REVIEW QUESTION: 5

PRO-JTS accountant has prepared the following information for the current financial
year, which has been extracted from the components of the master budget.
Total Sales
January February March April May June
R570 000 R627 000 R689 700 R655 215 R622 440 R622 440

Based on the past experience, sales are normally received in the following manner:
 35% of the sales are cash and all cash sales receive a 5% discount.

 The remaining sales are collected as follows:

50% during the first month after month of sales.

30% during the second month after first month of sales.
15% during the third month after first month of sales.
5% is uncollectible.
 The cost of raw materials equals 40% of each sale. The company requires a
monthly ending inventory equal to 50% of the next month’s purchases
requirements. Of its raw material purchases it pays 50% in the month of
purchase and the balance is payable in two equal instalments from month after
month of purchases. Total sale for December amounted to R420 000 and all
credit sales were collected in January. All purchases are on credit.

 Company tax payments are paid in the second month every year based on the
profit for the year. The company tax rate is 20%, Wood-master company’s net
profit for last year amounted to R92 000.

 The company’s equipment relating to production is estimated to be R240 000,

depreciable at 10% per annum. Variable overheads are based on material
purchases at the predetermined rate of 20%. While the fixed overhead expense
is R8000 per month and are payable every month.

 Direct labour is amounted to R35 000 payable every month.

 Company paid divides of R85 000 to shareholders on the 28 February

 The cash balance on the 31 January was R10 500. PRO JTS always keeps a
minimum cash balance of R10 000. Any shortages are financed with bank loans
at 15% interest per annum, payable monthly.
Required:
Prepare cash budget for February and March, show Debtors collections and Creditors
payments

Total receipts
January February March
Total sales 570000 627000 689700
less: Cash sales 199500 219450 241395
Credit sales 370500 407550 448305

DEBTORS COLLECTIONS
February March
Collection from credit sales:
January R370500 185250 111150

February R407550 - 203775

March R448305 - -

Total collection from credit sales:

Add cash sales 208478 229325
Total collection from customs 393728 544250

PURCHASES
December January February March April
40% of sales 168000 228000 250800 275880 262086
50%month of sales 84000 114000 125400 137940 131043
50% closing 114000 125400 137940 131043
Total purchases 198000 239400 263340 268983

CREDITORS PAYMENT SCHEDULE

February March
Payment to credit purchase:
December R198000 49500
January R239400 59850 59850
February R263340 131670 65835

March R268983 - 134492

Total payment to creditors: 241020 260177

CASH BUDGET BALANCE SHEET

February March
Cash balance, beginning 10500 10000
Add cash receipts 393728 544250
Total cash available R404228 R554250

Less cash disbursements:

Purchases (241020) (260177)
Wages/Direct labour (35000) (35000)
Manufacturing overheads (58668) (59797)

FEB: R263340x20%=R52668+8000-2000

Mar: R268983x20%=R53797+800-2000

SARS tax (18400) -

Divides paid (85000)
Total disbursements (R438088) (R354974)
Excess (deficiency) of cash available over (33860) 199276
Disbursements
Financing:
Borrowings 43860
Repayments (43860)
Interest (548)

Cash balance, ending 10000 154868