SELECTED EXAMPLES AND THEIR SOLUTIONS

Topic: COST BEHAVIOUR & ESTIMATION

a. ACCOUNT ANALYSIS (INSPECTION OF ACCOUNTS) METHOD
Example one
Home Shine LTD is estimating its fixed and variable costs. The following costs were incurred
during the month of January by the company when 200 homes and offices were cleaned:

Cleaning supplies 240,000

Hourly wages 485,000
Depreciation - cleaning equipment 65,000
Manager’s salary 140,000
Transport expenses 160,000
Office rent 85,000
Total costs 1,175,000

Required
Use the account analysis method to determine the total cost equation for Home Shine.

Solution
Step 1: Classify each cost as variable or fixed based on judgment. By definition, variable costs
increase in total when more activity occurs. By definition, fixed costs are the same in total
regardless of the activity level. The activity for this problem is number of homes cleaned.
Cleaning supplies = variable cost. The total cost of cleaning supplies increases when more homes
are cleaned.
Hourly wages = variable cost. The total cost of hourly wages increases when more homes are
cleaned.
Depreciation = fixed cost. The total cost of depreciation is $650 regardless of the number of
homes cleaned.
Manager's salary = fixed cost. The manager's salary is the same regardless of the number of
hours worked or the number of homes cleaned.
Auto commuting expenses = variable cost. The total cost of commuting expenses such as
gasoline and maintenance increases when more homes are cleaned.
Office rent = fixed cost. The monthly office rent is the same regardless of the number of homes
cleaned.
Step 2: Add the costs you identified as variable.

240,000 + 485,000 + 160,000 = 885,000

Calculate variable cost per unit by dividing the total of the variable costs by the number of units
(homes) produced and sold (homes cleaned).
885,000 = Sh4425
200
Step 3: Add the costs you identified as fixed costs.

65,000 + 140,000 + 85,000 = 290,000

Step 4: Plug your answers to steps 2 and 3 into the cost formula by replacing the slope with the
variable cost per unit and the Y-intercept with total fixed costs:
Y = 4425x + 290,000
The cost equation indicates that the total cost of cleaning homes is sh4425 per home plus a
monthly cost of sh290,000.

a. HIGH LOW METHOD (TWO POINT METHOD

Example one
The production manager of Sirloin Company is concerned about the apparent fluctuation in
efficiency and wants to determine how labour costs (in Sh.) are related to volume. The data for
12 weeks is given as below;

Week Units Produced(X) Labour Costs(Y)

1 34 340
2 44 346
3 24 287
4 36 262
5 30 220
6 49 416
7 39 337
8 21 180
9 41 376
10 47 295
11 34 215
12 24 275

Required:
a. Estimate the cost function using the high low method.

b. Assume that the Company intends to produce 45 units in one period and 34 units next
period. Estimate the labour costs to be incurred in the two periods.

Solution
We will first use the high-low method to establish the cost function.

High low method

Highest point X Y
49 416

Lowest point 21 180

Difference 28 236

Gradient = Y2 – Y1
 X2 – X1
= ∆y
∆x
Gradient/ slope = 236 = 8.43
28

The function will be:

Y= a + bx

We can Substitute the lowest points (21,180)

180 = a + 8.43(21)

a = 2.97. This can be approximated to 3

The predicting equation is therefore Y = 3 + 8.43 x

i. if X=45 units

Y = 3 + 8.43*45
= Sh.382.35

ii. 34 Y = 3 + 8.43(34)
= Sh.289.62

b. SCATTER GRAPH METHOD

Example one
Holy Way Company decided to use scatter graph method to split its factory overhead (FOH) into
variable and fixed components. Following is the data which is provided for the analysis.

Month Units FOH (sh)

1 1,520 36,375
2 1,250 38,000
3 1,750 41,750
4 1,600 42,360
5 2,350 55,080
6 2,100 48,100
7 3,000 59,000
8 2,750 56,800

Required
Determine
a. The fixed cost component
b. The variable cost component
Solution
Step 1: Draw scatter graph
Plot the data on scatter graph. Plot activity level (i.e. number of units, labor hours etc.) along x-
axis and total mixed cost along y-axis.

Step 2: Draw regression line

Draw a regression line over the scatter graph by visual inspection and try to minimize the total
vertical distance between the line and all the points. Extend the line towards y-axis.

Step 3: Find total fixed cost

Total fixed is given by the y-intercept of the line. Y-intercept is the point at which the line cuts y-
axis.

Step 4: Find variable cost per unit

Variable cost per unit is equal to the slope of the line. Take two points (x1,y1) and (x2,y2) on the
line and calculate variable cost using the following formula:
Variable Cost per Unit = Slope of Regression Line = y2 − y1
x2 − x1

Fixed Cost = y-intercept = sh18,000

Variable Cost per Unit = Slope of Regression Line
To calculate slop we will take two points on line: (0,18000) and (3500,68000)
Variable Cost per Unit = (68000 − 18000) ÷ (3500 − 0) = sh14.286

c. REGRESSION ANALYSIS

Example one
Jill Scotts a management accountant at Kaburu’s Manufacturers collected the following data on
the weekly production and labour costs;

Week Units (X) Labour Costs(Y)

1 34 340
2 44 346
3 24 287
4 36 262
5 30 220
6 49 416
7 39 337
8 21 180
9 41 376
10 47 295
11 34 215
12 24 275

Required
a. Determine the cost function that can be used to estimate the total cost.
b. The company produced 45 units in a given period. Calculate the total cost of producing
45 units.
c. The company produced 34 units in a given period. Calculate the total cost of producing
34 units.

Solution

Week No. Units (X) L.Costs(Y) XY X2

1 34 340 11560 1156

2 44 346 15224 1936
3 24 287 8897 961
4 36 262 9432 1296
5 30 220 6600 900
6 49 416 20384 2401
7 39 337 13143 1521
8 21 180 3780 441
9 41 376 15416 1681
10 47 295 13865 2209
11 34 215 7310 1156
12 24 275 6600 576
423 3549 130,202 15849

Value of b can be calculated as follows:

Unit Variable Cost (b) = n xy – x y
n x 2– (x)2

Total Fixed Cost (a) = Y - b x

n

b= 12(130202) - 423(3549) = 5.4

 12(15849) - (423) 2

a = 3549 - 5.4 ( 423) = 105.4

12

Therefore the predicting function is Ŷ = 105.4 + 5.4X

b. i. If X = 45 units, then

Ŷ = 105.4 + (5.4 x 45)

= Sh.348.4

ii. If X = 34 units, then

Ŷ = 77.08 + (6.1 x 34)

= Sh.289

Topic: COST-VOLUME-PROFIT (C-V-P) ANALYSIS

ANALYZING THE COST-VOLUME RELATIONSHIP
1. Algebraic Analysis

Example one
Chipsy Manufacturers have been producing product Y for the past three months. Fixed costs are
Sh.500,000 variable cost per unit is Sh.10 and the volume produced is 1,000,000 units,

Required
Calculate the total cost of production.

Solution

C = F + Vu (Q)
= 500 + 10 (1000)
= Sh.10500

2. Graphic Analysis

Example one
Jolly Manufacturers have been producing commodity X at their plant in Nairobi. The production
data for the past three months is given below;

Units Cost (sh)

200 100,000
500 175,000
600 200,000
Required
Estimate the cost of producing 400 units

Solution
Step 1. Determine the scale that you will use.
Volume is considered the independent variable and will be graphed on the horizontal axis. Cost
is considered the dependent variable and will be graphed on the vertical axis. The scales on the
two axes do not have to be the same. However, on each axis one block must represent the same
amount of change as every other block of the same size on that axis. Each scale should be large
enough to permit analysis, and small enough to permit the graphing of all available data and
anticipated data estimates.

Step 2. Plot the available cost-volume data.

Find the volume given for one of the data points on the horizontal axis. Draw an imaginary
vertical line from that point. Find the related cost on the vertical axis and draw an imaginary
horizontal line from that point. The point where the two lines intersect represents the cost for the
given volume. (If you do not feel comfortable with imaginary lines you may draw dotted lines to
locate the intersection.) Repeat this step for each data point.

Step 3. Fit a straight line to the data.

In this section of text, all data points will fall on a straight line. All that you have to do to fit a
straight line is connect the data points. Most analysts use regression analysis to fit a straight line
when all points do not fall on the line.

Step 4. Estimate the cost for a given volume.

Draw an imaginary vertical line from the given volume to the point where it intersects the
straight line that you fit to the data points. Then move horizontally until you intersect the vertical
axis. That point is the graphic estimate of the cost for the given volume of the item.

Cost of 400 units is sh 150,000

BREAK EVEN ANALYSIS

Example one
Assume that you are planning to sell badges at the forthcoming Nairobi international fair at
Sh.90 each. The badges cost Sh.50 to produce and you incur Sh.20,000 to rent a booth in the
grounds.

Required
a) Compute the breakeven point in shillings and units
b) Compute the margin of safety if the expected sales are 600 units
c) Compute the number of units that must be sold to earn a before tax profit of 20%
d) Compute the number of units that must be sold to earn an after tax profit of Sh.1640,
assuming that the tax rate is 30%.

Solution

1. Break even point

B.E.P (in units) = F
S - Vu

BEP units = 20000/(90-50) = 500 units

BEP Sh. = 500 x 90 = 45,000/-

2. Margin of safety

MOS = Expected sales - Break even sales x 100

Expected sales

= 600-500 x 100 = 16.7%

600
3. Target before tax profit (Y)

Let X be the number of units to produce

X=F + Y
S - Vu

X the number of units to produce

Vu variable cost per unit
F total fixed costs
Y Target before tax profit
S selling price per unit

X = 20,000 + 0.2 (90X)

90-50

X= 20,000 + 18X
40
X = 909.09 approximately 910 units.

d) After Tax profit

Let Z be the after tax profit

X = F + z/1-t
S – Vu
= 20000 + 1640
1-0.3
90-50

X = 441 units

C-V-P ANALYSIS – MULTIPLE PRODUCTS

Example one
Assume that ABC Ltd produces two products, product A and B and the following budget has
been prepared.

A B Total
Sales in units 120,000 40,000 160,000

Sh. Sh. Sh.

Sales @5/-, 10/- 600,000 400,000 1,000,000

Variable cost @ 4/-, 3/- 480,000 120,000 600,000
Contribution @ 1/- 7/- 120,000 280,000 400,000
Total fixed cost 300,000
Profit 100,000

Required:
a) Compute the break-even point in total and for each of the products.
b) The company proposes to change the sales mix in units to 1:1 for products A and B.
Advice the Co. on whether this change is desirable.

Solution
A B
Sales mix (units) 0.75 0.25 1
Sales mix (Shs) 0.60 0.40 1
n
∑ (S t −V t )α t
Average CM = t=1
Sales mix (units) 0.75 0.25
Contribution @ 1/- 7/-

= 0.75 (1) + 0.25(7)

= 2.5

Total BEP units = Total fixed cost = 300000

Average CM 2.5

= 120,000 units

BEP (units) BEP(sh)

A 120000 x 0.75 = 90,000 (90000x5) = 450,000
B 120000 x 0.25 = 30,000 (30000 x 10) = 300,000
120,000 750,000

Topic: VARIANCE ANALYSIS

1. Sales Volume Variance

Example one
Wrangler Plc is a manufacturer of jeans trousers and jackets. Information relating to
Wrangler Plc's sales during the last period is as follows:

Trousers Jackets
Units Units
Budgeted 12,000 5,000
Actual 10,000 8,000
Standard costs and revenues per unit of trouser and jacket are as follows:
Trousers Jackets
sh sh
Revenue 20 50
Direct labor 5 10
Direct Material 6 15
Variable Overheads 4 10
Fixed Overheads 2 5

Required
Calculate the Sales Volume Variance using;
a. Marginal costing
b. Absorption costing

Solution
Marginal costing
 Sales Volume Variance shall be calculated as follows:

Step 1: Calculate the standard contribution per unit

As Wrangler Plc uses marginal costing system, we need to calculate the standard contribution
per unit. Allocation of the fixed overheads may therefore be ignored.
Trousers Jackets
sh sh
Revenue 20 50
Direct labor (5) (10)
Direct Material (6) (15)
Variable Overheads (4) (10)
Standard contribution per unit 5 15

Step 2: Calculate the difference between actual units sold and budgeted sales
Trousers Jackets
Units Units
Actual 10,000 8,000
Budgeted (12,000) (5,000)
Difference (2,000) 3,000

Step 3: Calculate the variance for each product

Trousers Jackets
Standard contribution per unit (Step 1) sh5 sh15
Actual Units Sold - Budgeted Sales (Step 2) x (2000 units) x 3000 units
Variance sh10,000 Adverse sh45,000 Favorable

Step 4: Add the individual variances

sh35,000 Favorable      =   Sales Volume Variance (sh10,000 - sh45,000)

Note: If Wrangler Plc used absorption costing, sales volume variance would be calculated based
on the standard profit per unit (i.e. fixed costs per unit of output will need to be deducted from
the standard contribution calculated in Step 1).

2. Sales Mix Variance

Example one
Aliengear Inc. is a small company that specializes in the manufacture and sale of gaming
computers. Currently, the company offers two models of gaming PCs:
 a. Turbox - A professional gaming PC with a water-cooling system priced at sh2,500
b. Speedo - An entry level gaming PC with standard fan cooling priced at sh1,000

Aliengear budgeted sales of 1,600 units of Turbox and 2,400 units of Speedo in the last year.
The standard variable costs of a single unit of Turbox and Speedo were set at sh1,500 and
sh750 respectively. The fixed costs were sh 500 for turbox and sh 250 for speedo.

The sales team at Aliengear managed to sell 1,300 units of Turbox and 3,700 units of
Speedo during the last year.

Required
Calculate the sales mix variance using;
a. Marginal costing
b. Absorption costing

Solution

Marginal costing

Step 1: Calculate the standard mix ratio

40% Turbox and 60% Speedo  Standard mix ratio:
1,600 / (1,600 + 2,400) % = 40% Turbox 
100% - 40% = 60% Speedo

Step 2: Calculate the sales quantities in proportion to the standard mix

Total sales during the period: 1,300 Turbox + 3,700 Speedo = 5,000 units
Unit Sales at Standard Mix:
Sales of Turbox in standard mix @ 40% of 5,000 = 2,000 units
Sales of Speedo in standard mix @ 60% of 5,000 = 3,000 units

Step 3: Calculate the difference between actual sales quantities and the sales quantities in
standard mix
Turbox Speedo
Units Units
Actual sales quantities (as per
1,300 3,700
question)
Unit sales at standard mix (Step 2) (2000) (3000)
(700)
Difference 700 Favorable
Adverse

Step 4: Calculate the standard contribution per unit

Turbo
Speedo
x
sh
sh
Revenue 2,500 1,000
Variable cost (1,500) (750)
Standard contribution per unit 1,000 250

Step 5: Calculate the variance for each product

Turbox Speedo
Standard contribution per unit (Step 4)sh1,000 sh250
Actual quantity - Standard mix (Step
x (700 units) x 700 units
3)
sh700,000
Variance sh175,000 Favorable
Adverse

Step 6: Add the individual variances

sh525,000 Adverse  =   (sh700,000 - sh175,000)   =  Sales Mix Variance
Sales mix variance is adverse in this example because a lower proportion (i.e. 26%) of Turbox
(which is more profitable than Speedo) were sold during the year as compared to the standard
mix (i.e. 40%).

3. Sales Quantity Variance

Example one
Using the example above for Aliengear Inc. calculate the sales quantity variance using;
a. Marginal costing
b. Absorption costing

Solution

Marginal costing

Step 1: Calculate the standard mix ratio

40% Turbox and 60% Speedo  Standard mix ratio:
1,600 / (1,600 + 2,400) % = 40% Turbox 
100% - 40% = 60% Speedo

Step 2: Calculate the sales quantities in proportion to the standard mix

The objective is to find the respective sales quantities of products as if the total sales during the
period where distributed among the two products in proportion to their standard mix.
Total sales during the period: 1,300 Turbox + 3,700 Speedo = 5,000 units

Unit Sales at Standard Mix:

Sales of Turbox in standard mix @ 40% of 5,000 = 2,000 units
Sales of Speedo in standard mix @ 60% of 5,000 = 3,000 units

Step 3: Calculate the difference between actual sales quantities and the sales quantities in
standard mix
 Turbox Speedo
Units Units
Budgeted sales quantities (as per question) 1,600 2,400
Unit sales at standard mix (Step 2) (2000) (3000)
Difference 400 Favorable 600 Favorable
(favourable because the actual sales converted at standard mix are higher than budgeted sales)
Step 4: Calculate the standard contribution per unit
Turbox Speedo
sh sh
Revenue 2,500 1,000
Variable cost (1,500) (750)
Standard contribution per unit 1,000 250

Step 5: Calculate the variance for each product

Turbox Speedo
Standard contribution per unit (Step 4) sh1,000 sh250
Budgeted Sales - Sales in Standard mix (Step
x 400 units x 600 units
3)
sh400,000
Variance sh150,000 Fav
Fav

Step 6: Add the individual variances

sh550,000 Favorable  =   sh400,000 - sh150,000   =  Sales Mix Variance

4. Sales Price Variance

Example one
ABC PLC is a fertilizer producer which specializes in the manufacture of NHK-II (a chemical
fertilizer) and ORG-I (a types of organic fertilizer).

Following information relates to the sale of fertilizers by ABC PLC during the period:

Material Quantity Actual Price Standard Price

NHK-II 200 tons sh380/ton sh400/ton
ORG-I 300 tons sh660/ton sh600/ton

Required
Calculate the Sales Price Variance

Solution

Sales Price Variance shall be calculated as follows:

 Actual Standard Unit Sold (d)
a-b=c cxd
Price (a) Price (b) (tons)
4,000
NHK-II 380 400 20 200
Adverse
18,000
ORG-I 660 600 60 300
Favorable
14,000
Total
Favorable

5. Direct Material Price Variance

Cement PLC manufactured 10,000 bags of cement during the month of January. Following raw
materials were purchased and consumed by Cement PLC during the period:

Material Quantity Actual Price Standard Price

Clay 150 tons sh20/ton sh24/ton
Sand 250 tons sh10/ton sh12/ton

Required
Calculate the Material Price Variance

Solution

Step 1: Calculate Actual Cost

Actual Cost = Actual Quantity x Actual
Price
Limestone: 100 tons x sh75 = sh7,500
Clay: 150 tons x sh20 = sh3,000
Sand: 250 tons x sh10 = sh2,500

Step 2: Find the Standard Cost of Actual Quantity

Standard Cost = Actual Quantity x Standard
Price
Limestone: 100 tons x sh70 = sh7,000
Clay: 150 tons x sh24 = sh3,600
Sand: 250 tons x sh12 = sh3,000

Step 3: Calculate the Variance

Material Price Variance = Actual Cost (Step 1) - Standard Cost (Step
2)
Limestone: sh7,500 - sh7,000 = (sh500) Adverse
Clay: sh3,000 - sh3,600 = sh600 Favorable
Sand: sh2,500 - sh3,000 = sh500 Favorable
Total Price Variance sh600 Favorable
Topic: COSTING SYSTEMS
Variable, Direct or Marginal &Absorption Costing

Example one
Wazua ltd, a startup company produces a single product that has the following cost structure;
Number of units produced 6,000

Variable costs per unit:

Direct materials sh2
Direct labor sh4
Variable manufacturing overhead sh1
Variable selling and Administrative expenses sh3

Fixed costs per year:

Fixed manufacturing overhead sh30,000
Fixed selling and administrative expenses sh10,000

Required:
1. Compute the unit product cost under absorption costing method.
2. Compute the unit product cost under variable / marginal costing method.

Solution
Unit product Cost
Absorption Costing Method
Direct materials sh2
Direct labor sh4
Variable manufacturing overhead sh1
Total variable production cost sh7
Fixed manufacturing overhead sh5
Unit product cost sh12

Unit product Cost

Marginal Costing Method
Direct materials sh2
Direct labor sh4
Variable manufacturing overhead sh1
Unit product cost sh7

(The sh30,000 fixed manufacturing overheads will be charged off in total against income as a
period expense along with selling and administrative expenses)

Example two
The following data relates to a Jelly Manufacturing Company:
 Number of units produced each year 6,000

Variable cost per unit:

Direct materials sh2
Direct labor sh4
Variable Manufacturing Overheads sh1
Variable selling and Administrative expenses sh3

Fixed costs per year:

Fixed manufacturing overheads sh30,000
Fixed selling and administrative expenses sh10,000

Units in beginning inventory 0

Units produced 6,000
Units Sold 5,000
Units in ending inventory 1,000
Selling price per unit sh20

Selling and administrative expenses:

Variable per unit sh3
Fixed per year sh10,000
Required:
1. Prepare income statements using:
a. Absorption costing system
b. Variable costing system

Solution
Absorption Costing Income Statement
Sales (5,000 units×sh20 per unit) 100,000
Less cost of goods sold:
Beginning inventory 0
Add Cost of goods manufactured
(6,000 units×sh12 per unit) 72,000
Goods available for sale 72,000
Less ending inventory (12,000)
Cost of goods sold 60,000
Gross Margin (sh100,000 – sh60,000) 40,000
Less selling and administrative expenses
Variable selling and administrative expenses
(5,000 × sh3 per unit) 15,000
Fixed selling and administrative expenses 10,000
25,000
Net operating income (sh40,000 – sh25,000) 15,000

Marginal Costing Income Statement

Sales (5,000 units×sh20 per unit) 100,000
Less variable expenses:
Variable cost of goods sold:
Beginning inventory 0
Add variable manufacturing costs
(6,000 units×sh7 per unit) 42,000
Goods available for sale 42,000
Less ending inventory (1,000 units×sh7 per unit) (7,000)
Variable cost of goods sold 35,000
variable selling and administrative expenses
(5,000 units × sh3 per unit) 15,000
50,000
Contribution margin (sh100,000 − sh50,000) 50,000
Less fixed expenses: Fixed manufacturing overhead 30,000
Fixed selling and administrative expenses 10,000
40,000
Net operating Income (sh50,000 − sh40,000) 10,000

ACTIVITY BASED COSTING (ABC)

Example one
Pesagus Ltd. Is a manufacturing company that makes only three products L, M, and N. Data for
the period ended last month are as follows:

L M N
Units produced and sold 12,000 16,000 8,000

Sh. Sh. Sh.

Sales price per unit 50 70 60
Direct material cost per 16 24 20
unit labour cost per unit
Direct 8 12 8

Production overheads Total Sh. Cost drivers

costs
Machining costs 102,000 Machine hours
Production scheduling 84,000 Number of production runs runs
Set-up costs 54,000 Number of production runs
Quality control 49,200 Number of production runs
Receiving materials 64,800 Number of components receipts
Packing materials 36,000 Number of customer orders
390,000

Information on the cost drivers is given as follows:

L M N
Direct labour hours per unit 1 1½ 1
Machine hours per unit ½ 1 1½
Number of components per unit 3 5 8
 Number of component receipts 18 80 64
Number of customer orders 6 20 10
Number of production runs 6 16 8

Required:
Using activity based costing (ABC) show the cost and gross profit per unit for each product
during the period.

Solution
Overhead costs (Activities) L (Shs) M (Shs) N (Shs) TOTAL (SHS)
Machinery cost 18,000 48,000 36,000 102,000
Production scheduling 16,800 44,800 22,400 84,000
Set up cost 10,800 28,800 14,400 54,000
Quality control 9,848 26,240 13,120 49,200
Receiving materials 7,200 32,000 25,600 64,800
Packing materials 6,000 16,000 8,000 36,000
Total overhead cost 68,64 199,840 121,520 390,000
Units produced 12,000 16,000 8,000
Overhead cost/unit Shs.5.72 Shs.12.49 Shs.15.19

Total cost statement and profit (shillings per unit)

L M N
Direct materials 16.00 24.00 20.00
Direct labour 8.00 12.00 8.00
Overhead cost (as above) 5.72 12.49 15.19
Total production cost 29.72 12.49 15.19
Sales price 50.00 70.00 60.00
Gross profit per unit 20.28 21.51 16.81

Topic: BUDGETING

Example one
Job runs a business in Limuru town. His bank account has an overdrawn balance of sh 310,000 at
31st March 2020, and Job needs to show his bank manager that the overdraft can be reduced over
the following three months so that he can access additional financing. The details of his
expenditure are as follows:

1. Sales, which are all made for cash, are expected to be as follows;

April 2020 410,000

May 2020 520,000
June 2020 600,000

2. Purchases will be as follows;

 April 2020 205,000
May 2020 350,000
June 2020 210,000

3. Suppliers allow two months’ credit.

4. Rent of sh 540,000 per annum is payable monthly.
5. Job employs a part-time member of staff who is paid sh 30,000 per month.
6. Job plans to make drawings of sh 50,000 per month.
7. Other expenses will be paid as follows:

April 2020 15,000

May 2020 20,000
June 2020 35,000

8. Sales and purchases made in January to March were as follows:

Sales Purchases
January 2020 360,000 170,000
February 2020 370,000 180,000
March 2020 380,000 190,000

Required
Prepare a cash budget for the three month period ending 30th June 2020.

Solution

Receipts April May June

Cash from customers 410000 520000 600000

Payments
Suppliers 180000 190000 205000
Rent 45000 45000 45000
Wages 30000 30000 30000
Drawings 50000 50000 50000
Other expenses 15000 20000 35000
Total payments 320000 335000 365000
Surplus/ (deficit) 90000 185000 235000
Bal b/f (310000) (220000) (35000)
Bal c/d (220000) (35000) 200000