Budget and budgeting revision question (for ACCA examination revision)

Tanzania Glass Company is preparing its cash budget for the first quarter of 2015. The use of the company’s main manufacturing equipment is characterize by frequent stoppages to let it cool down to operating temperatures, a reminder that the equipment is due for replacement. The resulting slow pace of production has led to the incurrence of unplanned overtime costs and other overheads.
The following information has been collected to facilitate the budgeting exercise.
Sales (actual or estimated) over the last quarter of 2014 and the first quarter of 2015 are shown below:
October 2014 Tshs 150,000 (actual)
November 2014 Tshs 145,000 (actual)
December 2014 Tshs 145,000 (estimated)
January 2015 Tshs 130,000 (estimated)
February 2015 Tshs 175,000 (estimated)
March 2015 Tshs 250,000 (estimated)
The company plans to buy and install a new machine in January 2015. This will cost Tshs 604,500, all of which will be paid in January.
Wages, which are paid in the month in which they are incurred, are expected to fall from the Tshs 40,000 December 2014 level to Tshs 20,000 in subsequent month
Purchases of the material in each month amount to 30 % of that month’s planning sales value. Suppliers for material allow I month’s credit and the company fully avails credit facility
Fixed overhead have been at Tshs 70,00 (including Tshsh 20,000 for depreciation). Except for the monthly depreciation charge which is expected to increase by Tshs 5,000 in January, following the installation of the new machine, this is the level anticipated for the foreseeable future.
50% of the sales of each month result in cash being collected in the month of sale, 30% of the sales lead to cash being collected in the month following the month of sale, and the remaining balance is collected in the second month after the month of sale. There are no bad debts and discounts allowed.
The cash balance as at 30 November 2014 is Tshs 5,000.

    1. Prepare a cash budget for the first quarter of year 2015
    1. If the company plans to meet any cash deficit by obtaining an overdraft and it is expected that the March 2015 level of activity is going to be maintained for the foreseeable future, in what month will the company be able to complete repayment of the overdraft?

(Ignore taxation and interest payments)

4 thoughts on “Budget and budgeting revision question (for ACCA examination revision)”

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