You are provided with a Cash Budget of Mkhize Manufactures' Ltd for January to June 2020. The financial year-end is 28 February 2020. Show all calculations. You are required to complete the questions in the answer booklet provided: 00:00 Additional Information: 1. HOMMA Total sales for the Budget period is expected to be as follows: January 324 000 February 346 000 March 360 000 April 480 000 May 330 000 June 2. Cash sales are expected to be 40% of total sales for the entire budget period. 3. Debtors are expected to pay as follows: 50% pay in the same month as the sales transaction (less 5% discount) 30% pay in the month after the sales transaction month 15% pay in the second month after the sales transaction month 5% are expected to be bad and are written off in the third month after the transaction. . 4. The current mark-up is 60% on cost. 5. A fixed base stock of raw materials is kept at all times. All raw materials are bought on credit. 6. All raw materials are purchased on credit. Creditors are paid in the month following the purchase of stock (i.e. within 30 days) to earn a 10% discount. 7. At the end of the financial year ended 29 February 2020, the return on total capital employed was 5%. 8. . Mkhize Manufacturers Ltd has an authorised share capital of 1 000 000 ordinary shares. 520 000 ordinary shares valued at R3 020 000, were in issue on 1 March 2019, the beginning of the financial year. New shares will be issued on 1 January 2020 at R6.50 per share. 60 000 shares will be repurchased for R7.15 per share during the budgeted period. 9. Mkhize Manufacturers Ltd aims to pay an interim dividend of 80 cents per share to its shareholders during June 2020. 8. All items have a selling price of R1 540 per unit. 9. This business estimated that 25% of the cost price per unit is for fixed costs, the remainder Page 2 of 7 is for variable costs. Mkhize Manufacturers LTD Cash Budget for the six period January to June 2020 Receipts Jan Feb March April May June Cash sales 129 600 138 400 144 000 192 000 132 000 148 800 Collection from debtors 188 700 194 370 ? ? ? ? Issue of shares 1 300 000 0 0 0 0 0 Sale of Factory Equip 0 0 0 0 0 1 80 000 0 Total Receipts 1 618 300 332 770 ? ? ? ? PAYMENTS 201 563 182 250 A B 185 625 Payments to creditors Salary of Factory Manager Wages for 20 Direct Labourers 20 000 20 000 20 000 20 000 20 800 20 800 150 000 150 000 150 000 150 000 161 250 161 250 Directors Fees 66 000 66 000 66 000 66 000 66 000 66 000 Interest on loan (8% p.a.) 5 600 5 600 4 200 4 200 4 200 2 700 Repayment of loan 0 0 D 0 0 E Repurchase of Shares 0 0 0 ? 0 0 0 0 0 0 0 F 12 000 12 000 12 000 12 000 2 000 2 000 8 000 8 000 8 000 8 000 6 500 6 500 Interim dividends paid Maintenance of Factory Equip Electricity (80% for factory) Deposit on new Factory Equip Instalments on new factory Equip (incl finance charges Independent auditors fees 0 0 0 0 150 000 0 0 0 0 0 0 16 000 0 0 0 60 000 0 0 Total Payments ? ? ? ? ? ? Cash Surplus / Deficit ? ? ? ? ? ? Page 3 of 7 ? ? ? ? ? ? Cash Balance at the beginning of the period Cash Balance at the end of the period ? ? ? ? ? ? 1. (2) One of the directors says that there are errors in the cash budget. He cannot see depreciation or bad debts reflected there. What explanation will you offer him? 2. Debtors Collection Schedule for January to June 2020 (17) Credit Sales Jan Feb March April May June October 175 000 November 180 000 27 000 December 215 000 64 500 32 250 January 194 400 92 340 58 320 29 160 February 207 600 98 610 62 280 31 140 March 216 000 April May June 3. (7) Calculate the total amount of bad debts that Mkhize Manufacturers is expecting to write off during the budget period. 4. Page 4 of 7 Identify TWO ways in which a business can decrease the amount of bad debts that are (2) written off. 5. (12) Calculate the amounts for payments to creditors labelled A to C on the Cash Budget. Show calculations so part marks can be awarded. A B C 6. Consider the loan and interest payable on the loan: 6.1 Calculate the amounts labelled D and E showing the repayments of the loan. (4) D E 6.2 Calculate the amount owed on the loan at the end of June. (2) 6.3 (3) Identify ONE reason, quoting relevant amounts, to explain why this business made such a concerted effort to reduce their loans. 7. Consider the shares and dividends. 7.1 Calculate the number of new shares that will be issued in January 2020. (2) Page 5 of 7 7.2 (8) One of the current shareholder has requested that the business repurchase his shares in April 2020. The business has agreed to this request. Complete the table below to show how this repurchase will be treated by the business: Account DR Account CR Amount 7.3 Calculate the amount that is budgeted for Interim Dividends (labelled F). (2) 8. Consider the salaries and wages paid to both direct and indirect labour. (2) 8.1 Explain the difference between direct and indirect labour. Direct Labour Indirect Labour (4) 8.2 Calculate the percentage increases paid to both the direct and indirect labourers. Direct Labour Indirect Labour 8.3 (3) Do you feel the increases received by both the direct and indirect labour is fair? Give a reason for your answer. 9. Consider the factory equipment and the costs of maintaining the factory equipment 9.1 (4) Give TWO reasons for the business replacing the factory equipment. Quote figures to support your answer. Page 6 of 7 9.2 (7) Draft the asset disposal account to calculate the profit or loss on sale of the old factory equipment on 1 May 2020. Note that the sold equipment has a cost price of R600 000 when purchased on 1 July 2012. Equipment is depreciated by 15% per annum on cost. Asset Disposal 9.3 (5) New factory equipment will be delivered in May 2020. Calculate how much this new equipment will cost the company (including finance charges) over the 5 years in which the business will pay it off. 10. Consider the selling price and the cost price of each unit produced. 10.1 Calculate the cost price per item produced. (2) (4) 10.2 Calculate how much of the above cost price per unit is estimated to be fixed and variable. Fixed costs per unit Variable costs per unit (8) 10.3 If this business plans to make and sell 300 units in July 2020, will it make a profit or a loss? Show a calculation to justify your answer.