Exquisite Bedding Ltd. The company uses a rolling budgetary control system and is in the process of preparing the budget for the four months’ period from September to December 2020. During a preliminary review, you established that the company intends to sell each bed produced for $219 to Ultimate Care Ltd. in addition to individual customers on the same credit terms. Exquisite Bedding Ltd secured a cash loan of $120,000 (from Barclays Bank) that was secured on the land and buildings at an interest rate of 7 ½ % and this is due to be received in November 2020. Also, machinery costing $112,000 will be received in November and paid for in December 2020. You have been provided with the following budgeted balance sheet information for Exquisite Bedding Ltd as at September 1, 2020 well as estimates and other operating data (PLEASE SEE BALANCE SHEET ATTACHED AS PHOTO) Other information: Stock valuation was done using FIFO method and the closing stock of raw materials is for 100 units and 110 finished beds (valued at marginal costs). Receivables of $18,080 represent $7,680 for July and $10,400 for August 2020. Estimates for the four months’ period are as follows: September October November December Sales (units) 80 84 96 94 Production (units) 70 75 90 90 Purchases of raw materials (units) 80 80 85 85 Wages and Variable overheads $4,550 $4,875 $5,850 $5,850 Other Information Wages and variable overheads was valued at $65 per bed. Fixed overheads were estimated at $1,200 per month. The company estimated that it will have to pay $45 per unit for raw materials. One unit of raw material is required to produce one bed. All sales and purchases of raw materials are on credit and customers are allowed two months’ credit and suppliers of raw materials are paid after one month’s credit. Wages, variable overheads and fixed overheads are paid in the month in which they are incurred. Loan interest is payable half yearly from March onwards. An interim dividend to 30 September 2020 of $12,500 will be paid in December 2020. Depreciation for the four months, including the new machinery, was calculated to be: Machinery and equipment $15,733 Motor vehicles $ 3,500 QUESTIONS 1. Suggest a non-financial measure that can be used to evaluate the performance of the company as a whole. 2. Recommend an appropriate financial method of evaluating performance if Ultimate Care Ltd. is being operated as a decentralized investment center.
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.
Exquisite Bedding Ltd.
The company uses a rolling budgetary
During a preliminary review, you established that the company intends to sell each bed produced for $219 to Ultimate Care Ltd. in addition to individual customers on the same credit terms.
Exquisite Bedding Ltd secured a cash loan of $120,000 (from Barclays Bank) that was secured on the land and buildings at an interest rate of 7 ½ % and this is due to be received in November 2020. Also, machinery costing $112,000 will be received in November and paid for in December 2020.
You have been provided with the following budgeted
Other information:
- Stock valuation was done using FIFO method and the closing stock of raw materials is for 100 units and 110 finished beds (valued at marginal costs).
- Receivables of $18,080 represent $7,680 for July and $10,400 for August 2020.
- Estimates for the four months’ period are as follows:
|
|
September |
October |
November |
December |
|
Sales (units) |
80 |
84 |
96 |
94 |
|
Production (units) |
70 |
75 |
90 |
90 |
|
Purchases of raw materials (units) |
80 |
80 |
85 |
85 |
|
Wages and Variable |
$4,550 |
$4,875 |
$5,850 |
$5,850 |
Other Information
Wages and variable overheads was valued at $65 per bed.
Fixed overheads were estimated at $1,200 per month.
The company estimated that it will have to pay $45 per unit for raw materials. One unit of raw material is required to produce one bed.
All sales and purchases of raw materials are on credit and customers are allowed two months’ credit and suppliers of raw materials are paid after one month’s credit.
Wages, variable overheads and fixed overheads are paid in the month in which they are incurred.
Loan interest is payable half yearly from March onwards.
An interim dividend to 30 September 2020 of $12,500 will be paid in December 2020.
Machinery and equipment $15,733
Motor vehicles $ 3,500
QUESTIONS
1. Suggest a non-financial measure that can be used to evaluate the performance of the company as a whole.
2. Recommend an appropriate financial method of evaluating performance if Ultimate Care Ltd. is being operated as a decentralized investment center.
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