QUESTION 2: PUNCAK LTD

PUNCAK Ltd's budgeted production and sales of shoes for Dec 2020 - Apr 2021 months are as follows:

	Production (UNITS)	Sales (UNITS)
December	600	500
January	650	600
February	700	650
March	700	700
April	800	700

The selling price per unit will be 170. All sales will be made on credit.

The business plans to offer a cash discount (of 10% of the amount owed) to those customers who pay within the same of the month of sale. Customers for 40% of units sold are expected to qualify for the discount. Remaining 60% of the sales is expected to be paid during the next month (i.e one month later).

It is planned that sufficient finished goods inventories for each months sales should be available at the end of the previous month.

For raw material purchases, the cost of raw material is 12 per unit. It is bought in the month of production and paid one month in arrears (i.e later).

The direct labour cost, which is variable with the level of production, is planned to be 17 per unit of finished production and it is paid in the month of production.

Overhead costs are planned to be 12,000 each month including 5,000 for depreciation. Overhead costs are paid in the same month.

Company bought an equipment for 330,000 in Jan and equal payments were made over Feb- Apr.

Opening cash balance at the start of Jan (1^st) is 45,000.

Required:

Draw up a cash budget for the 4 months from 1 January to 30 April 2021, with a column for each month. The budget should, among other things, show each end-of-month cash balance. (35 marks)

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