QUESTION THREECASH BUDGET(20 MARKS) 6 May 2014

REQUIRED

Use the information provided below to prepare cash budget for each of the first three months of operations (i.e. May, June and July 2014). Use separate money columns for each month.

INFORMATION

The following information relates to Ferrari Limited that decided to invest in a project that commences on 01 May 2014 with R500 000 cash, manufacturing a new product:

1.New machinery and equipment will be purchased on 01 May 2014 for R200 000. A deposit of 25% will be paid immediately and the balance will be paid in 6 equal instalments commencing 01 June 2014.

2. Production will commence on 02 May 2014 and no inventories will be held at the end of each month.

3.Estimated production and sales are:

UNITS Rand

May 1 000 100 000

June 4 000 400 000

July 4 500 450 000

August 5 000 500 000

4. Cash sales are expected to comprise 70% of total sales. The balance of the sales will be on credit and customers are expected to pay one month after the sale.

5. Variable production cost per unit (excluding any discounts) are as follows:

Direct materials R20

Direct labour R12

Variable overhead R10

6. Direct materials will be purchased for cash for the production requirements of each month, in order to take advantage of a 5% cash discount.

7. Direct labour costs are settled on the 28th day of each month.

8. Payment for variable production overheads is delayed by one month.

9. Fixed overheads amount to R50 000 per month and this includes depreciation of R3 000 per month. Fixed overheads are paid for in the month in which they are incurred.

QUESTION FOURBREAK-EVEN ANALYSIS(20 MARKS)

4.1

REQUIRED

Calculate the following from the information provided below:

4.1.1Break-even value(4)

4.1.2 Total marginal income and Net profit/loss(4)

4.1.3Break-even quantity, if the variable manufacturing costs increase by 10%(4)

INFORMATION

Valiant Limited plans to start a project and the following information is applicable to the project for 2014:

Selling price per unit R40

Direct material cost per unit R10

Direct labour cost per unit R2

Variable production overheads cost per unit R4

Sales commission per unit R2

Total fixed costs R660 000

Expected sales 40 000 units