Lewisham Ltd manufactures one product line the Zenith. Sales of Zeniths over the next few months

Question:

Lewisham Ltd manufactures one product line – the Zenith. Sales of Zeniths over the next few months are planned to be as follows:

1 Demand Units July 180,000 August 240,000 September 200,000 October 180,000 Each Zenith sells for £3.

2 Receipts from sales. Credit customers are expected to pay as follows:

l 70 per cent during the month of sale l 28 per cent during the following month.

The remaining trade receivables are expected to go bad (that is, to be uncollectable).

Credit customers who pay in the month of sale are entitled to deduct a 2 per cent discount from the invoice price.

3 Finished goods inventories. Inventories of finished goods are expected to be 40,000 units at 1 July. The business’s policy is that, in future, the inventories at the end of each month should equal 20 per cent of the following month’s planned sales requirements.

4 Raw materials inventories. Inventories of raw materials are expected to be 40,000 kg on 1 July. The business’s policy is that, in future, the inventories at the end of each month should equal 50 per cent of the following month’s planned production requirements. Each Zenith requires 0.5 kg of the raw material, which costs £1.50/kg. Raw materials purchases are paid in the month after purchase.

5 Labour and overheads. The direct labour cost of each Zenith is £0.50. The variable overhead element of each Zenith is £0.30. Fixed overheads, including depreciation of £25,000, total

£47,000 a month. All labour and overheads are paid during the month in which they arise.

6 Cash in hand. At 1 August the business plans to have a bank balance (in funds) of £20,000.

Required:

Prepare the following budgets:

(a) Finished inventories budget (expressed in units of Zenith) for each of the three months July, August and September.

(b) R aw materials inventories budget (expressed in kilograms of the raw material) for the two months July and August.

(c) Cash budget for August and September.

AppendixLO1

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Accounting An Introduction

ISBN: 9780273771838

6th Edition

Authors: Atrill Peter, Eddie McLaney

Question Posted: