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  • 30 Marks

PSAF – May 2024 – L2 – SA – Q1 – The Budgeting Process in the Public Secto

Cash budget preparation and analysis of budgeting systems.

The University of Okoko Consultancy Unit (Uniko Consult) provides training courses for staff, public and private individuals. The consultancy unit is currently collating information for its budget for the six months ending December 31, 2021. The following information is available:

(i) Provisional bookings for courses:

July Aug Sept Oct Nov Dec
Number of courses 0 2 4 3 4 4
Average number of attendees per course 0 16 8 16 8 12

No courses are run during the month of July. Uniko Consult requires intending participants to confirm their attendance in the week prior to the course, giving their credit card number as a guarantee. On average, 75% of provisional bookings are confirmed and therefore result in fee payment.

(ii) Course prices:
Each course lasts for three days, running from Friday to Sunday. The fee for each course is N120,000 per attendee. Any returning participant will be given a 25% discount on the fee. One in three of confirmed bookings is from a returning participant.

(iii) Personnel costs:
The courses are delivered by an experienced team of professors led by Emeritus Professor Omopinleola, who charges Uniko Consult N300,000 for each course. His assistant, Dr. Chukwuma, is paid a wage of N50,000 per course. Uniko Consult has several part-time support staff. Wages costs for July are only N100,000 per month, but every month thereafter amounts to N400,000. The consult is planning to increase wages by 5% from September. All staff are paid at the end of each month.

(iv) Property costs:
The University owns a Researchers’ Lodge, which includes an office, a kitchen, and two conference rooms. Uniko Consult rents the Researchers’ Lodge at a rental cost of N2,400,000 per annum, with rents being paid quarterly in advance on March 31, June 30, September 30, and December 31. However, the Consultancy Unit has received notice from the Bursar stating that, with effect from December 31, 2021, annual rental payments will increase by 5%.

(v) Food costs (Tea break and lunch):
All food items purchased are organic and delivered weekly by Uniko Farms. On the 5th of each month, Uniko Consult pays the bill for the previous month’s food deliveries. In December, Uniko Consult is also required to settle its bill for December due to the two-week holiday taken by Uniko Farm in January. The cost for food on each training course is N5,000 per attendee. However, inflation of 2% per month is expected from September onwards. Food costs for June 2021 are expected to be N110,000.

(vi) General overheads:
Uniko Consult’s annual running costs are N835,000, paid in ten equal instalments from April to January each year. Fuel costs of N420,000 per annum are paid through monthly direct debits. Due to a systems error, the direct debits from January to April failed, so the payment for July will include these outstanding amounts.

(vii) Capital expenditure:
Uniko Consult needs to replace three air conditioners by August at a cost of N180,000 each, with a 10% discount negotiated. The supplier allows the payment in two instalments—one in August and the other in October.

(viii) Bank account:
The balance on the Consultancy’s bank account is expected to be zero on June 30, 2021, but it has an adequate overdraft facility to cover any cash deficit.

(ix) Remittances:
The Consultancy Unit must remit 50% of its cash balance to the University’s account on a half-yearly basis.

Required:

a. Prepare a cash budget for each of the six months ending December 31, 2021.
Note: All workings should be rounded to the nearest N000. (20 Marks)

b. Enumerate the steps involved in Planning, Programming, and Budgeting Systems (PPBS). (7 Marks)

c. State and explain THREE characteristics of the performance budgeting system. (3 Marks)

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  • 20 Marks

MI – Nov 2020 – L1 – SB – Q1 – Budgeting

Prepare the cash budget for the first three months of the year based on provided sales, expenses, and additional company details.

WXYZ is preparing for the first half of the next year. The following information was available:

a. Sales – 15% of monthly sales are in cash, while the balance is sold on credit. Collections from receivables are 50% in the first month after sales, 30% in the second month, and the balance in the third month after sales.
b. Purchases are usually 55% of sales and paid in the month of purchase.
c. Insurance company is expected to pay the sum of N525,000 in February based on the company’s accidented vehicles.
d. Salary deductions are paid on a preceding-month basis.
e. Company income tax of N475,550 will be paid in March.
f. Cash and cash equivalent balance as at December is N502,760.
g. Bank charges are 1% of total payments for the month.
h. Additional Information:

Month October (N) November (N) December (N) January (N) February (N) March (N)
Sales 750,000 600,000 850,000 520,000 670,000 800,000
Net Salaries 230,000 200,000 250,000 210,000 240,000 270,000
Other Expenses 200,700 187,500 197,500 177,200 187,500 192,700
Salaries Deductions 29,400 28,400 39,400 28,700 32,750 27,650

Required:
Prepare the cash budget for the first three months of the year. (Total 20 Marks)

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  • 20 Marks

PM – May 2022 – L2 – SA – Q2 – Cash Budgeting and Working Capital

Preparation of a cash budget for Mega Laboratories PLC for the quarter ending June 30, 2021.

Mega Laboratories plc is a successful manufacturing company in the pharmaceutical industry. The company manufactures a number of household drugs. Since the advent of the Covid-2019 pandemic, its products have been in high demand. One of its newest products is known as vacineDcovid. In order to manufacture the product, a single raw material, Zithromax, is used.

Budgets are to be prepared for the quarter ending 30 June 2021, and the following information is available for this purpose:

(i) At 31 March 2021 various balances were as follows:

  • Receivables: N500,700
  • Creditors (suppliers of Zithromax): N153,000
  • Inventory of vacineDcovid: 20,300 units
  • Inventory of Zithromax: 200,000 kg

(ii) Extracts from the ‘standard cost card’ – vacineDcovid are as follows:

  • Direct material Zithromax, 10kg at N5.00 per kg: N50.00
  • Direct labour, 2 hours at N6.00 per hour: N12.00

(iii) Suppliers of Zithromax give two months credit to the company, whereas customers take one month’s credit.
(iv) Sales expectations for the quarter ending 30 June 2021 are as follows:

  • 25,000 units of vacineDcovid at a selling price of N95.00 per unit.
    (v) Assume that sales of vacineDcovid and purchases of Zithromax will be evenly spread over the three months to 30 June 2021.
    (vi) Depreciation relating to plant and machinery is N55,000 for the quarter ending 30 June 2021.
    (vii) Other expenses are paid immediately in cash and are estimated to be N200,000 for the quarter ending 30 June 2021.
    (viii) The anticipated inventory levels at 30 June 2021 are as follows:
  • Inventory of vacineDcovid: 15,000 units
  • Inventory of Zithromax: 150,500 kgs

(ix) Assume there is no work-in-progress and that stocks of vacineDcovid and Zithromax are valued at standard direct cost – see (ii) above.

Required:
For the quarter ending 30 June 2021 prepare:
a. A cash budget (amounts for each separate month are not required). (8 Marks)
b. Income Statement budget (clearly state any assumptions you have made). (5 Marks)
c. Briefly state the benefits of a Cash Budget to Mega Laboratories plc. (3 Marks)
d. Sales are often considered to be a principal budget factor of an organisation. Explain the meaning of a ‘principal budget factor’ and assuming that it is sales, explain how sales may be forecast, making appropriate reference to the use of statistical techniques and the use of computers. (4 Marks)

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q4a – The Budgeting Process in the Public Sector

Prepare a monthly cash budget for the fishpond from January to March 2020, considering expected sales, purchases, and allocation.

The Chairman of Okoko Local Government set up pond farming to fulfill a campaign promise. However, the Chairman is concerned about the project’s viability and its ability to finance itself due to increasing production costs. The expected cash-in-hand as of January 1, 2020, is N3,300,000.

The following information concerns the budgeted sales and purchases of the fish farm.

Month Sales (N’000) Purchases (N’000)
November 2019 55,000 35,000
December 2019 100,000 55,000
January 2020 114,000 75,000
February 2020 142,000 95,000
March 2020 145,000 80,000

Analysis of records shows that debtors settle according to the following pattern:

  • 70% within the month of sale
  • 30% in the following month

All purchases are on credit. Past experience shows that 80% of the purchase costs are settled in the month of the transaction, and the balance is settled in the subsequent month. Overhead costs amounting to 65% of the purchases of the month are to be paid monthly. Additionally, the Local Government will receive a monthly allocation of N15,000,000.

Required:

Prepare for the Chairman of Okoko Local Government a monthly cash budget for the fish pond for the first quarter (January to March) of 2020. (10 Marks)

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  • 20 Marks

MI – May 2018 – L1 – SB – Q2 – Budgeting

Preparation of a cash budget for Orok Trading Company.

Orok Trading Company sells cement bags at N2,000 each. According to projections, it would sell 100 bags each in October, November, and December; and 120 bags per month in the succeeding months.

The company sells on credit, with customers paying 50% in the month following sale, and the balance 30 days later.

Other expected inflows are:

  • Sale of plant, N80,000 in January and N50,000 in February
  • Insurance claim, N50,000 in February
  • Damages from a lawsuit, N60,000 in March

The company purchases its products from a supplier who gives two months’ credit. The company’s cost of sale is 60%.

Projected outflows are:

  • Salaries of N30,000, paid monthly
  • Rent of N25,000, paid monthly
  • Other administrative expenses of N55,000 per month are settled as they arise.
  • Income tax of N25,000 payable in January
  • New asset, N40,000 to be purchased in January

The bank balance on December 31 is N235,000 negative.

You are required to:

  • Prepare a monthly Cash Budget for January to March. Show all workings.

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  • 20 Marks

BMF – Nov 2022 – L1 – SB – Q3 – Basics of Business Finance and Financial Markets

Candidates are required to prepare a monthly cash budget for a three-month period based on the data provided for Homom Nigeria Limited.

The following information was extracted from the books of Homom Nigeria Limited.

Months Sales (₦’000) Materials (₦’000) Wages (₦’000) Overheads (₦’000)
February 40,000 20,400 7,600 3,800
March 42,000 20,000 7,600 4,200
April 46,000 19,600 8,000 4,600
May 50,000 20,000 8,400 4,800
June 60,000 21,600 9,000 5,000

Additional details regarding payments, credit sales, machine installation, and dividends are provided.

Required:
Prepare a monthly cash budget for the three months ending June 2022. Show your workings. (20 Marks)

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  • 20 Marks

MI – May 2021 – L1 – SB – Q4 – Budgeting

Prepare a monthly cash budget for Wareroom Trading Limited for the first three months of 2020.

From the information below, prepare a monthly cash budget for Wareroom Trading Limited for the first three months of 2020 using a columnar format.

NOV 2019 DEC 2019 JAN 2020 FEB 2020 MAR 2020
Sales 850,000 950,000 720,000 750,000 780,000
Purchases 360,000 360,000 300,000 400,000 350,000
  1. All sales are on credit, collectable 50% in 30 days, 25% in 60 days, 20% in 90 days and balance regarded as bad debts.
  2. All purchases are also on credit, payable 40% in 30 days and 30% each in 60 and 90 days respectively.
  3. A new generator costing N455,000 will be acquired in February under a 30-day credit agreement.
  4. An old car will be sold for N50,000 cash in February.
  5. Monthly salaries are N80,000 payable as and when due.
  6. Commission on sales are 5% payable to sales agents 2 months in arrears.
  7. Company income tax of N235,000 is due and payable in January.
  8. An investment is expected to bring in N60,000 gross in February, subject to 10% withholding tax.
  9. The staff Christmas party in December is expected to cost the company a total of N90,000, though 60% of the expenses will be settled the following month.
  10. Assume an overdraft of N283,000 on 31 December 2019.

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  • 20 Marks

BMF – May 2017 – L1 – SB – Q5 – Basics of Business Finance and Financial Markets

Preparation of a cash budget for XYZ Automobiles Nigeria Limited for the three months ending March 31, 2017.

The following projections relate to XYZ Automobiles Nigeria Limited.

Month Sales (N) Purchases (N) Wages (N) Overheads (N)
November 2016 400,000 204,000 76,000 38,000
December 2016 420,000 200,000 76,000 42,000
January 2017 460,000 196,000 80,000 46,000
February 2017 500,000 200,000 84,000 48,000
March 2017 600,000 216,000 90,000 50,000

Additional information:

  1. Cash balance on January 1, 2017, is expected to be N80,000.
  2. A plant will be installed in November 2016 at a cost of N1,000,000 and the monthly installment of N50,000 is payable from January 2017.
  3. A sum of N30,000 will be paid as dividends in the month of March 2017.
  4. Company income tax of N45,000 will be due for payment in March 2017.
  5. Advance payment of N800,000 in respect of a sale of a truck will be received in March 2017.
  6. In line with the company’s policy, 50% of sales are on a cash basis. 50% of credit sales are collected in the month immediately following the month of sales while the balance is paid a month after the payment of the first installment.
  7. All purchases are on credit and the creditors are paid fully two months after the month of purchase.
  8. Wages and overheads are paid as and when due.

Required:

Prepare a cash budget for each of the THREE months ending March 31, 2017.

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  • 20 Marks

MI – Mar-Jul 2020 – L1 – SB – Q4 – Business Process Technologies

Prepare a monthly cash budget for Wareroom Trading Limited for the first three months of 2020 using a columnar format.

The following information relates to Wareroom Trading Limited:

Month NOV 2019 DEC 2019 JAN 2020 FEB 2020 MAR 2020
Sales (N) 850,000 950,000 720,000 750,000 780,000
Purchases (N) 360,000 360,000 300,000 400,000 350,000

Additional information:

  1. All sales are on credit, collectible 50% in 30 days, 25% in 60 days, 20% in 90 days, and balance regarded as bad debts.
  2. All purchases are also on credit, payable 40% in 30 days and 30% each in 60 and 90 days respectively.
  3. A new generator costing N455,000 will be acquired in February under a 30-day credit agreement.
  4. An old car will be sold for N50,000 cash in February.
  5. Monthly salaries are N80,000 payable as and when due.
  6. Commission on sales is 5% payable to sales agents 2 months in arrears.
  7. Company income tax of N235,000 is due and payable in January.
  8. An investment is expected to bring in N60,000 gross in February, subject to 10% withholding tax.
  9. The staff Christmas party in December is expected to cost the company a total of N90,000, though 60% of the expenses will be pushed for settlement the month following.
  10. Assume an overdraft of N283,000 on 31 December 2019.

Required:

Prepare a monthly cash budget for Wareroom Trading Limited for the first three months of 2020 using a columnar format. (Total 20 Marks)

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  • 1 Marks

MI – May 2016 – L1 – SA – Q7 – Budgeting

Identify the budget that is not a functional budget from the given options.

The following are functional budgets EXCEPT:
A. Sales budget
B. Production budget
C. Distribution budget
D. Cash budget
E. Selling cost budget

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  • 20 Marks

MI – May 2024 – L1 – SB – Q2 – Budgeting

Prepare a cash budget based on sales collections, purchases, and other financial data for the third quarter.

Breakable Limited is preparing for the last half of the year and you, as the cost accountant, have been requested to prepare the cash budget for the third quarter of the year. The following information were available:

  1. Sales – 20% of monthly sales are in cash, while the balance is on credit.
    a. Collections from receivables are as follows:
    i. 60% in the first month after sales.
    ii. 20% in the second month; and
    iii. The balance after considering 1% bad debt and 5% discount on the outstanding balance in the third month after sales.
  2. Purchases are usually 60% of the month’s Sales and are paid for 70% in the same month and 30% in the following month less 2% discount on the total purchase price.
  3. Loan of N500,000 is expected to be approved by the bank on the first day of August, payable equally over twelve months with one month moratorium and 1% interest on the outstanding.
  4. Salary deductions are paid on the preceding month’s basis.
  5. The sum of N951,550 being a fixed deposit will mature in the month of July; N500,000 will be reinvested the same month with 0.5% interest credited the following month.
  6. Cash and cash equivalent balance as at end of June is N1,050,706.
  7. Bank Charges are 1% of total outflow from the bank payment for the month.
  8. Additional information:
Month Sales Net Salaries Expenses Salary Deductions
April 850,000 430,000 210,700 39,400
May 900,000 500,000 221,500 48,400
June 1,250,000 650,000 297,500 49,480
July 1,520,000 720,000 277,200 58,700
August 1,650,000 740,000 287,500 52,750
September 1,800,000 770,000 292,700 57,650
October 1,400,000 770,000 292,700 57,650

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  • 20 Marks

MI – May 2015 – L1 – SB – Q1 – Budgeting

Prepare a cash budget for a three-month period based on sales, purchases, loan, and other projections.

WHYME LIMITED is engaged in the manufacturing and sales of fast-moving consumer products. The following data are projections for a period of six months:

Month Sales (N’000) Purchases (N’000) Salaries (N’000) Staff Salary Deductions (N’000) Overheads (N’000)
Jan 9,600 5,400 1,650 78 1,650
Feb 15,800 12,000 1,760 82 1,920
March 16,000 10,000 1,760 90 2,100
April 17,600 11,000 1,789 89 2,400
May 14,800 11,200 1,842 92 1,860
June 14,200 9,800 1,800 85 1,720

Other additional information:

  1. Sales are 25% on cash basis, 55% is collected in the month following sales, and the balance in the third month.
  2. All purchases are on 30 days credit while 20% of overheads are paid in the same month, with the balance in the following month.
  3. Net salaries will be paid in the same month, while statutory deductions are remitted on the 10th day of the following month.
  4. A N10 million loan will be released in March to finance the purchase of a new asset costing N12 million in the same month. The loan will be repaid equally over four months starting from April. (Ignore interest).
  5. An old asset will be disposed of in April for N1.5 million.
  6. Cash balance as at the end of February will be N6.5 million, with N2.5 million put into a short-term investment in March at a 2% monthly interest rate, credited at the beginning of the following month.

Required:
Prepare a cash budget for the period of March to May. (Ignore taxation).
(20 Marks)

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  • 10 Marks

MA – July 2023 – L2 – Q3b – Cash budgets and master budgets

Prepare a monthly cash budget for the first quarter of 2023 for GoGo Ltd, including debtors collection and creditors payment schedules.

b) An extract from the accounts of GoGo Ltd for the last quarter of 2022 is as follows:

The selling price for the products is expected to be GH¢2.5 for the first quarter of 2023. Generally, 60% of sales is collected in the month of sale while 35% is collected in the following month, with the remaining debts declared as bad thereon. The company introduced a debt recovery strategy in the third quarter of 2022 which yielded a collection of 75% of outstanding debts in the first month after being declared as bad debt.

ii) One kilogramme of the raw material can be used to produce two products. A kilogramme of the raw material cost GH¢1.30. Due to an anticipated shortage in raw materials, the company plans to pay for all purchases of raw materials, one month ahead of time.

iii) Wages and variable production overheads are charged at GH¢0.50 and GH¢0.25 respectively per unit produced. Wages and all overheads are paid in the month in which they are incurred. Included in fixed overheads is a monthly depreciation of GH¢750. All other owings are due for payment in the month of January.

Required: Prepare the monthly cash budget for the first quarter of 2023, showing the sub-totals.

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  • 10 Marks

MA – Nov 2021 – L2 – Q3b – Cash Budgets and Master Budgets

Extract the cash budget for the second quarter showing the cash balance for each month.

b) The budgeted Income Statement for Zeedan Company for the year 2020 is presented below.

Description GH¢
Sales revenue 930,000
Cost of sales 558,000
Gross profit 372,000
Total expenses 225,000
Net profit 147,000

Notes:
i) Monthly sales in each quarter are the same. The sales for January are GH¢50,000 and this will remain unchanged up to March when it will increase by GH¢20,000 from April and remain unchanged for the remaining two months in the quarter. Third quarter monthly sales will be GH¢90,000 each while those of the fourth quarter are GH¢100,000 each.
ii) 20% of all sales are on a cash basis, 40% of the monthly sales are paid in the month after sales, and the balance is paid the second month after sales. No bad debt is expected.
iii) The monthly cost of sales represents 60% of the current month’s sales. Inventory is kept at 60% of the following month’s cost of sales. All purchases are paid in full after one month.
iv) Included in the expenses is a depreciation of GH¢87,000. The monthly expenses paid as and when incurred are GH¢10,000. This is fixed in January but increased by 20% effective April.

Required:
Extract the Cash Budget for the second quarter of the year, showing the cash balance for each month in the quarter.

(10 marks)

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  • 20 Marks

MA – Nov 2015 – L2 – Q2 – Budgetary control

Prepare budgeted income statement, statement of financial position, and cash budget for Brofre Limited for the first quarter.

Brofre Limited retails fertilizer to farmers in Ghana. The company has approached its bankers to provide funding for next year’s operations, and a three-month master budget has been requested for review by the bankers.

You have been approached by the management as a consultant to prepare the 1st quarter budget for the banker’s consideration for its next year’s operations.

End of Accounting year December 2014:

Item GHS
Debtors 23,000
Bank balance 55,000
Fixed asset at cost 698,000
Provision for depreciation 98,000
Creditors Balance 48,000
Operating expenses (Dec) 60,000
Sales (Dec) 400,000
December Ending Inventory 20,000
Retained earnings 120,000

Additional information provided:

  1. Depreciation is provided at the rate of 5% on the cost of non-current assets.
  2. Closing inventory is expected to increase by GHS 2,000 in January from December levels. This is expected to increase by the same figure in February from the projected figure in January. It is expected that in March, closing inventory is desired to be GHS 26,000.
  3. The company makes a profit of 25% on its sales.
  4. Operating expenses are expected to increase by 10% from that of December and this is projected to increase at the same growth rate until March.
  5. Sales are projected to grow by 15% from December until March.
  6. The Debtors figure is desired to be proportional to the sales values.
  7. Creditors value for the three months is expected to be as follows: January – GHS 50,000; February – GHS 46,000; March – GHS 52,000.

You are required as a consultant for Brofre Limited to prepare for their bankers:

a) The budgeted income statement for the three months. (7 marks)
b) The budgeted statement of financial position for the three months. (7 marks)
c) The cash budget for the three months. (6 marks)
(Total = 20 marks)

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  • 40 Marks

CSEG – May 2016 – L2 – Q1 – Analysing the external environment | Analysing the internal environment

Conduct strategic analysis and prepare cash budget for Richward Ltd, a small haulage contracting company, addressing competitive forces, SWOT, and financial planning.

ICHWARD LIMITED

Background Mr. Kwesi Bonku is the Managing Director of Richward Ltd, a small haulage contracting company, which he founded 15 years ago. Originally, Mr. Bonku was a heavy goods vehicle driver himself, working for other contractors, but he had the intent of establishing his own business. Having received his pension, he acquired an articulator truck and began to work from home. Over time the business expanded and now Richward Ltd operates a fleet of 15 heavy goods vehicles. Five of the current fleet of trucks was acquired in the last financial year, replacing older units which were becoming too expensive to maintain. The Company now employs 20 full-time and varying number of part-time driver mates. The part-time staff work as and when required.

Mr. Bonku acquired two plots of land six years ago and built a house on it, which he and his family occupy. In addition, he built a garage with facilities for minor servicing and repairs on the same site. Living on site has enabled him to offer a 24-hour service to clients. Consequently, movement of the trucks in and out of the site occurs at all times of day and night. There have been objections raised by the residents in the neighbourhood to disturbance and the local Radio Stations has at various times reflected this criticism.

In addition to the haulage business, the company also obtained license and established a driving school. This had proved to be a successful diversification as there is a regular stream of customers. This training takes place mostly in Richward Ltd’s own garage facilities. It became clear to Mr. Bonku that the land on which the garage facility is built was inadequate for the needs of his growing business.

Acquisition of land One year ago, Mr. Bonku entered into negotiations to lease some land which would be more than satisfactorily for the company’s operations. The land is situated on an industrial estate five kilometres from the existing facility. In addition, there is room to build a workshop facility which would be adequate for the needs of the fleet.

Following agreement of a lease arrangement, which was concluded just before the completion of the last financially year, Richward Ltd occupied the land on which there were no building erected or utilities supplied. Since taking possession of the land, a large security fence has been erected and a small portable cabin placed on site. Water and electricity services have been supplied and negotiations are taking place for the installation of a large diesel tank adequate to service other vehicles besides those of Richward Ltd.

Accounting Mr. Bonku recruited Mrs. Efua Dadson, a part-time accountant, four years ago. Prior to Mrs. Dadson’s arrival, Richward Ltd applied a policy of paying all invoices immediately on receiving them. As debtors were frequently taking over and above the credit period (30 days) allowed, Richward Ltd suffered a cash flow shortage, which resulted in a large bank overdraft.

Mrs. Dadson introduced some basic financial accounting procedures into the company. In addition to exercising some control on Richward Ltd expenditure, Mrs. Dadson has reduced the debtors’ collection period to about half its former level. Creditors are now paid when the invoices fall due rather than immediately upon their receipt. Such control had been lacking prior to her arrival at the company.

The company faces strong competition for haulage contract work. Typically, haulage contractors operate on a low-margin basis and smaller companies often sub-contract from large-scale hauliers. Richward Ltd carries haulage for a variety of customers as well as undertaking some subcontracting. Much of the haulage work the company carries out is seasonal.

One of its top clients, Grace Ltd, recently appointed a new transport manager. The new Manager of Grace Ltd. has begun to employ other hauliers besides Richward Ltd. Over the last two months, the haulage work Richward Ltd has received from Grace Ltd has reduced by about a third.

In order to address the competition, Richward Ltd recently diversified into the sale of hydraulic oil. Sales have been running at a steady rate of 50 gallons each month for some time, but the company is dissatisfied with this level of sales and from next month June 2016, the company intends to advertise actively. This is expected to increase sales by 10 gallons per month from June to October inclusive after which it will remain steady at 100 gallons per month.

Each gallon costs GH¢1,500 and sells for GH¢2,000. All purchases are on one month’s credit and sales on two month’s credit. The company feels that, to give a good service to customers, it must have sufficient inventory at the end of each month to meet the whole of the following month’s sales.

Additional non-current assets (a delivery van to help cope with the increased sales) will be bought and paid for in July 2016 at a cost of GH¢15,000. Corporate tax of GH¢25,000 is due for payment on 1st August, 2016. The balance of cash at 31st May, 2016 is planned to be GH¢30,000.

Operating costs will rise to cash payments totaling GH¢10,000 each month. The advertising will cost GH¢20,000 in June and GH¢10,000 for each month from July to September inclusive, payable one month in arrears.

The Accountant has not yet had a cash budget prepared for the rest of the year, but she feels that the sales expansion plans are likely to lead to cash flow problems.

Suggestions have been made that, if her fears are justified, it might be possible to overcome the problem by increasing the creditor payment period to two months and buying inventory as it is used (i.e. zero inventory at month ends).

Required: a) Assess the nature of competitive forces of Richward Ltd. (8 marks)

b) Present a SWOT Analysis for Richward Ltd. (8 marks)

c) Advise Mr. Bonku on the strategic management accounting information which should be provided to assist future decision making and cost control. (8 marks)

d) Prepare a cash budget for Richward Ltd Limited for the six months ending 30th November 2016, showing the planned cash position at the end of each month; on the basis of the original planned credit and inventory holding periods. (6 marks)

e) Redraft your cash budget to reflect the suggested alterations to these planned periods. (5 marks)

f) Suggest what other aspects Richward Ltd Limited should consider to solve the expected cash flow problem, should the suggested solution be unachievable. (5 marks)

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  • 20 Marks

IMAC – DEC 2022 – L1 – Q2 – Budgeting

Preparation of a flexible budget and addressing negative cash balances in a cash budget.

a) A cash budget is an estimation of the cash flows of a business over a specific period of time. This budget is used to assess whether an entity has sufficient cash to continue operating over a given time frame. The cash budget provides a company with insight into its cash needs (and any surplus) and helps to determine an efficient allocation of cash.

Required:
Identify THREE (3) ways a business can address negative monthly cash balances in a cash budget. (6 marks)

b) The following budget report was prepared for the second quarter of 2022.

Budget Actual Variance
Production Level 6,000 units 7,200 units
Revenue and Cost: GH¢ GH¢ GH¢
Sales 120,000 140,600 20,600 F
Direct Material (30,000) (39,600) 9,600 A
Direct Labour (24,000) (25,920) 1,920 A
Variable Overheads (12,000) (21,600) 9,600 A
Semi-Variable Overheads (30,000) (34,600) 4,600 A
Profit 24,000 18,880 5,120 A

The budgeted fixed overhead cost in the semi-variable overhead cost was GH¢12,000.

Required:
Prepare a budget report using the flexible budget for the second quarter of 2022. (14 marks)

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  • 20 Marks

IMAC – NOV 2020 – L1 – Q2 – Cash Budgeting and Working Capital

Prepare cash budget for FG Ltd; explain the usefulness of cash budgets and calculate the cash operating cycle.

a) FG Ltd is preparing its cash budget for January, February, and March 2020. Budgeted data are as follows:

November December January February March
Sales (Units) 750 800 800 850 900
Production (Units) 800 800 850 900 950
Direct labour & variable overhead incurred GH¢48,000 GH¢48,000 GH¢51,000 GH¢54,000 GH¢57,000
Fixed overhead incurred (excluding depreciation) GH¢20,000 GH¢20,000 GH¢20,000 GH¢20,000 GH¢20,000
  • The selling price per unit is GH¢200. The purchase price per kg of raw material is GH¢25. Each unit of finished product requires 2kg of raw materials which are purchased on credit in the month before they are used in production. Suppliers of raw materials are paid one month after purchase.
  • All sales are on credit. 80% of customers pay one month after sale and the remainder pays two months after sale.
  • The direct labour cost, variable overheads, and fixed overheads are paid in the month in which they are incurred.
  • Machinery costing GH¢100,000 will be delivered in February and paid for in March.
  • Depreciation, including that on the new machinery, is as follows:
    • Machinery and equipment GH¢3,500 per month
    • Motor vehicle GH¢800 per month

The opening cash balance on 1 January is estimated to be GH¢15,000.

Required:
i) Prepare a cash budget for each of the three months January, February, and March. (12 marks)
ii) State and explain FOUR (4) usefulnesses of cash budgets. (4 marks)

b) A company’s sales revenue for the year just ended was GH¢28 million. The company earned a gross margin of 40% on sales. All sales and purchases were on credit.

The following balances have been extracted from the year-end accounts:

  • Inventory: GH¢4 million
  • Accounts receivable: GH¢6 million
  • Accounts payable: GH¢3 million

Required:
Calculate, to the nearest whole number, the company’s cash operating cycle based on the year-end figures. (4 marks)

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