Photo AI
You are provided with information relating to Lamba Traders, a business owned by Larry Lamba - NSC Accounting - Question 6 - 2017 - Paper 1
Question 6
You are provided with information relating to Lamba Traders, a business owned by Larry Lamba. The business sells cleaning materials for cash and on credit. They deli... show full transcript
Worked Solution & Example Answer:You are provided with information relating to Lamba Traders, a business owned by Larry Lamba - NSC Accounting - Question 6 - 2017 - Paper 1
Step 1
Explain the main purpose of a Cash Budget
Answer
The main purpose of a Cash Budget is to predict cash balances over a specific period. It helps in projecting inflows and outflows, ensuring that the business can meet its financial obligations. By planning ahead, the business can avoid cash shortages and manage its resources more efficiently.
Step 2
Explain the main purpose of a Projected Income Statement
Answer
The Projected Income Statement aims to estimate the profit that will be earned over a defined time frame. It focuses on projecting income and expenses, allowing the business to plan its financial strategy and assess future profitability.
Step 3
Use the November figures to calculate the following: % of debtors that are expected to comply with the credit terms
Answer
To determine the percentage of debtors expected to comply with credit terms, we use the formula:
ext{% compliance} = \left( \frac{56,000 + 125,440}{224,000} \right) \times 100 = 81\%Thus, 81% of debtors are expected to comply with the credit terms.
Step 4
Use the November figures to calculate the following: % of bad debts expected
Answer
The percentage of bad debts can be calculated using the formula:
\text{% bad debts} = \left( \frac{224,000 - 56,000 - 125,440}{224,000} \right) \times 100 = 40\%Therefore, the expected percentage of bad debts is 40%.
Step 5
Provide evidence to support his opinion on Shirley's bonus
Answer
Evidence suggests that 58% of the amounts owed are still within the credit terms, which indicates that a significant portion is being collected. However, 42% are not compliant with terms, reflecting a gap in Shirley's performance that does not merit a bonus.
Step 6
Offer Larry advice to improve debtors' collections (TWO points)
Answer
-
Implement regular reminders through SMS or phone calls to encourage timely payments from debtors. This proactive approach can help minimize late payments.
-
Offer discounts for prompt payments to incentivize early settlement of accounts, increasing cash flow.
Step 7
Step 8
Step 9
Explain why Larry would feel that all these variances are problems for his business
Answer
Larry may consider the following variances problematic:
- Cash sales are over budget, indicating potential issues with sales forecasts and affecting liquidity.
- Advertising budget under-spending could lead to insufficient customer engagement and declining sales.
- Issues with packing materials reflect poor cost management and inefficiencies.
- Delivery expenses exceeding the budget may strain resources, highlighting operational challenges.