QUESTION 5 (20 Marks)

INFORMATION:

The following information is available for Conlog Enterprises:

1. On 30 June 2020 the bank account in the general ledger reflected a credit balance of R 125 000.

2. The following related to sales for May and June 2020:

	May actual	June actual
Selling price per unit	R60	R60
Sales Volume	7 000 units	8 200 units

The selling price is expected to increase by 10% from 1 July due to the effects of COVID 19. Sales volume are expected to increase by 8% for each month from July onwards as the company attempts to reach full operation after the COVID lockdown. (Projected sales price per unit and sales volume must be rounded up to the nearest rand)

3. 30% of sales are for cash

4. Collections from debtors are expected to be as follows:

40% - 30 days after the sale these customers qualify for a 5% discount 50% - 60 days after the sale

10% written off after 90 days

5. The production records for finished goods reveal the following production costs and volumes:

	JUNE ACTUAL PER MONTH
	Cost	Volume
Direct Material	R20
Direct Labour	R10
Overheads	R10
		12 000 units

Production volume is expected to increase by 5% for each month from July onwards as the company attempts to reach full production capacity after the COVID lockdown. Ignore opening and closing stock for cash budgeting purposes.

6. All material purchases are on credit. Creditors are usually paid one month after purchase. Material costs are expected to increase by 10% from July onwards due to the deterioration in the exchange rate.

7. Payment of overhead costs and selling and administrative costs are delayed by one month. Overhead costs per unit are expected to remain the same for the projected period as the company attempts to minimise costs. Actual selling expenses for June was 8% of actual sales. Selling expenses for July to Sept are expected to increase to 10% of budgeted sales due to increased marketing efforts.

8. The company has been forced to lower the direct labour rate by 10% from 1 July due to the lockdown effects. Employees have agreed to this decrease as they understand it is essential to decrease costs in order to save jobs. Direct labour costs are paid in the month in which they are incurred

9. Actual salaries for June was R80 000. This was only 40% of the normal salary bill as staff had been put on unpaid leave due to the lockdown. It is expected that all staff will return to work from 1 July.

10. During July the company will sell two of its delivery vehicles as it attempts to minimise some of its running costs. These vehicles together had an original cost of R225 000 and a book value of R80 000. They will both be sold for a total profit R40 000.

10. A fixed deposit of R90 000 will mature on 31 July and will be redeemed. This investment was earning interest of 12% per annum which was being paid out monthly.

12. The proprietor is expected to increase his capital contribution by R30 000 on 1 July.

REQUIRED:

1. Compile the debtors collection schedule for July and August (4 marks)

2. Compile a cash budget for July and August (16 marks)