Unless indicated below or by the nature of the expense, assume that all expenses are

paid for on a cash basis $($i$.$e$.$ during the month incurred$).$

Woodheads Leather Ltd is a wholesaler of leather, crocodile and ostrich skin belts, bags,

wallets and various other baggage items. It sells mainly to exclusive stores and selected flea

market operators around Cape Town. The junior bookkeeper was instructed by the chief

financial director to prepare a cash budget for March $2022$ to evaluate its cash flow position

in case they needed to apply for an overdraft to bolster their cash position when required.

Budgeted income statement for the month of March $2022.$

R

Sales $650000$

Less: Cost of sales $220000$

Gross Profit $430000$

Less: Total operating expenses $(471250)$

Staff costs $175000$

Rent $20000$

Selling expenses $107500$

Administrative costs $115000$

Insurance $1750$

Sales commissions $52000$

Net loss before tax $($R$41250)$

Other information:

i$)$ A quarter of all sales are on a cash basis. The credit sales are normally collected as

follows:

$50\%$ of the balance payable after $30$ days of statement date.

$45\%$ of the balance is collected two months after the credit sale.

$$ the remaining $5\%$ of credit sales is considered to be irrecoverable.

$$ Statements are posted to credit customers within one week after the

credit sale was made.

ii$)$

iii$)$

All inventory purchases are on credit. The company was fortunate enough to re$-$

negotiate its credit terms with most of its suppliers and is now required to pay $20\%$ of

the credit purchases on the last day of the month in which the goods are bought.

The balance must be paid during the second month after the first payment was made.

Account balances at:

$31$ March $2022$

$28$ February $2022$

Bank

$31$ January $2022$

R$145500$

Inventory R$36000$ R$30000$ R$22000$

Accounts receivable R$487500($see iv$)$

Accounts payable R$305800$

R$285000$

$($including R$125000$

from February$)$

$($including R$160000$

from January$)$

R$160000$

$($all from January$$s

purchases$)$

The Accounts payable balances relate only to amounts owing to suppliers of inventory.

iv$)$

Total sales during January $2022$ and February $2022$ are expected to be R$350000$ and

R$200000$ respectively.

v$)$

vi$)$

vii$)$

viii$)$

Included in selling expenses is an amount of R$14000$ for advertising of which only

R$12000$ will be paid by $31$ March $2022.$

The annual insurance premium of R$21000$ is paid on $1$ February each year and is

apportioned to expenses evenly over the year.

Sales commissions amount to $8\%$ of total sales of which one half is paid during the

month of sale and the balance at the end of the month thereafter.

Administration expenses include depreciation on office equipment and furniture of

R$6500.$

You are required to:

$1.$ Prepare a detailed cash budget for the month of March $2022.$

$(20$ marks$)$