Alpha Products Ltd, a new manufacturing business started production on 1 January. Sales are planned to start in February and to be as follows for the rest of the year: Sales units February 400 March 500 April 600 May 700 June 800 July 900 August 800 September 800 October 700 November 600 December 500 The selling price per unit will be $100. All sales will be made on credit. The business plans to offer a cash discount (of 2 per cent of the amount owed) to those customers who pay by the end of the month of the sale. Customers for half of all units sold are expected to qualify for the discount. For the remaining half of the units sold, customers for 95 per cent are expected to pay during the month following the month of the sale. The remainder is expected to be bad debts. It is planned that sufficient finished goods inventories for each month’s sales should be available at the end of the previous month. Raw material purchases will be such that there will be sufficient raw materials inventories available at the end of each month precisely to meet the following month’s planned production. This planned policy will operate from the end of January. Purchases of raw materials will be on two months’ credit (that is, buy in month 1, pay in month 3). The cost of raw material is $40 per unit of finished product. The direct labour cost, which is variable with the level of production, is planned to be $20 per unit of finished production. Production overheads are planned to be $20,000 each month, including $3,000 for depreciation. Non-production overheads are planned to be $11,000 a month of which $1,000 will be depreciation. Various fixed assets costing $250,000 will be bought and paid for during January. Except where specified, assume that all payments take place in the same month as the cost is incurred. The business will raise $300,000 in cash from a share issue in January. Required: Draw up a finished goods inventories budget, a raw materials inventories budget and a cash budget for the six months from January to 30 June, with a column for each month. The cash budget should, among other things, show each end-of-month cash balance. Show workings. (Screen shot of the excel sheet)
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Alpha Products Ltd, a new manufacturing business started production on 1 January. Sales are planned to start in February and to be as follows for the rest of the year:
Sales units
February 400
March 500
April 600
May 700
June 800
July 900
August 800
September 800
October 700
November 600
December 500
The selling price per unit will be $100.
All sales will be made on credit. The business plans to offer a cash discount (of 2 per cent of the amount owed) to those customers who pay by the end of the month of the sale. Customers for half of all units sold are expected to qualify for the discount. For the remaining half of the units sold, customers for 95 per cent are expected to pay during the month following the month of the sale. The remainder is expected to be
It is planned that sufficient finished goods inventories for each month’s sales should be available at the end of the previous month.
Raw material purchases will be such that there will be sufficient raw materials inventories available at the end of each month precisely to meet the following month’s planned production. This planned policy will operate from the end of January. Purchases of raw materials will be on two months’ credit (that is, buy in month 1, pay in month 3). The cost of raw material is $40 per unit of finished product.
The direct labour cost, which is variable with the level of production, is planned to be $20 per unit of finished production.
Production overheads are planned to be $20,000 each month, including $3,000 for
Non-production overheads are planned to be $11,000 a month of which $1,000 will be depreciation.
Various fixed assets costing $250,000 will be bought and paid for during January.
Except where specified, assume that all payments take place in the same month as the cost is incurred.
The business will raise $300,000 in cash from a share issue in January.
Required:
Draw up a finished goods inventories budget, a raw materials inventories budget and a
Show workings. (Screen shot of the excel sheet)
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