Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 5 (20 marks) Maleficent Company Limited is preparing budget based on the information below. 1. Budget sales revenues: Credit sales Cash sales Total sales

image text in transcribed

Question 5 (20 marks) Maleficent Company Limited is preparing budget based on the information below. 1. Budget sales revenues: Credit sales Cash sales Total sales January February $ 550,000 450,000 65,000 55.000 615.000 505.000 March $ 650,000 55,000 705.000 2. Past experience indicates that customers usually settle their balances as follows: 60% of a month's credit sales are collected in the month of sale; and the remaining 40% of a month's credit sales are collected in the following month. 3. All purchases are made on credit, 50% are paid in the month of purchase and 50% will be settled in the month following purchase. Budgeted inventory purchases are: $ January 550,000 February 460,000 March 575,000 4. Other budgeted cash disbursements: (1) Purchase of equipment in February for $45,000 in cash; (ii) Selling and administrative expenses of $28,000 per month; and (iii) Dividends of $35,000 to be paid in March. 5. The cash balance as at 1 February 2020 was $50,000. It is the company policy to maintain the minimum cash balance at $50,000 at the end of each month. Therefore, the company has a credit arrangement with its bank to borrow at the beginning of any month at 8% annual interest, if necessary. The principal amount together with interest will be repaid when it has enough cash. Required: (a) Prepare a cash budget for February and March. (7 marks) (b) Budgeting is an important management tool if implemented properly. Identity positive results when budgets are properly used. (6 marks) (c) The CEO of Maleficent Company Limited considers to implement Zero-based budgeting and requires managers of all divisions to examine every cost and budget item in order to create budgets based on perceived needs for the coming period, regardless of what was done in previous years. (1) How does Zero-based budgeting differ from traditional budgeting? (3 marks) (ii) What are the possible advantages and disadvantages of adopting Zero-based budgeting approach? (4 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

A Compilation Of University Level Assignments Marketing Audit Approach

Authors: Emeka Anyaduba

1st Edition

1475098057, 978-1475098051

More Books

Students also viewed these Accounting questions

Question

1. Organize and support your main points

Answered: 1 week ago

Question

3. Move smoothly from point to point

Answered: 1 week ago

Question

5. Develop a strong introduction, a crucial part of all speeches

Answered: 1 week ago