Question four (assume today is 30 December 2020)

The following information relates to Kamelwa limited a retail grocer engaged in buying and selling of foodstuffs.

(1) Budgeted sales (2021) :

January February March April May June July

August September October November December January (2022)

K500,000 K450,000 K625,000 K700,000

K665,500 K781,000 K718,750

K593,750 K812,500 K780,000 K850,000 K1,020,000

K620,000

Basic

Super

Delux

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(2) Kamelwa limited sells its purchases at cost plus 25% mark- up.

(3) Kamelwa has a policy to hold inventory at the end of each month which is

sufficient to meet sales demand in the next half month. Sales are budgeted to

occur evenly during each month.

(4) Purchases are paid for in the following manner: 50% in the month of purchase

and the remainder in the month after purchase.

(5) Sales are 85% on credit basis and 15% cash basis.

Credit sales are collected as follows: 60% in the month following the sale;

20% the second month after the sale and 20 % the third month after the sale.

(6) Labour is remunerated at 10% of cost of sales and is paid for in the month

that it is incurred.

(7) Overheads incurred in the production department are 70% of labour cost.

These overheads are paid 30% in the month they are incurred and the

balance the following month.

(8) An auction sale conducted on 29 December 2020 resulted into disposal of

property worth K600,000 which amount (cash) will be collected on 29 January

2021.

(9) The company will pay the last company tax balance for the period 2020 on 30

June 2021 amounting to K85,000.

REQUIRED

(a) Prepare Kamelwas limited cash budget for the year 2021.(14 marks)

(b) Discuss the circumstances under which each of the following budgets might

be used .

- Rolling budget

- Zero based budget ( 6 marks)

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