QUESTION 3

Price and Cost (Pvt) Ltd Company makes a single product, whose unit budget details are as follows:

BWP BWP

Selling price 30

Less costs:

Direct material 9

Direct labour 4

Direct production expenses 6

Variable selling expenses 4

Additional information:

1. Unit sales are expected to be:

June July August September October

1 000 800 400 600 900

2. Credit sales will account for 60% of total sales. Debtors are expected to pay in the month

following sale for which there will be a cash discount of 2%.

3. Inventory levels will be arranged so that production in one month will be meet the next

months sales demand.

4. The purchases of direct materials in one month will just meet the next months

production requirements.

5. Suppliers of direct materials will be paid in the month following purchase.

6. Labour cost will be paid in the month in which they are incurred. All other expenses will

be paid in the month following that in which they are incurred.

7. Fixed expenses are P2 000 per month and include P180 for depreciation.

8. The bank balance at 1 July 2017 is P3 900 favourable to the business.

Required:

Prepare a cash budget for Price and Cost (Pvt) Ltd Company for the three months period ending

30 September 2017 showing the balance of cash at the end of each month. (20 marks)