The following information relates to BETTER BOOKS LIMITED, a publishing company. The selling price of a book is K15, 000 and sales are made on credit through a book club and invoiced on the last day of the month. Variable costs of production per book are Materials (K5, 000), Labour (K4,000), and Overhead (K2,000). The sales manager has forecast the following volumes Nov. Dec. Jan. Feb. Mar. April May June July Aug. No of books 1,000 1,000 1,000 1, 250 1,500 2,000 1,900 2, 200 2, 200 2,300 Customers are expected to pay as follows: □ One month after the sale 40% □ Two months after the sale 60% The company produces the books two months before they are sold and the creditors for materials are paid two months after production. Variable overheads are paid in the month following production and are expected to increase by 25% in April, 75% of wages are paid in the month of production and 25% in the following month. A wage increase of 12.5% will take place on 1st March. The company is going through a restructuring and will sell one of its freehold properties in May for K25, 000, 000, but it is also planning to buy a new printing press in May for K10, 000, 000. Depreciation is currently K1, 000, 000 per month and will rise to K1, 500 000 after the purchase of the new machine. The company’s corporation tax (of K10, 0000, 000) is due for payment in March. The company presently has a cash balance at bank on 31st December 2022 of K1, 500, 000. Required: (a) Produce a cash budget for the six months from January to June, 2023. (b) Differentiate between incremental budgeting and rolling budget system. (c) Explain how depreciation would affect a cash budget and the calculation of profit in a business (d) Comment on the results of BETTER BOOKS LIMITED as shown by the budget you have prepared in (a) above, and suggest possible strategies the company must put in place to improve its cash position in the light of the plans to source a loan from STANBIC.
The following information relates to BETTER BOOKS LIMITED, a publishing company. The selling price of a book is K15, 000 and sales are made on credit through a book club and invoiced on the last day of the month.
Variable costs of production per book are
Materials (K5, 000),
Labour (K4,000), and
Overhead (K2,000).
The sales manager has
Nov. Dec. Jan. Feb. Mar. April May June July Aug.
No of books 1,000 1,000 1,000 1, 250 1,500 2,000 1,900 2, 200 2, 200 2,300
Customers are expected to pay as follows:
□ One month after the sale 40%
□ Two months after the sale 60%
The company produces the books two months before they are sold and the creditors for materials are paid two months after production.
Variable overheads are paid in the month following production and are expected to increase by 25% in April, 75% of wages are paid in the month of production and 25% in the following month. A wage increase of 12.5% will take place on 1st March.
The company is going through a restructuring and will sell one of its freehold properties in May for K25, 000, 000, but it is also planning to buy a new printing press in May for K10, 000, 000.
The company presently has a cash balance at bank on 31st December 2022 of K1, 500, 000.
Required:
(a) Produce a
(b) Differentiate between incremental budgeting and rolling budget system.
(c) Explain how depreciation would affect a cash budget and the calculation of profit in a business
(d) Comment on the results of BETTER BOOKS LIMITED as shown by the budget you have prepared in (a) above, and suggest possible strategies the company must put in place to improve its cash position in the light of the plans to source a loan from STANBIC.
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how did you come up with production quantity (A) in the wages payment budget?
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