Accounting English Paper 2 2015 Questions and Answers Part 5

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Question 6

Budgeting (35 marks; 20 minutes)

You are provided with information relating to Brakpan Stationers. The business is owned by Vukile Radebe and his wife, Lydia. The shop is managed by Alvin Alberts; however, he has been offered a job by a competitor at an increased salary.

Required

  • Explain the importance of comparing budgeted figures with actual figures achieved for the same period.

  • Calculate the missing amounts (indicated by a, b and c) in the Debtors’ Collection Schedule for the budgeted period March to May 2015.

Calculate the following budgeted figures:

  • Total sales for March 2015

  • Amount for payments to creditors during May 2015

  • Salaries of the shop assistants for April 2015

  • The percentage increase in the salary of the manager expected in May 2015

  • Amount of the additional loan expected to be acquired on 1 April 2015

An official of the local municipality has offered to recommend Brakpan Stationers to supply stationery to the value of R500 000. However, he will only do this if Vukile pays him R20 000 in cash.

Give Vukile advice in this regard. State two points.

  • Vukile’s wife is angry that he has not been adhering to the cash budget.

  • Vukile says that he deliberately did not keep to the budget because he wanted to improve the overall results of the business.

  • Identify three over-payments in April. Provide figures to support your answer. Provide a valid reason for each over-payment to support Vukile’s decisions.

  • Explain how this difference of opinion with his wife can be avoided in future.

  • State two other strategies that Vukile and his wife could consider in future to improve the results of the business.

Information

Sales and Debtors’ Collection

The total sales for April 2015 and May 2015 have been estimated as follows:

Sales and debtors' collection

April 2015

70 000

May 2015

78 750

80% of all sales are for cash. The rest is on credit.

Debtors are expected to pay as follows:

60% within the same month of sale, subject to a 4% discount 38% in the month following the month of sale 2% of debts are written off in the second month following the month of sale.

Debtors’ collection schedule:

Debtors' collection schedule

Credit Sales R

2015 March R

2015 April R

2015 May R

February

31 500

11 970

March

10 500

(a)

3 990

April

14 000

8 064

(b)

May

(c)

18 018

12 054

Purchases of Merchandise and Payment to Creditors

  • The business works on a fixed-stock base where the stock sold in a month is replaced at the end of that month.

  • The business uses a mark-up of 75% on cost.

  • 70% of all merchandise is purchased on credit.

  • Creditors are paid in full in the month following the month of purchase.

Salaries

Shop assistants:

  • The business has 12 shop assistants employed on equal pay in March 2015. Nine of the shop assistants are entitled to a bonus equal to 80% of the monthly salary during April 2015.

  • All shop assistants will receive a general increase during May 2015.

Loan

An additional loan will be taken from Atlantic Bank on 1 April 2015 at 14% p.a. interest.

Extract from the Cash Budget for the Three Months Ending 31 May 2015

Extract from the Cash Budget for the three months ending 31 May 2015

Receipts

March

April

May

Budgeted

Budgeted

Actual

Budgeted

Cash sale of stock

42 000

56 000

59 200

63 000

Collection from debtors

18 018

12 054

12 800

?

Rent income

5 600

6 160

6 160

6 160

Additional loan acquired

0

?

?

0

Payments

Cash purchase of stock

9 000

12 000

28 000

13 500

Payment to creditors

58 500

21 000

21 000

?

Salaries of shop assistants

102 000

?

?

110 160

Salary of manager

16 000

16 000

40 000

19 200

Interest on loan (14% p.a.)

6 300

7 175

7 175

7 175

Delivery expenses (for

deliveries to customers)

9 200

9 200

0

9 200

Insurance (paid annually)

0

27 000

27 000

-

Advertising

0

0

0

20 000

Purchase of vehicle

0

0

180 000

0

Vehicle expenses

0

0

4 000

4 000

Sundry expenses

5 300

5 300

5 300

5 800