Emefa Ltd (Emefa) is in the process of preparing its budget for the month of October, 2019 for its product, YEK. The Company expects to sell the product for GH¢75 but this price is expected to increase in the last quarter of 2019 by 5%. The following are the expected sales in units for the last six months in 2019.
August           September             October
7,000              8,000                      9,000

In October 2019, a total of 9,150 units of product YEK are expected to be produced to meet demand.

Typically, cash sales represent 20% of sales. Credit sales terms are 2/10, n/30. Emefa bills customers on the first day of the month following the month of sale. Experience has shown that 60% of the billings will be collected within the discount period, 25% by the end of the month after sales, 10% by the end of the second month after the sale, and 5% will ultimately be uncollectible. The firm writes off uncollectible accounts after 12 months.

The firm uses two materials for production, Mat and Pat. The purchase terms for materials are 2/15, n/60. Experience has shown that 80 % of the purchases are paid in the month of the purchase and the remainder are paid in the month immediately following. In September 2019, the firm budgeted purchases was GH¢32,000 for Mat and GH¢20,000 for Pat.

The firm’s budgeted direct material and labour budgets are as follows:
Direct Materials Purchases Budget (in Cedis) For October 2019

The production process requires direct labour at two skill levels (SL). The rate for labour at the SL1 level is GH¢45 per hour and for the SL2 level is GH¢25 per hour. The SL1 level can process one batch of YEK per hour while SL2 uses two (2) hours for the same output. Each batch consists of ten (10) units. The manufacturing of YEK also requires one-fifth of an hour of SL2 workers’ time for each unit manufactured.

Variable manufacturing overhead is GH¢100 per batch plus GH¢75 per direct labour-hour. In addition to variable overhead, the firm has a monthly fixed factory overhead of GH¢60,000, of which GH¢18,000 is depreciation expense. The firm pays all manufacturing labour and factory overhead when incurred.

Total budgeted marketing, distribution, customer service, and administrative costs for 2019 annual budget are GH¢3,000,000. Of this amount, GH¢2,000,000 is considered fixed and includes depreciation expense of GH¢400,000.
All marketing and administrative costs are paid in the month incurred.

Management desires to maintain an end-of-month minimum cash balance of GH¢100,000. The firm has an agreement with a local bank to borrow its short-term needs in multiples of GH¢10,000 up to GH¢1,000,000 at an annual interest rate of 26 %. Borrowings are assumed to occur at the end of the month. Bank borrowing at October 1 was GH¢0.

Required:
Prepare the cash budget for October 2019 for Emefa Ltd.  (10 marks)

Abigail Acheampong is in the process of preparing budgets for the period October to December 2017. The following information has been provided to assist in the budgeting process:

• Budgeted monthly sales revenue is as follows:
  .                                                                     GH¢
  October                                                      40,000
  November                                                  70,000
  December                                                   50,000
  January 2018                                              45,000
• Sales are 20% cash and 80% credit. Credit sales are collected over a three month period, 15% in the month of sale, 70% in the month following sale and 15% in the second month following sale. Bad debts of 5% are anticipated on all credit sales.
• Total sales revenue in August amounts to GH¢30,000 and September’s total sales revenue amounts to GH¢36,000.
• Cost of sales is expected to amount to 60% of sales revenue each month.
• The business maintains its closing inventory levels at 75% of the following month’s cost of sales. Inventory at the beginning of October is expected to amount to GH¢18,000.
• 50% of inventory purchased is paid in the month of purchase. The remaining 50% is paid for in the month following purchase. As at 30 September 2017, amount owed for purchases are GH¢11,700.
• A grant of GH¢20,000 is expected to be received in mid-October.
• A second hand van which cost GH¢8,000 three years ago is expected to be sold in December 2017 for GH¢3,000. At this time the expected net book value of the van is GH¢1,800.
• Equipment costing GH¢4,500 will be purchased and paid for in November 2017. The equipment will be depreciated on a straight line basis over three years.
• Operating expenses are paid as incurred. These have been estimated as follows:
  .                                                                     GH¢
  October                                                       12,800
  November                                                   18,900
  December                                                    14,600

The above figures include depreciation on existing assets of GH¢2,000 per month.

• The cash balance on 1 October is expected to amount to GH¢8,000

Required:
i) Calculate the purchases figure for each month from October 2017 to December 2017.                                                 (3 marks)

ii) Prepare a cash budget on a monthly basis and in total for the period October 2017 to December 2017.                    (12 marks)