In the near future a company will purchase a manufacturing business for GH315,000, this price to...
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In the near future a company will purchase a manufacturing business for GH¢315,000, this price to include goodwill (GH¢150,000), equipment and fittings (GH¢120,000), and stock of raw materials and finished goods (GH¢45,000). A delivery van will be purchased for GH e15,000 as soon as the business purchase is completed. The delivery van will be paid for in the second month of operations. The following forccasts have been made for the business following purchase: i. Sales (before discounts) of the business's single product, at a mark-up of 60% on production cost, will be: Month (GH¢000) 2 96 3 4 96 96 100 104 25% of sales will be for cash; the remainder will be on credit, for settlement in the month following that of sale. A cash discount of 10% will be given to selected credit customers for prompt payment and this represents one-third of credit sales. ii. Production cost will be GHES.00 per unit. The production cost will be made up of GHE2.50 GH¢1.50 GH¢1.00 Raw materials Direct labour Fixed overhead ii. Production will be arranged so that closing stock at the end of any month is sufficient to meet sales requirements in the following month. A value of GHe 30,000 is placed on the stock of finished goods which was acquired on purchase of the business. This valuation is based on the forecast of production cost per unit given in (ii) above. The single raw material will be purchased so that stock at the end of a month is sufficient to meet half of the following month's production requirements. Raw materials stock acquired on purchase of the business (GH¢15,000) is valued at the cost per unit which is forecast as given in (ii) above. Raw materials will be purchased on one month's credit. Costs of direct labour will be met as they are incurred in production. The fixed production overhead rate of GH¢1.00 per unit is based upon a forecast of iv. vi. the first year's production of 150,000 units. This rate includes depreciation of equipment and fittings on a straight-line basis over the next five years. vii. Selling and administration overheads are all fixed and will be GH¢208,000 in the first year. These overheads include depreciation of the delivery van at 30% per annum on a reducing balance basis. All fixed overheads will be incurred on a regular basis, with the exception of rent and rates. GH¢25,000 is payable for the year ahcad in month one for rent and rates. Required: a) Prepare a monthly cash budget. You should include the business purchase and the first four months of operations following purchase. b) Calculate the stock, debtor, and creditor balances at the end of the four-month period. Comment briefly upon the liquidity situation. In the near future a company will purchase a manufacturing business for GH¢315,000, this price to include goodwill (GH¢150,000), equipment and fittings (GH¢120,000), and stock of raw materials and finished goods (GH¢45,000). A delivery van will be purchased for GH e15,000 as soon as the business purchase is completed. The delivery van will be paid for in the second month of operations. The following forccasts have been made for the business following purchase: i. Sales (before discounts) of the business's single product, at a mark-up of 60% on production cost, will be: Month (GH¢000) 2 96 3 4 96 96 100 104 25% of sales will be for cash; the remainder will be on credit, for settlement in the month following that of sale. A cash discount of 10% will be given to selected credit customers for prompt payment and this represents one-third of credit sales. ii. Production cost will be GHES.00 per unit. The production cost will be made up of GHE2.50 GH¢1.50 GH¢1.00 Raw materials Direct labour Fixed overhead ii. Production will be arranged so that closing stock at the end of any month is sufficient to meet sales requirements in the following month. A value of GHe 30,000 is placed on the stock of finished goods which was acquired on purchase of the business. This valuation is based on the forecast of production cost per unit given in (ii) above. The single raw material will be purchased so that stock at the end of a month is sufficient to meet half of the following month's production requirements. Raw materials stock acquired on purchase of the business (GH¢15,000) is valued at the cost per unit which is forecast as given in (ii) above. Raw materials will be purchased on one month's credit. Costs of direct labour will be met as they are incurred in production. The fixed production overhead rate of GH¢1.00 per unit is based upon a forecast of iv. vi. the first year's production of 150,000 units. This rate includes depreciation of equipment and fittings on a straight-line basis over the next five years. vii. Selling and administration overheads are all fixed and will be GH¢208,000 in the first year. These overheads include depreciation of the delivery van at 30% per annum on a reducing balance basis. All fixed overheads will be incurred on a regular basis, with the exception of rent and rates. GH¢25,000 is payable for the year ahcad in month one for rent and rates. Required: a) Prepare a monthly cash budget. You should include the business purchase and the first four months of operations following purchase. b) Calculate the stock, debtor, and creditor balances at the end of the four-month period. Comment briefly upon the liquidity situation.
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The fuel that keeps your firm functioning is cash The way money flows into and out of your business is known as cash flow From here we can tell which companies will be able to survive and which will n... View the full answer
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Excellence in Business Communication
ISBN: 978-0136103769
9th edition
Authors: John V. Thill, Courtland L. Bovee
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