Question

QUESTION 1 Super Drive is a computer hard drive manufacturer. The company's balance sheet for the fiscal year ended on November 30 appears below: Super Drive Statement of Financial Position (Balance Sheet) For the year ended November 30, 2017 Assets RM Cash 52.000 Trade Debtor 150,000 Inventory 315,000 Property, Plant & Equipment 1,000,000 1,517,000 Liabilities and Shareholders' Equity Trade Creditor Ordinary shares Retained earnings 175.000 900,000 442,000 1,517,000 Additional information regarding Super Drive's operations appear below: • Sales are budgeted at RM520,000 for December, 2017 and RM500,000 for January, 2018 . 80% of the budgeted sale is on credit with collections are expected to be 60% in the month of sale and 40% in the month following sale. There are no bad debts. • 80% of the disk drive components are purchased in the month prior to the month of the sale, and 20% are purchased in the month of the sale. Purchased components comprise 40% of the cost of goods sold. • Payment for components purchased is made in the month following the purchase Assume that the cost of goods sold is 80% of sales. Required: a. What is total budgeted cash collections for the upcoming December, 2017? Show your calculation (5 marks) b. What is total budgeted cash payments for the upcoming January, 2018? Show your calculation (7 marks) c. With total payments of RM300,000 for production overheads and other period costs for the month of December, 2017, compute the amount of either cash surplus or (deficit) in the month of December, 2017 (7 marks) d. If cash deficit is budgeted for any month, please briefly discuss three options that Super Drive has to make up for the deficit. (6 marks) [TOTAL: 25 MARKS]

Answer 1

a

December

January

A

Budgeted Sales

520,000

500,000

B=A*20%

Cash Sales (20%)

104,000

100,000

C=A*80%

Credit Sales

416,000

400,000

D=C*60%

Collection from the month of credit sale

249,600

E

Collection from previous months credit sale

150,000

166,400

Collection in December =Trade Debtor as on Nov 30, January collection =416000*40%

Budgeted Cash Collection in December =B+D+E

503,600

b

December

January

A

Budgeted Sales

520,000

500,000

B=A*80%

Cost of goods sold

416,000

400,000

C=B*40%

Purchased component

166,400

160,000

D=C*20%

Purchase in December for December sales

33,280

E

Purchase in December for January sales

128,000

(160000*80%)

F=D+E

Total purchase in December

161,280

Budgeted Cash Payment in January

161,280

c

CASH BUDGET FOR DECEMBER

December

A

Beginning Cash Balance

52,000

B

Cash Collection from Sales

503,600

C=A+B

Total Cash Available

555,600

Cash Payments:

D

Cash Payment for purchases

175,000

(Trade Creditors)

E

Payments for production overheads and other costs

300,000

F=D+E

Total Cash Payment

475,000

G=C-F

Cash Surplus

80,600

If Cash Deficit is budgeted:

It can take Bank Loan

Can have arrangement with bank for short term credit

It can reschedule payments