QUESTION ONE
INFORMATION RELATING TO LUX BEDS LIMITED
Lux Beds Limited consists of a factory with a warehouse and 5 Lux Bed retail stores.
The Lux Beds factory manufactures standard luxury extra length hotel ¾ beds primarily for the
hospitality industry. The factory is Isando Johannesburg. They use 100% South African materials in
the production process.
The 5 Lux Beds Stores, competitively priced, are located in shopping centres in Johannesburg area.
These stores sell the ¾ beds but in addition they also stock double, queen and king size beds which
they source from their subsidiary manufacturing company in Bloemfontein.
Lux Beds Ltd has started to build a warehouse at their Isando factory. The warehouse will become
operational on 1 April 2024. It will be used to stock the double, queen and king size beds purchased
from their main subsidiary and the increased production of ¾ beds. Demand has increased from the
hospitality market in Mozambique and for the ¾ beds from their Bloemfontein subsidiary.
LUX BEDS LIMITED (FACTORY) INFORMATION
(1) Cash budget for the ¾ bed manufacturing for three months January – March 2024
February
January 2024 March 2024
2024
CASH RECEIPTS ? 2 724 800 ?
Cash sales (20%) A 612 000 450 000
Cash received from debtors 2 130 000 2 122 800 B
New shares issued 2 200 000 – –
CASH PAYMENTS 3 400 000 ? 2 475 000
Direct labour
Normal wages 840 000 420 000 420 000
Overtime 210 000 –
Direct materials
Cash purchases C 81 600 89 000
Payments to creditors 72 800 79 488 D
Factory overheads 370 000 407 000 350 000
New warehouse payments 1 100 000 1 100 000
Administration costs ? ? ?
Selling and distribution costs 290 000 294 000 323 000
Provisional income tax – 660 000 –
Surplus/deficit 1 491 100 351 800 239 400
Balance at beginning of month 282 000 E 2 124 900
Balance at end of month ? ? 2 364 300
(2) Debtors’ collection information
Cash sales are a set 20% of total sales.
? % of credit sales are collected in the month following the sale.
50% of credit sales are collected in the second month after the sale.
? % of credit sales are collected in the third month following the sale.
There are no bad debts.
January sales will be 10% higher than the December sales.
(3) Direct materials information
The company makes use of a fixed-base level of stock.
40% of direct materials are bought for cash.
Creditors are expected to be paid in full in the month following the month of
purchase to qualify for an 8% discount on early payments.
LUX BEDS STORE (BOKSBURG BRANCH) INFORMATION
Projected Statement of Income – January and February 2024
January 2024 February 2024
Projected Actual Projected Actual
Number of beds sold 225 beds 240 beds 225 beds 180 beds
Total sales 1 125 000 1 200 000 1 125 000 900 000
Cash sales 900 000 960 000 900 000 225 000
Credit sales 225 000 240 000 225 000 675 000
Cost of sales (675 000) (720 000) (675 000) (540 000)
Gross profit 450 000 480 000 450 000 360 000
Operating expenses (235 000) (242 500) (306 000) (280 000)
Directors’ fees ** 60 000 60 000 60 000 27 000
Salaries and wages 22 500 22 500 23 850 23 850
Advertising 7 500 7 500 7 500 30 000
Delivery costs 112 500 120 000 112 500 126 000
Audit fees 0 0 67 500 37 500
Rent expense 21 000 21 000 23 100 25 620
Sundry expenses 11 500 11 500 11 550 10 030
Operating profit 215 000 238 000 144 000 80 000
** Directors’ fees are part of Administration cost. 50% of all directors’ fees are
allocated to the 5 Lux Beds Stores. This is allocated equally to each branch (20%
per branch).
