This questions has two parts (Q 2.1 and Q 2.2), each part has sub parts and attempts to address various aspects related to budgeting. Please read the instructions carefully and answer each part.

Q2.1: (Maximum Marks = 15)

The following data has been estimated for Hamilton Limited, who commenced the business on January 1, 2018.

• Estimated Sales:
• January \$ 60,000
• February \$ 55, 000
• Cash sales are estimated to be 30% of the total sales

• Debtors are expected to pay:
• 40% in the month of sale
• 60% in the month after sales

• Estimated purchases:
• January \$ 35,000
• February \$ 39,000

• All purchases are to be on credit and are to be paid for in the month following the purchase.

• Estimated operating expenses are:

Office salaries, January \$ 10, 000, February \$ 12, 500, paid in cash Depreciation of equipment 25% per year on \$ 250,000

• Other information:

The owner contributed \$ 85,000 cash to the business on January 1, 2018 The owner intends to withdraw \$ 3,000 per month for his private use.

The accountant of Hamilton manufacturers estimates that the firm will need a minimum cash balance of \$ 15, 000 in order to maintain the liquidity.

Required:

1. Prepare a schedule of expected cash receipts from debtors for January and February, 2018, support your answer with calculations (You must show a total column for the two months). LO 4b                                           (Maximum Marks = 2.5)
2. Prepare a cash budget for the two months ended February 28, 2018 showing the expected cash balance at the end of the each month (you must show a total column for the two months). LO 4b                                            (Maximum Marks = 8.50)
3. On February 28, 2018, the business instalment of \$ 80, 000 will be due on the new machinery. Will Hamilton manufacturers be able to pay the instalment? Explain your answer with relevant calculations. LO 4a                       (Maximum Marks = 4.0)

Q2.2: (Maximum Marks = 15)

Sweet Limited buys purchases marshmallows for \$4 and sells them for 5.5. Sales for Marshmallows (in units) are budgeted as follows: October 22,000; November 27,000; December 32,000; and Jan 30, 000. Actual sales (in units) were: August 18,000; Sept 18,000; Sweets Limited has a target of finished inventory to be 30% of the following month’s unit sales. Sales are 90% in cash and 10% in credit. Credit customers pay the month following the sale. Payment for purchases is made two months after the date of purchase. The budgeted cash balance as at 1 October 2018 is \$ 17,000.

1. Prepare a sales budget (Units and \$) for the quarter ended Oct – Dec 2018 (for the months and total for the quarter)  LO 4b                                             (Maximum Marks = 2.0)
2. Prepare a purchase budget (Units and \$) for the quarter ended Oct – Dec 2018 (for the months and total for the quarter) LO 4b                                      (Maximum Marks = 4.0)
3. Prepare a cash budget for the quarter ended Oct – Dec 2018 (for the months and total for the quarter)  LO 4b                            (Maximum Marks = 6.0)
4. Explain the purpose and at least one limitation of variance analysis. LO 4c

(Maximum Marks = 3.0)

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