Kandiwa manufactures and sells a computer component .The company had a good first years trading although it struggled to manage cash flows because of initial set up costs incurred. The bank balance at the start of year 2 is projected to be an overdraft of $85 000 and in preparation for a meeting with the Financial Director, you have gathered the following budgetary information: The current sales price is currently $5.50 per unit and this is expected to increase to $6.00 per unit at the start of Quarter 2. Sales are projected for each quarter as follows: Year 1 Quarter 4 50,000units Year 2 Quarter 1 50,000units Quarter 2 40,000units Quarter 3 30,000units Quarter 4 70,000units All sales are on credit and debts are settled in the quarter following sales. Bad debts of 5% of total sales are anticipated. The company normally holds a closing stock of 20,000 units at the end of each quarter.The computer components are produced in batches of 2,000. Each batch requires 200 direct labour hours and 800kg of raw materials.Direct labour is projected at a rate of $16.00 per hour for Quarter 1 and at $16.50 thereafter. Raw materials cost $5 per kg and are expected to increase by 5% with effect from quarter 3. The company has agreed an average of 90 days credit with its main suppliers.General overheads are projected to be $25,000 per month Required: Prepare a cash budget for Kandiwa Manufacturers for year 2 providing quarterly balances.
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.
Kandiwa manufactures and sells a computer component .The company had a good first years trading although it struggled to manage
The current sales price is currently $5.50 per unit and this is expected to increase to $6.00 per unit at the start of Quarter 2. Sales are projected for each quarter as follows:
Year 1 Quarter 4 50,000units
Year 2 Quarter 1 50,000units
Quarter 2 40,000units
Quarter 3 30,000units
Quarter 4 70,000units
All sales are on credit and debts are settled in the quarter following sales.
The company normally holds a closing stock of 20,000 units at the end of each quarter.The computer components are produced in batches of 2,000. Each batch requires 200 direct labour hours and 800kg of raw materials.Direct labour is projected at a rate of $16.00 per hour for Quarter 1 and at $16.50 thereafter. Raw materials cost $5 per kg and are expected to increase by 5% with effect from quarter 3. The company has agreed an average of 90 days credit with its main suppliers.General
Required:
Prepare a
And
Prepare a report setting out: The benefits of good budgetary control and
Typical problems encounter in exercising budgetary control.
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