Green Enterprises Ltd is preparing to set up a new business on the first of January 2021 to manufacture a single product. Below is the sales budget for the company for the first 6 months of 2021. Sales Budget January February March April May June Sales Unit 8 000 8 500 10 000 11 000 11 500 10 500 Sales Revenue 240 000 255 000 300 000 330 000 345 000 315 000 Additional Information; The Cash collections patterns from sales is expected to be as follows: Cash Customers 30% of sales revenue will be for immediate cash Credit Customers 70% of sales revenue will be from credit customers. These debtors will pay their bills, 50% in the month after sales and the reminder in the second month after sales. Stocks of finished goods are maintained 60% of the following months sales requirement, and the budgeted cost of a unit of finished goods is valued at N$ 20. The product requires 4 kg of material X which cost N$ 1.5 per kg, it is expected that this price will increase with five cents from April. One month`s credit is received from suppliers. Stock of raw materials sufficient for 10% of the following month`s requirement in kgs are held at the end of each month. One month`s credit is received from suppliers. Expenses of the business will be settled as follows; Expected Costs Wages N$ 20 000 per month payable as incurred. Variable Overheads of N$ 5 per Unit is payable as incurred. There will be an Equipment to be purchased on 01 January 2021 it cost N$ 30 000, this equipment is expected to have a useful life of 5 years. To finance this purchase, a loan of N$ 24 000 will be secured from Development Bank of Namibia at 10% per annum. Interest is payable monthly, but capital loan repayment will not commence until July 2021. REQUIRED: A)Prepare a production budget for the first four months of 2021 ? B)Prepare a material purchases budget for the first four months of 2021 (both in units and N$) ?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 1

Green Enterprises Ltd is preparing to set up a new business on the first of January 2021 to manufacture a single product. Below is the sales budget for the company for the first 6 months of 2021.

Sales Budget

	January	February	March	April	May	June
Sales Unit	8 000	8 500	10 000	11 000	11 500	10 500
Sales Revenue	240 000	255 000	300 000	330 000	345 000	315 000

Additional Information;

The Cash collections patterns from sales is expected to be as follows:
- Cash Customers 30% of sales revenue will be for immediate cash
- Credit Customers 70% of sales revenue will be from credit customers. These debtors will pay their bills, 50% in the month after sales and the reminder in the second month after sales.
Stocks of finished goods are maintained 60% of the following months sales requirement, and the budgeted cost of a unit of finished goods is valued at N$ 20.
The product requires 4 kg of material X which cost N$ 1.5 per kg, it is expected that this price will increase with five cents from April.
One month`s credit is received from suppliers.
Stock of raw materials sufficient for 10% of the following month`s requirement in kgs are held at the end of each month.
One month`s credit is received from suppliers.
Expenses of the business will be settled as follows;
- Expected Costs Wages N$ 20 000 per month payable as incurred. Variable Overheads of N$ 5 per Unit is payable as incurred.
- There will be an Equipment to be purchased on 01 January 2021 it cost N$ 30 000, this equipment is expected to have a useful life of 5 years. To finance this purchase, a loan of N$ 24 000 will be secured from Development Bank of Namibia at 10% per annum. Interest is payable monthly, but capital loan repayment will not commence until July 2021.

REQUIRED:

A)Prepare a production budget for the first four months of 2021 ?

B)Prepare a material purchases budget for the first four months of 2021 (both in units and N$) ?

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