Scenario
You have been working as a trainee management accountant at Lets Grow which is a manufacturing
business. In the past few months, the business has been experiencing some financial challenges due to
recent economic changes. The following forecasted information has been provided for activities in the
next six months ending August 2020.
Sales (£) Purchases (£)
March 150,000 50,000
April 180,000 70,000
May 120,000 80,000
June 140,000 90,000
July 160,000 100,000
August 170,000 120,000
The following additional information is provided:
1. All sales are on credit and 20% of customers are expected to pay in the month of sale and the
remainder in the next month
2. All purchases are on one month’s credit from suppliers
3 Issue 1: March 2020 Copyright © – All rights reserved–
3. Additional equipment costing £20,000 will be purchased in May. A loan of £20,000 has been
negotiated from the bank from the same date
4. Wages are expected to be £30,000 per month and are paid during the month.
5. Rent of £48,000 per annum is paid quarterly in March, June, September and December
6. Depreciation on fixed assets amount to £24,000 per annum
7. The accountant has aggregated the remaining expenses into fixed and variable overheads
Variable overheads amounting to 10% of sales and are payable one month in arrears
Fixed overheads of £360,000 per annum are payable one month in arrears
8. The balances on the accounts at 29th February were;
Amounts owed by customers £96,000
Amounts owed to suppliers for purchases £50,000
For overheads: Fixed £30,000; Variable£10,000
Balance at Bank £20,000
Your line manager has requested your help in preparing a management accounting report based on the
information above.
a) Explain the essential requirements and their benefits for management accounting system to function
efficiently
b) Discuss how management accounting systems and its report help support an organization like Lets
Grow Ltd in making decisions
c) Prepare a cash budget for the coming six months ending in August 2020.
d) Analyse the use of cash budgets and its application for preparing and forecasting the financial
position of an organization like Lets Grow Ltd.
e) Discuss how Lets Grow Ltd can adapt its management accounting system to deal with financial
problems
f) Provide a critical evaluation of the financial position of Lets Grow Ltd based on the forecasted cas
budget prepared by you.
(Applicable to LO1= a and b)
(Applicable to LO3 and 4= c, d, e, and f)
