by O. 2. MAX & SPENCER LTD. manufacture Polo shirts with the following details:

Question

by O. 2. MAX & SPENCER LTD. manufacture Polo shirts with the following details: Per unit data Direct Materials Direct Labour Variable Overheads GHC 40 52 Profit Selling Price Fixed costs, amounting to GHC 8,000 per month are paid in the month in which they arise. Customers setle their May accounts in July (two months later) 28 80 The company pays its suppliers of material two months after the purchase. Production and sales units are as follows: May Jun July Aug Sep Oct Nov Dec Production 1,200 1,400 1,600 2,000 2,400 2,600 2,400 2,200 Sales 1,000 1,200 1,400 1,600 1,800 2,000 2,000 2,600 Sufficient materials were to be purchased for each month's production and all purchases and sales were to be on credit. Wages were to be paid in the month of production. Variable Overheads were to be paid 50% in the month of production; the balance in the following month. Depreciation will be GHC3, 000 monthly and there will be profit on disposal of GHC 5,000 in August. Tax of GHC 21,000 will be paid in November. A new item of plant was to be bought and paid for in September at a cost of GHC 8,000. It is hoped an old plant will be sold in September for GHC2,800 The company's opening bank balance is GHC 14,400 in debit. Required: a) Prepare a month by month Cash Budget for the second half of the year and advice 30 mar management of MAX & SPENCER LTD accordingly.

Explanation / Answer

Cash Budget of Max & Spencer Ltd. (Amount in GHC) Particulars July August September October November December Opening Balance of Cash        14,400           19,600           28,400           35,200           44,400           34,200 Add: Cash Receipt Cash Sales Receipt from customers        80,000           96,000        1,12,000        1,28,000        1,44,000        1,60,000 sale of plant             2,800 Total Receipt        94,400        1,15,600        1,43,200        1,63,200        1,88,400        1,94,200 Less: Payment for expenses Payment to suppliers        48,000           56,000           64,000           80,000           96,000           88,000 Wages        12,800           16,000           19,200           20,800           19,200           17,600 Fixed cost          8,000             8,000             8,000             8,000             8,000             8,000 Variable Overhead: In Current Month          3,200             4,000             4,800             5,200             4,800             4,400 : In Next Month          2,800             3,200             4,000             4,800             5,200             4,800 Income Tax           21,000 Cost of new plant             8,000 Total Payment        74,800           87,200        1,08,000        1,18,800        1,54,200        1,22,800 Closing Balance        19,600           28,400           35,200           44,400           34,200           71,400

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