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
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.
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.
- Expected Costs Wages N$ 20 000 per month payable as incurred. Variable
REQUIRED:
A)Prepare a budgeted Trading
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