Question 4 (25 marks) (a) Tom Company is a trading company which sells components for computers. The financial controller is preparing the budget for three months ended 30 June 2021. You are given the following information: 1. Salaries and Month Purchases Overheads including depreciation February March April May June Sales Units 4.800 5,000 3,800 1.500 3.200 18,000 16,000 14,000 12,000 12,000 s 10.000 10,000 11.000 12.000 13,000 9,000 10.000 10.250 10.250 10.250 2. The selling price in February 2021 is $6 per unit and this is to be increased to per unit in April 2021. 50% of sales are for cash and 50% on credit to be paid two months later. 3. Purchases are to be paid for two months after purchase. 4 Salaries and wages are to be paid 75% in the month incurred and 25% in the following month. 5. Overheads are to be paid in the month after they are incurred. 6. Cash dividends of $12,000 are to be paid in the month of June 2021. 7. Two machines totaling $30,000 are to be purchased on May 2021. The cost of machines is to be paid equally in three monthly instalments commencing on 31 May 2021. 8. It is estimated that the amount of machinery and bank balance as at 1 April 2021 would be S210,000 and 55,000 respectively. 9. Machinery are depreciated on a monthly basis at 10% per annum using the straight-line method. Required: (1) Prepare a month by month cash budget of Tom Company for the three months ended 30 June 2021 117 marks (ii) Indicate whether or not it will be necessary to make arrangements for extra finance and, if so, your recommendation as to what for the company should take (3 marks) Ovestio 4 Continued th) Fred Ma is an accounting staff who is now to the company proditated the following conversation with Martin Li, sales manager and sell Soproduction manager Pred: Martin I am going to be involved with the preparation of the annual budget, I'd be interested to com how the two of you estimate sales and production numbers We will nok at this is what we know about the current counts perential Come and the real estate of Crimer ending Then, we add that a dose of intuition to come up with the best forecast we can I usually take the sales projections as the basis of my projections. We also how to make a estimate of wiatrin year's ending invictis will be. But netimes it is difficultate murther before passing them in aren't always reliable bec Martin makes me adjustments to the sale What sind of adjustments? Paul: We don't want to full slutt u le sale pruje, w we yoruly give usciva aliule Brealing rear by kasing the install sila prujatius from a 10% Paul So, you know why this year's badget is mert a very reliable at the starting point. We always have to adjust the projected production rates as the you and of us, we also change the ending investoy estimates as well. By the way, we make similar adjustments to expecs by wang at least 10% to the estimates, I think everyone around here does the same Required: Explain why Paul and Martin behave in this manner and describe the benefits they are expected to realize and explain how their behavior adversely affect them. 15 marks) Tocal for Question : 23 mars
