cost of sales for the coming month. The fixed expenses will be paid for in the month in which they are incurred. These expenses for each month are as follows. Selling 200,000 Administration 148.400 Depreciation 25,000 Wages and salaries 40 000 General expenses 32,000 The company proposes to make an additional investment in cquipment of $90,000 in March 2020 to handle the increase in sales levels. The company must maintain a bank balance each month of $40,000. The company can borrow any additional funds from the local bank at 15 per cent interest per annum (1) Prepare the following schedules for the months of January, February and March 2020. a) Cash collections schedule (8 marks) b) Purchases budget (9 marks) c) Cash disbursement schedule for purchases (5 marks) d) Cash disbursement schedule for variable expenses (10 marks) (m) Use the information from the schedules at I) above to prepare a cash budget for the months of January, February and March 2020. (18 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Assurance And Auditing

Authors: Thomas Nelson

1st Edition

0170111342, 978-0170111348

More Books

Students also viewed these Accounting questions