16
BUDGETING Practice Questions
Question 5 Quain Ltd is preparing to set up a business on 01/01/2014 and has made the following forecast for the first six months of trading: January €700,000
Sales Purchases €256,000
Feburary March €725,000 €260,000
April
€756,000 €265,000
€790,000 €272,000
May
€820,000 €286,000
June
€840,000 €292,000
The expected selling price will be €100 per unit. Quain Ltd’s trade credit policy is expected to be as follows: Cash Customers will make up 10% of sales revenue. Quain Ltd will offer these customers a 5% discount. Credit Customers will make up the remaining 90%. These debtors will pay 50% of their debt in the month after the sale and the remaining 50% in the second month after sale. The purchases will be paid for 50% in month after purchases when 2% cash discount will be received. The remaining purchases will be paid for in the second month after purchase.
Expected Costs Wages are expected to be €40,000 per month payable as incurred. Variable overheads are expected to be €10 per unit payable as incurred. Fixed overheads (including depreciation) are expected to be €55,000 per month payable as incurred. Equipment will be purchased on 01/05 costing €60,000 which will have a useful life of 5 years. Quain Ltd has secured a bank loan of €60,000 @ 4% interest per annum to cover this cost. Interest is to be paid monthly. Capital repayments of the loan will not commence until August 2014.
You are required to: (a) Prepare a Cash Budget for six months January to June 2014 (b) Prepare a Budgeted Profit and Loss Account for six months ended 30/06/2014
Look at the date you purchased the equipment.
Question 6 Cooke Ltd is preparing to set up a business on 01/07/2014 and has made the following forecast for the first six months of trading: July
Sales €400,000 €425,000 Purchases €250,000 €255,000
August September €450,000 €260,000
October November December €455,000 €265,000
€460,000 €265,000
€470,000 €270,000
The expected selling price will be €20 per unit. Cooke Ltd’s trade credit policy is expected to be as follows: Cash Customers will make up 20% of sales revenue. Cooke will offer these customers a 5% discount. Credit Customers will make up the remaining sales. These debtors will pay 60% of their debt in the month after the sale and the remaining 40% in the second month after the sale. All purchases will be paid for one month in arrears.
Expected Costs Wages are expected to be €20,000 payable monthly as incurred. Variable overheads are expected to be €2 per unit payable as incurred. Fixed overheads (including depreciation) are expected to be €44,000 per month payable as incurred. Equipment will be purchased in July costing €45,000 which will have a useful life of 5 years. Cooke Ltd has secured a bank loan of €40,000 @ 3% interest per annum to help cover this cost. Interest is to be paid monthly. Capital repayments of the loan will not commence until January 2015.
16
You are required to: (a) Prepare a Cash Budget for six months July to December 2014 (b) Prepare a Budgeted Profit and Loss account for six months ended 31/12/2014
258
Per annum means per year - 12 months.
TIP TIP
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