You are the Internal Audit Manager of the Internal Audit Department of Kibo Textiles Mills Ltd. (KTML). Your Department is auditing the company’s procurement system. Extracts from your system notes, which are reliably correct (contain no errors) are provided as follows:
Cost of Production Budget After preparation of production budget, this budget is prepared. Production cost budgets show the cost of the production determined in the production budget. Cost of production budget is grouped in to material cost budget, labour cost budget and overhead cost budget. Because it break up the cost of each product into three main elements material, labour and overheads. Overheads may be further subdivided in to fixed, variable and semi-fixed overheads. Therefore separate budgets required for each item.
Cash flow from operating activities involves cash generated by producing and delivering goods and providing services. Cash inflow includes receipts from customers for sales of goods and services (including collection of debtors). Cash outflow from operating activities include payments to suppliers for purchase of material and for services, payment to employees for services and payment to governments for taxes and duties. Then by comparing the inflow and outflow of cash we can determine the net value of cash flows. If the inflows are more than outflows then it is called cash generated from operating activities or if cash outflows are more than cash inflows then it is called cash lost in operating activities.