Kindly help with this question

Company has budgeted for the following month $000 Profit after tax 100 Increase in receivables 35 Increase in inventory 20 Increase in trade payables 20 depreciation 70 taxation 40 What is the budgeted increase in cash balances for the month? I've got the following answer 100000+70000+20000-35000-20000=135000 In book it is 175000,I don't understand why the tax of 40000 will be added, when it is a cash outflow??

First question: Your answer is correct. You would still choose A because it is the nearest (it would seem that whatever book you are using has rounded it for some reason).

It is because the profit before tax is 140, and the tax will not yet have been paid.

Thanks alot :)

Which of the following are arguments in favour of absorption costing? 1) Closing inventory is valued in accordance with accounting standards. 2) No under/over absorption of overheads. 3) When sales fluctuate but production is constant, absorption costing smoothes out profit fluctuations. I know that 1 is right & 2 is wrong, but in book its 1 & 3. I can't understand what is meant by the third one?

It's because fixed overheads are absorbed into the cost and so only the amount relating to the production is charged each month. Marginal costing charges the full fixed overheads each month whether we produce a lot or a little - so profits fluctuate more.

You are welcome :-)