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QUESTION 5 ( 2 0 Marks ) REQUIRED Use the information given below to prepare the Cash Budget for each of the first three months
QUESTION Marks
REQUIRED
Use the information given below to prepare the Cash Budget for each of the first three months of operations
ie January, February, March Use separate monetary columns for each month.
INFORMATION
The following information relates to Arlon Manufacturers which will commence business on January
with R cash:
New machinery and equipment will be purchased on January for R A deposit of
will be paid immediately. The balance of the debt as well as finance charges of R will be paid in
equal instalments commencing February
Production will commence on January and of the sales for Februarys will be manufactured
in January. Each month thereafter the production will consist of of the current months sales and
of the following months sales.
Estimated sales at R per unit are as follows:
Units
January
February
March
April
Cash sales are expected to comprise of the total sales. A cash discount of will be granted to
these customers. The balance of the sales will be on credit. Thirty percent of the amount owing is
expected to be received in the month of the sale and the balance in the month after the sale.
Variable manufacturing costs per unit are estimated as follows:
Direct materials R
Direct labour R
Overheads R
Direct materials will be purchased to meet the production requirements of each month. Sixty percent
of the purchases is expected to be for cash and the balance on credit. Creditors are expected to be paid in the month after the purchase.
Direct labour costs are settled monthly.
Variable manufacturing overheads will be paid in the month in which they are incurred.
Fixed costs, excluding depreciation of R per month, are expected to amount to R per month and the fixed costs are paid monthly.
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