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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 the cash flows of a business over a specified period. It assists the business in planning for cash requirements, ensuring that there are sufficient funds to meet operational needs, and helps in foreseeing potential cash shortages or surpluses.
Step 2
Explain the main purpose of a Projected Income Statement.
Answer
The purpose of a Projected Income Statement is to forecast the profit that the business expects to earn during a certain period. It lays out anticipated revenues and expenses, thus allowing for informed decision-making regarding future operations.
Step 3
Use the November figures to calculate the following: - % of debtors that are expected to comply with the credit terms.
Answer
To calculate the percentage of debtors expected to comply with the credit terms, use the formula:
rac{56,000 + 125,440}{224,000} imes 100 = 81 ext{%}. Therefore, 81% of the debtors are expected to comply with the credit terms.
Step 4
Step 5
Step 6
Offer Larry advice to improve debtors' collections (TWO points).
Answer
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Encourage prompt payment by contacting debtors through reminders and follow-ups via phone calls or SMS, incentivizing early payment if feasible.
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Implement stricter credit controls to ensure that only viable customers are extended credit and review accounts regularly to identify and address problematic debtors.
Step 7
Step 8
Step 9
Explain why Larry would feel that all these variances are problems for his business.
Answer
Larry may be concerned about the following variances:
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Cash sales being over budget suggests potential issues with sales forecasts and planning, impacting cash flow.
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Under-utilization of the advertising budget might lead to reduced customer awareness, thus affecting sales.
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Excessive spending on packing materials due to misuse indicates mismanagement, leading to increased costs and reduced profitability.
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The increase in delivery expenses needs to be analyzed to understand its impact on the overall cost structure, as it can significantly affect profit margins.