IMG$\_20240502\_0001$

$2$ of $2$

QUESTION TWO $($ASSIGNMENT QUESTION ONE REGENT BUSINESS SOLUTIONS$)$ SUBMIT FRIDAY $10$ MAY $2024$

Mpandashalo Ltd has produced the following information from which a cash budget for the first six months of the year is required.

The company makes a single product which sells for $K50,000$ and the variable cost of each unit is as follows:

$\backslash$table$[[$Material$,$K$26,000],[$Labour $($wages$),$K $8,000],[$Variablc overhead,K $2,000]]$

Fixed overheads $($excluding depreciation$)$ are budgeted at $K5,500,000$ per month payable on the ${23}^{rd}$ of each month.

Notes

$($a$)$ Sales units for the last two months of the year

$\backslash$table$[[$November$,$Dec,mber,,,$],[1,000,1,20,,,,],[$udgeted sales,units far nex,year,,,$],[$January$,$February,March,April,May,June$],[1,400,1,600,1,800,2,000,2,200,2,600]]$

$($c$)$ Production quantities for the last two months of the year

November December

$1,200,1,400$

$($d$)$ Budgeted production units for the next year

$\backslash$table$[[$January$,$February,March,April,May,June$],[1,600,2,000,2,400,2,600,2,400,2,200]]$

$($e$)$ Wages are pald in the month when outputs is produced.

$($f$)$ Variable overhead is paid $50\%$ in the month when the cost is incurred and $50\%$ the following month.

$1$

$($g$)$ Suppliers of materials are paid two months after the material is ised in production.

$($h$)$ Customers are expected to pay at the end of the second month following sale.

$($i$)$ A new machine is scheduled for January costing $K34,000,000$; this is to be paid for in February.

$($j$)$ An old machine is to be sold for cash in January for $K1,200,000.$

$($k$)$ The company expects to have a cash balance of K$35,500,000$ on $1$ January.

Required

$($a$)$ Prepare a month by month cash budget for the first six months of next year.

$[15$ marks$]$

$($b$)$ Comment on the action management might take in the light of the cash budget you have prepared.

$[3$ marks$]$

$($c$)$ Explain how depreciation would affect the following:

$($i$)$ A cash budget

$[1$ mark$]$

$($ii$)$ The calculation of profit in a business

$[1$ mark$]$

TOTAL: $20$ MARKS