QUESTION 4 15 MARKS Makoti Limited is a merchandising company that sells African print wear The company is planning its cash needs for September 2019 to ensure that it has adequate supplies and cash reserves to support the upcoming Heritage Day In the past, Makoti Limited has had to borrow money during September to support peak sales leading to the 23rd of September The following information has been assembled to assist in preparing a cash budget for September 2019 Extracts from the budgeted monthly income statement for July to October are as follows July 2019 August 2019 September 2019 October 2019 Sales 50 000 45 000 70 000 55 000 Cost of sales 30 000 27 000 42 000 33 000 Gross profit 20 000 18 000 28 000 22 000 ADDITIONAL NOTES Sales are 30 for cash and 70 on credit Credit sales are collected over a three month period with a 20 collected in the month of sale, 50 in the month following sale, and 30 in the second month following sale Inventory purchases are paid for as follows 40 of a months inventory purchases are paid for in the month of purchase The remaining 60 is paid in the month after that (i e , after 30 days) The company maintains its ending inventory levels at 75 of the cost of the merchandise to be sold in the following month Salaries and wages that will be expensed in the income statement during September 2019 add up to R32 250 and comprise the following basic salaries and wages of R27 750, leave pay provision of R2 500 and Pay As You Earn (PAYE) of R2 000 (August 2019 was R2 250) Leave pay provision is accrued when the employees are entitled to the leave and reversed when employees take the leave or leave days are forfeited PAYE is paid to SARS on the 7th of the month following the month of the salary payment REQUIRED Determine how much of a cash shortage Makoti Limited will experience and need to plan for in the month of September 2019 Hint Prepare the cash budget for the month ended 30 September 2019 (for the one month only) Marks 15

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QUESTION 4 15 MARKS Makoti Limited is a merchandising company that sells African print wear. The company is planning its cash needs for September 2019

QUESTION 4 15 MARKS

Makoti Limited is a merchandising company that sells African print wear. The company is planning its cash needs for September 2019 to ensure that it has adequate supplies and cash reserves to support the upcoming Heritage Day. In the past, Makoti Limited has had to borrow money during September to support peak sales leading to the 23rd of September. The following information has been assembled to assist in preparing a cash budget for September 2019. Extracts from the budgeted monthly income statement for July to October are as follows:

	July 2019	August 2019	September 2019	October 2019
Sales	50 000	45 000	70 000	55 000
Cost of sales	30 000	27 000	42 000	33 000
Gross profit	20 000	18 000	28 000	22 000

ADDITIONAL NOTES

Sales are 30% for cash and 70% on credit.
Credit sales are collected over a three-month period with a 20% collected in the month of sale, 50% in the month following sale, and 30% in the second month following sale.
Inventory purchases are paid for as follows: 40% of a months inventory purchases are paid for in the month of purchase. The remaining 60% is paid in the month after that (i.e., after 30 days).
The company maintains its ending inventory levels at 75% of the cost of the merchandise to be sold in the following month.
Salaries and wages that will be expensed in the income statement during September 2019 add up to R32 250 and comprise the following: basic salaries and wages of R27 750, leave pay provision of R2 500 and Pay As You Earn (PAYE) of R2 000 (August 2019 was R2 250). Leave pay provision is accrued when the employees are entitled to the leave and reversed when employees take the leave or leave days are forfeited. PAYE is paid to SARS on the 7th of the month following the month of the salary payment.

REQUIRED

Determine how much of a cash shortage Makoti Limited will experience and need to plan for in the month of September 2019. Hint: Prepare the cash budget for the month ended 30 September 2019 (for the one month only).

Marks