A new company, is being established to manufacture and sell an electronic tracking device:the Trackit. The owners are excited about the future profits that the business will generate. They have forecast that sales will grow to 2,600 Trackits per month within five months andwill be at that level for the remainder of the first year.The owners will invest a total of $250,000 in cash on the first day of operations (that is thefirst day of July). They will also transfer non-current assets into the company.Extracts from the company’s business plan are shown below.SalesThe forecast sales for the first five months are:Month              Trackits (units)July                   1,000August             1,500September       2,000October           2,400November       2,600The selling price has been set at $140 per Trackit. Sales receiptsSales will be mainly through large retail outlets. The pattern for the receipt of payment isexpected to be as follows:Time of payment      % of sales valueImmediately                     15 *One month later              25Two months later             40Three months later          15The balance represents anticipated bad debts.* A 4% discount will be given for immediate paymentProductionThe budget production volumes in units are:July     August   September   October1,450  1,650        2,120          2,460Variable production costThe budgeted variable production cost is $90 per unit, comprising:                                                     $Direct materials                           60Direct labor                                  10Variable production overheads    20Total variable cost                      90Direct materials: Payment for purchases will be made in the month following receipt ofmaterials. There will be no opening inventory of materials in July. It will be company policy tohold inventory at the end of each month equal to 20% of the following month’s productionrequirements.Direct labour will be paid in the month in which the production occurs.Variable production overheads: 65% will be paid in the month in which production occurs andthe remainder will be paid one month later.Fixed overhead costsFixed overheads are estimated at $840,000 per annum and are expected to be incurred inequal amounts each month. 60% of the fixed overhead costs will be paid in the month inwhich they are incurred and 15% in the following month. The balance represents depreciationof noncurrent assets.Required:a) Prepare a cash receipts budget schedule for each of the first three months(July – September), including the total receipts per month.b) Prepare a material purchases budget schedule for each of the first threemonths (July – September), including the total purchases per month. c) Prepare a cash budget for the month of July. Include the owners’ cashcontributions

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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A new company, is being established to manufacture and sell an electronic tracking device:
the Trackit. The owners are excited about the future profits that the business will generate. They have forecast that sales will grow to 2,600 Trackits per month within five months and
will be at that level for the remainder of the first year.
The owners will invest a total of $250,000 in cash on the first day of operations (that is the
first day of July). They will also transfer non-current assets into the company.
Extracts from the company’s business plan are shown below.
Sales
The forecast sales for the first five months are:
Month              Trackits (units)
July                   1,000
August             1,500
September       2,000
October           2,400
November       2,600
The selling price has been set at $140 per Trackit.


Sales receipts
Sales will be mainly through large retail outlets. The pattern for the receipt of payment is
expected to be as follows:
Time of payment      % of sales value
Immediately                     15 *
One month later              25
Two months later             40
Three months later          15
The balance represents anticipated bad debts.
* A 4% discount will be given for immediate payment
Production
The budget production volumes in units are:
July     August   September   October
1,450  1,650        2,120          2,460

Variable production cost
The budgeted variable production cost is $90 per unit, comprising:
                                                     $
Direct materials                           60
Direct labor                                  10
Variable production overheads    20
Total variable cost                      90
Direct materials: Payment for purchases will be made in the month following receipt of
materials. There will be no opening inventory of materials in July. It will be company policy to
hold inventory at the end of each month equal to 20% of the following month’s production
requirements.
Direct labour will be paid in the month in which the production occurs.
Variable production overheads: 65% will be paid in the month in which production occurs and
the remainder will be paid one month later.
Fixed overhead costs
Fixed overheads are estimated at $840,000 per annum and are expected to be incurred in
equal amounts each month. 60% of the fixed overhead costs will be paid in the month in
which they are incurred and 15% in the following month. The balance represents depreciation
of noncurrent assets.
Required:
a) Prepare a cash receipts budget schedule for each of the first three months
(July – September), including the total receipts per month.
b) Prepare a material purchases budget schedule for each of the first three
months (July – September), including the total purchases per month. 
c) Prepare a cash budget for the month of July. Include the owners’ cash
contributions 

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