iven below to answer the following questions: Prepare the Cash Budget for January, February and March  Comment on the cash position of the company for the budgeted  INFORMATION Some of the items in the Statement

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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REQUIRED

Use the information given below to answer the following questions:

  • Prepare the Cash Budget for January, February and March 
  • Comment on the cash position of the company for the budgeted 

INFORMATION

  1. Some of the items in the Statement of Financial Position as at 31 December 2021 of Lomax Ltd are as follows:

Current assets

R

Accounts receivable

1 300 000

Bank

235 000

Current liabilities

 

Accounts payable (for material purchases)

95 000

Other current liabilities

700 000

 

  1. The following forecasts have been made by Lomax Ltd for the first three months of 2022 for the bricks that it produces which are sold in pallets (with each pallet comprising 500 bricks):
    • The sales manager anticipates the following credit sales:

January

February

March

2 160 pallets

2 340 pallets

2 250 pallets

The bricks are sold at a constant price of R500 per pallet. Ten percent (10%) of the sales are for cash and the rest is on credit. Debtors pay their accounts one month after the sale is made.

  • The costs of production include the following:

Direct materials

R0.14 per brick

Direct labour

R0.08 per brick

Variable manufacturing overheads

R0.04 per brick

  • The purchases manager expects to purchase materials to manufacture the following number of pallets each month:

January

February

March

2 400

2 600

2 500

No inventories of materials are held at the end of each month.

 

  • Sixty percent (60%) of the materials are purchased for cash in order to take advantage of a 5% discount and the balance is purchased on credit. Creditors are paid in the month after the
  • Direct labour costs are incurred in line with production and will be paid during the month in which they are
  • Variable manufacturing overheads are payable in the month in which they are
  • Fixed manufacturing and non-manufacturing costs are expected to amount to R550 000 per month, excluding depreciation of R75 000 per month. These costs are payable in the month in which they are
  • The sales commission of 6% is payable in the month in which it is
  • Additional administration costs of R40 per unit sold are payable in the month in which they are
  • 10 The company will invest 10% of the total sales for March in a notice deposit account on 31 March 2022.
  • The balance of the current liabilities as at 31 December 2021 will be settled during January
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