QUESTION 1
Wisliv Ltd was incorporated on the 01/06/16. The opening balancesheet of the company was as follows: Cash at bank GHS984000, sharecapital (60,000 ordinary shares of GHS 16.40 each)GHS984,000.
During June the company intends to make payments of GHS 656,000 fora freeholdproperty,           GHS 164,000 for equipment and GHS98,400 for a motor vehicle. Thecompany will also purchase an initial trading stock costingGHS360,800 on credit.
    The company has produced the followingestimates:
i. Sales for June will be GHS131,200 and will increase at the rateof GHS49,200 per month until September. In October, sales will riseto GHS360,800 and this will be maintained for the subsequentmonths.

ii. The gross profit margin on goods sold will be 25%.

iii. There is a risk that supplies of trading stock will beinterrupted towards the end of the accounting year. The company,therefore, intends to build up initial level of stock (GHS 360,800)by purchasing GHS 16,400 of stock each month in addition to themonthly purchases necessary to satisfy monthly sales. All purchasesof stock (including the initial stock will be on one month’scredit).

iv. Sales will be divided equally between cash and credit sales.Credit customers are expected to pay two months after the sale isagreed.

v. Wages and salaries will be GHS 14,760 per month. Other overheadswill be GHS8,200 per month for first four months and GHS 10,660thereafter. Both types of expenses will be payable whenincurred.


vi. 80% of sales will be generated by sales people who will receive5% commission on sales. The commission is payable one month afterthe sale is agreed. The company intends to purchase furtherequipment in November 2016 for GHS 11,480 cash.

vii. Depreciation is to be provided at the rate of 5% per annum onfreehold property and 20% per annum on equipment. (Depreciation hasnot been included in the overheads mentioned above in (v)above.


Required
Prepare a cash budget for Wisliv Ltd. for the six month period to30/11/16.

Question 2
The Sock company buys hiking socks for GHS6 per pair and sells themGHS10. Management budgets monthly fixed costs of GHS12,000 forsales volume between 0 and 12,000 pairs.

Required
Consider the following questions separately by using the foregoinginformation each time.
i. Calculate the breakeven point in units.

ii. The Sock Company reduces its sales price from GHS10 per pair toGHS8 per pair. Calculate the new breakeven point in units.


iii. The Sock Company finds a new supplier for the socks. Variablecosts will decrease by GHS1 per pair. Calculate the breakeven pointin units.

iv. The Sock Company plans to advertise in hiking magazines. Theadvertising campaign will increase total fixed costs by GHS2,000per month. Calculate the new breakeven point in units.

v. In addition to selling hiking socks, the Sock Company would liketo start selling sports socks. The Sock Company expects to sell onepair of hiking socks for every three pairs of sports socks. TheSock Company will buy the sports socks for GHS4 per pair and sellthem for GHS8 per pair. Total fixed costs will stay at GHS12,000per month. Calculate the breakeven point in units for both hikingsocks and sports socks.