Question

Question 2 [25 marks]

Diamond (Pty) Ltd has a sales budget for March of R440,000. About 10% are cash sales and the remainder is sold on account. The company expects that 60% of credit sales will be collected in the month of the sale, 25% in the next month and 10% in the following month. Materials purchased on account are expected to be R250,000. Allan pays 35% in the month of the purchase, 50% in the month following the purchase and the remaining 15% in the second month after the purchase. Salaries and wages of the workers are approximately R45,000 per month. The employees are paid weekly so on average 95% of their wages are paid in the month to which they relate and the remaining 5% is paid in the following month. Utilities average R4,300 per month. Rent on the building is R9,000 per month. Insurance is R3,000 per month and advertising costs are R1,000 per month. February sales were R320,000 and purchases of materials in February were R170 000 January sales were R200,000 and purchases of materials in January were R130,000. The cash balance on March 1st is R5,400.

Required:

A. Prepare a schedule of cash receipts

B. Prepare a schedule of cash payments (Accounts payable payments)

C. Prepare a cash budget

Answer 1

A: Schedule for cash receipts:
	Jan	Feb	March
Sales	200000	320000	440000
Cash sales 10%	20000	32000	44000
Credit sales	180000	288000	396000
Cash Sales			44000
Collection:
Jan			18000
Feb			72000
March			237600
Total Cash receipts			371600
B) Schedule of Cash payments:
	Jan	Feb	March
Purchases	130000	170000	250000
Payment made for:
Jan			19500
Feb			85000
March			87500
Total Cash payments			192000
C) Cash Budget:
	March
Op Cash	5400
Add:Cash receipts	371600
Total Cash available	377000
Less:Disbursements:
Purchase	192000
Feb salaries & wages	2250	(5%)
Mar Salaries & wages	42750	(95%)
Utilities	4300
Rent	9000
Insurance	3000
Advertising	1000
Total disbursements	254300
Cl Cash	122700