The Accounts of the Sage 2008

Candidates should answer THREE questions

Students should answer any THREE questions

1.The following information relates to forecasts of activity for Lake plc.:

Sales

Ј000 Materials

Ј000 Wages

Ј000 Expenses

Ј000

August 3,000 1,200 700 400

September 3,000 1,200 700 450

October 3,200 1,300 800 450

November 3,400 1,400 900 475

December 3,400 1,400 900 475

Notes

(1) Half of sales are on credit and customers are allowed one month in which to pay.

(2) Wages are paid as they fall due. Suppliers of materials and expenses allow one month’s credit.

(3) A payment of Ј3,500,000 for new fixed assets is to be made in November.

(4) The proceeds from the sale of land, amounting to Ј2,000,000, is to be received in December.

(5) The expected cash balance at 1st. August is Ј750,000.

(6) Lake plc. does not have a bank overdraft facility at present.

Required:

[a] Prepare a cash budget for the FOUR months to 31st. December (by month and in total). (60%)

[b] Discuss the significant features in the cash budget which you have calculated for Lake plc. (40%)

2.The following budget report has been prepared for the Canterford division of a large group of companies:

Canterford Division

Budget Report for July

Budget Actual Variance

Sales (units) 500,000 525,000

Ј000 Ј000 Ј000

Sales 50,000 53,000 3,000 (F)

Less

Direct Materials 15,000 16,000 1,000(A)

Direct Labour 8,000 8,500 500(A)

Production Overheads 4,000 5,000 1,000(A)

Selling & Distribution Overheads 1,200 1,300 100(A)

Administration Overheads 800 850 50(A)

Absorbed Group Overheads 2,000 2,500 500(A)

Total Cost 31,000 34,150 3,150(A)

Net Profit 19,000 18,850 150(A)

On investigation, you find that :

 Direct materials and labour are entirely variable.

 Production overheads are half variable costs and half fixed costs at the budgeted level of sales.

 Selling and distribution overheads are 25% variable costs and 75% fixed costs at the budgeted level of sales.

 Administration overheads are entirely fixed costs .

Required:

[a] Produce a budget report for the Canterford division for the month of July in a form more useful to management. (50%)

[b] Comment briefly on the budget report. which you have produced for the Canterford division. (20%)

[c] ‘Responsibility accounting is the