The following information pertains to SMR Ltd for the three months ended 31 December.

Actual Budgeted October November December

RRR

Revenue (20% for cash and 80% on credit) Purchases (10% for cash 90% on credit) Salaries and wages paid

Cash expenses Depreciation

Additional information:

360 000 240 000 40 000

24 000 2 000

380 000 280 000 60 000

28 000 2 000

400 000 320 000 60 000

32 000 2 000

1. It is expected that debtors will settle their accounts as follows: 20% in the month of invoice

70% in the month after the month of invoice, and

5% in the second month after the month of invoice.

The remaining 5% is usually written off as bad debts.

2

2. Trade creditors are paid in the month after the purchases at a discount of 5%.

3. 50% of the salaries and wages are weekly wages. Because wages are paid weekly, usually 10% of

the wages are paid in the month following the month in which they were incurred. 4. Expenses are paid as they arise.

5. The favourable bank balance on 1 November was R 16 000.

Required:

4.1 Prepare the cash budget for November and December. (20)

4.2 Discuss how the budgeting process in an organisation benefits a functioning

standard costing system.

(5)