Reference no: EM132558730
Question - The following information relates to Kamelwa limited a retail grocer engaged in buying and selling of foodstuffs.
(1) Budgeted sales (2021):
January K500,000
February K450,000
March K625,000
April K700,000
May K665,500
June K781,000
July K718,750
August K593,750
September K812,500
October K780,000
November K850,000
December K1,020,000
January (2022) K620,000
(2) Kamelwa limited sells its purchases at cost plus 25% mark- up.
(3) Kamelwa has a policy to hold inventory at the end of each month which is sufficient to meet sales demand in the next half month. Sales are budgeted to occur evenly during each month.
(4) Purchases are paid for in the following manner: 50% in the month of purchase and the remainder in the month after purchase.
(5) Sales are 85% on credit basis and 15% cash basis. Credit sales are collected as follows: 60% in the month following the sale; 20% the second month after the sale and 20 % the third month after the sale.
(6) Labour is remunerated at 10% of cost of sales and is paid for in the month that it is incurred.
(7) Overheads incurred in the production department are 70% of labour cost. These overheads are paid 30% in the month they are incurred and the balance the following month.
(8) An auction sale conducted on 29 December 2020 resulted into disposal of property worth K600,000 which amount (cash) will be collected on 29 January 2021.
(9) The company will pay the last company tax balance for the period 2020 on 30 June 2021 amounting to K85,000.
REQUIRED -
(a) Prepare Kamelwa's limited cash budget for the year 2021.
(b) Discuss the circumstances under which each of the following budgets might be used.
- Rolling budget
- Zero based budget