QUESTION 3 (25 Marks)

REQUIRED Use the information given below to answer the following questions:

3.1 Prepare the Cash Budget for January, February and March 2022. (22 marks)

3.2 Comment on the cash position of the company for the budgeted period. (3 marks)

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 Receivables	1 300 000
Bank	235 000
Current Liabilities
Accounts payables (material purchases)	95 000
Other Current Liabilities	700 000

2. 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): 2.1 The sales manager anticipates the following credit sales:

January	February	March
2160 pallet	2340 pallets	2250 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. 2.2 The costs of production include the following:

Direct Material	R0.14 per brick
Direct labor	R0.08 per brick
Variables overheads	R0.04 per brick

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

Jan	Feb	Mar
2400	2600	2500

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

2.4 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 purchase.

2.5 Direct labour costs are incurred in line with production and will be paid during the month in which they are incurred.

2.6 Variable manufacturing overheads are payable in the month in which they are incurred.

2.7 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 incurred.

2.8 The sales commission of 6% is payable in the month in which it is incurred.

2.9 Additional administration costs of R40 per unit sold are payable in the month in which they are incurred.

2.10 The company will invest 10% of the total sales for March in a notice deposit account on 31 March 2022.

2.11 The balance of the current liabilities as at 31 December 2021 will be settled during January 2022