1,The Canine Food Company sells dog food in 10kg bags for $6.20 each. Sales for the first 3 months of 2018 are as follows:
1,The Canine Food Company sells dog food in 10kg bags for $6.20 each. Sales for the first 3
months of 2018 are as follows:
Month Bags
January 40,000
February 35,000
March 30,000
The sales volume for December 2017 was 30,000 bags. Canine’s desired inventory is 30%
of next month’s estimate in bags. All sales are cash sales. Canine purchases dog food bags
at $4.70 and pays for them the month after purchase. General and administration expenses
amount to $35,000 per month including $20,000 of depreciation. Canine pays for these
expenses (excluding depreciation) in the same month they are incurred. January’s current
liabilities to be paid in the same month amount to $71,500. Cash balance on 1 January 2018
is $75,000.
Requirements:
a. Prepare cash budget for the months of January and February 2018. There is no need
to sum up the two months. Show workings.
b. Prepare projected income statement in contribution margin format for February 2018.
How do you explain the difference between the profit in this income statement and the
net cash flows from operations in the cash budget?
c. The dog food industry is highly competitive. Management of Canine is under pressure
to improve profits and have decided to increase the price of dog food bags by 10%
(assume no effect on quantities sold). Describe the effect of this strategy would have
on each individual budget in the master budget and on the projected financial
statements.
Question 2
You have just received the 31 March 2018 bank statement of GoSafe Tyres from Orion Bank.
To assist you in your bank reconciliation, you have gathered the following information:
i. GoSafe’s cash account shows a balance of $2,900 on 31 March.
ii. The bank statement includes two dishonoured cheques from customers of $400 and
$110.
iii. The following GoSafe cheques are outstanding at 31 March:
Cheque number Amount
($)
137 50
188 170
191 520
194 580
195 50
196 140
iv. GoSafe collects from some customers through EFT. The March bank statement lists a
$1,300 EFT deposit for a collection on account.
v. The bank statement includes two deposits that GoSafe has not recorded yet: $970 for
dividend revenue and $80 interest revenue earned.
vi. The bank statement included a $30 bank service charge.
vii. On 31 March, GoSafe deposited $350 but this deposit is not reflected on the bank
statement.
viii. The bank statement included a $1,000 deduction for a cheque drawn by Transnational
Ltd. GoSafe has notified the bank of this error.
ix. The 31 March 2018 bank balance is $4,870.
Requirements:
a. Prepare the bank reconciliation for GoSafe Tyres at 31 March 2018.
b. Record any journal entries from the bank reconciliation including narrations.
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1,The Canine Food Company sells dog food in 10kg bags for $6.20 each. Sales for the first 3 months of 2018 are as follows: was first posted on August 14, 2020 at 6:32 pm.
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1,The Canine Food Company sells dog food in 10kg bags for $6.20 each. Sales for the first 3 months of 2018 are as follows: was first posted on August 14, 2020 at 6:37 pm.
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