QUESTION 2 Kowakyikakra Limited sells a single product at a mark-up of 25\%. The following information is available: 1 Sales revenue: 2 All sales are on credit and customers have a credit period of 2 months. 3 All purchases are on credit and suppliers are paid in the month following purchases. 4 Inventory level at the end of each month will be maintained at 25% of the sales volume in the following month. 5 Monthly operating costs are expected to be $18000, which includes $3000 depreciation. 6 Balance at bank at 1 January 2018 is expected to be $4500. REQUIRED (a) Prepare the cash budget for each of the three months from January to March 2018. [9] (b) Prepare a budgeted income statement for the three-month period ending 31 March 2018. [3] (c) Prepare a reconcillation of the profit from operations for the three-month period ending 31 March 2018 to the net cash at 31 March 2018. [8] Additional information The directors are considering investing $60000 in a new computer system to improve inventory control. According to the payment terms, 50% is payable in March 2018 and the remaining 50% in the following month. REQUIRED (d) Advise the directors whether or not they should purchase the new computer. Justify your answer. [5] [Total: 25]