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You are provided with information relating to XYZ Furnishers owned by Piet Morake - NSC Accounting - Question 6 - 2017 - Paper 1
Question 6
You are provided with information relating to XYZ Furnishers owned by Piet Morake. REQUIRED: 6.1 On 30 April 2017 Piet identified the figures below. Comment on the... show full transcript
Worked Solution & Example Answer:You are provided with information relating to XYZ Furnishers owned by Piet Morake - NSC Accounting - Question 6 - 2017 - Paper 1
Step 1
Comment on the control of EACH item and give ONE point of advice in each case.
Answer
Telephone
- Comment: The telephone budget is greatly exceeded with an actual expenditure of R3,800 compared to a budgeted amount of R1,000. This indicates poor control over telephone usage.
- Advice: Implement measures to monitor phone usage closely, possibly by restricting private calls or increasing the budget to accommodate necessary usage.
Staff training
- Comment: The staff training budget was underutilized, with only R800 spent against a budget of R2,500. This suggests insufficient training or failure to capitalize on the opportunity for employee development.
- Advice: Encourage regular training sessions to enhance staff skills, which will ultimately benefit customer interaction and business efficiency.
Step 2
Identify TWO items incorrectly entered in the Cash Budget.
Answer
- Office furniture bought on credit - This should not be included in the cash budget as it represents a credit transaction.
- Deliveries free of charge - Charges related to deliveries should be anticipated and included in cash flow forecasts.
Step 3
Step 4
Identify/Calculate the missing figures (i) to (vii) in the Cash Budget.
Answer
i) Cash sales = R72,000
ii) Cash purchases = R20,000
iii) Delivery expenses = R10,800
iv) Salaries and wages = R38,700
v) Repayment of loan = R48,000
vi) Cash at end of month = R35,500
vii) Cash deficit for the month = R-42,800
Step 5
Is this a good idea? Explain.
Answer
This decision may not be advisable. By not offering free delivery, there is a risk of losing customers who value this service. Additionally, it could create a negative perception among customers who may seek alternatives if they feel that the business does not meet their service expectations.
Step 6
Explain ONE advantage and ONE disadvantage of EACH option.
Answer
Raise a new loan
- Advantage: It allows Piet to acquire the necessary equipment without immediate cash outlay, enabling operations to continue.
- Disadvantage: The interest payments add to financial obligations, which could strain future cash flow.
Hire (lease) the assets from Computer Solutions
- Advantage: This option preserves capital and reduces upfront costs while ensuring access to equipment.
- Disadvantage: Lease payments accumulate, leading to long-term costs that may exceed the purchase price.
Ask a friend to become an equal partner
- Advantage: This provides immediate capital without the need for debt, alleviating financial pressure.
- Disadvantage: Sharing ownership may lead to reduced control over business decisions and profit sharing.