QUESTTON TWO (ASSIGNMENT QUESTION ONE REGENT BUSINESS
soLUTroNs) suBMrr FRTDAY 10 MAY 2024
Mpandashalo Ltd has produced the following inforntation 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:
Material
Labour (wages)
Variable overhead
K26,000
K 8,000 K 2,000
Fixed overheads (excluding depreciation) are budgeted at K5,500,000 per month payable on the 23'd of each month.
Notes
(a) Sales units for the last two months of the year November December
1,000 7,200
(b) Budgeted sales units for next year
January February March April
7,400 1,600 1,800 2,000
(c) Production quantities for the last two months of the year
Nouember Deeember
May June
2,200 2,600
May June
2,400 2,200
1,200 1,400
(d) Budgeted production units for the next year
January February March April 1,500 2,000 2,400 2,600
;
(e) Wages are paid in the month when outputs is produced.
(f) Variable overhead is paid 50o/o in the month when the cost is incurred and 50o/o the
following month.
I

(g) Suppliers of materials are paid two months after the material is used 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.
0) 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 K35,500,000 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.
(c) Explain how depreciation would affect the following:
(i) A cash budget
(ii) The calculation of profit in a business
[3 marks]
[1 mark] [1 mark]