MDM 301 MARKED ASSIGNMENT 2

Question 2 60 Marks

Coffiers (Pvt) limited is a local company which was incorporated in 1998 by two young
entrepreneurs who had the novel idea of enabling anyone to create restaurant quality coffee in
the comfort of their home. The company manufactures efficient, easy to use and sleek coffee
making machines which are sold to customers. These machines brew coffee from coffee pods
made by the company. These pods are a pre-apportioned single user container of ground coffee
beans and flavorings. The entity has two divisions namely the Machine Division and the Pod
Division.

Machine Division

John Busu, the Financial Accountant of the machine division has also asked for your help in the
preparation of the cash budget for the six months from July 2022 to December 2022. He has
provided the following information for you to use in preparing the budget.

Month Sales Purchases Staff Costs

July 2022 35,000 21,360 3,000
August 2022 24,300 15,800 3,200
September 2022 42,700 25,570 2,500
October 2022 38,900 23,568 3,000
November 2022 33,720 19,720 2,400
December 2022 59,600 31,480 2,600

1. 20% of sales are on a cash basis while 45% are on 30- day terms and the remainder are
on 60 -day terms. Sales for May and June 2022 were USD29,678 and USD33,560
respectively
2. Coffiers’ creditors allow the entity a maximum of 30 days to clear their Invoices.

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 MDM 301 MARKED ASSIGNMENT 2

3. Manufacturing expenses are usually 20% of monthly sales

4. Administration expenses are USD1,060 for June 2022 but are expected to increase by
4% every month.
5. Advertising costs are budgeted at 8% of monthly sales.
6. The directors have proposed a dividend of USD10,000 which is expected to be paid in
October 2022
7. The division intends to purchase new plant and equipment worth USD 16,000 in
November 2022
8. Wages are paid in arrears on the first day of the month following the month in which
services were rendered.
9. Balance of cash on hand on 1 July 2022 is USD17,890
10. Coffiers has an overdraft facility with their bank of USD5,000 attracting interest of 5%
every 30 days it remains unsettled. The bank has also indicated that it is willing to
provide Coffiers with a long-term loan should Coffiers need one.

Required Marks
a List and explain the functions of a budget 5 5
b Prepare the Cash Budget for the Machine Division for the 6 months 14
ending 31 December 2022

Presentation 1 15
Total 20

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