Intermediate: Preparat ion of cash budgets G.T Umside pic, a company which manufactures pressed steel fitments ,
Question:
Intermediate: Preparat ion of cash budgets G.T Umside pic, a company which manufactures pressed steel fitments , commenced trading on 1 December 1981. Summarized below is the profit statement and balance sheet after the first year of trading.
Shown below are relevant data extracted from the company's budget for the year ended 30 November 1983.
The weekly sates in each quarter will be constant and, on average, debtors pay eight weeks after goods have been despatched.
The selling prices and product mix will remain the same as the previous year.
Materials: The price of materials will be 20% lower than the previous year. The weekly purchases of materials in each quarter will be constant, except for the budgeted stock increase in the third quarter shown below. Material suppliers are paid on average four weeks after the goods have been received.
Direct labour: Wages will be paid at the 1981182 level of £12 000 per quarter plus the following changes:
(i) All direct operatives have been awarded a 15% rate of pay increase with effect from 1 December 1982.
(ii) One additional direct operative will be recruited at the beginning of the second quarter, and another direct operative will be recruited at the beginning of the third quarter. Both operatives will be paid £100 per week and will continue to be employed for the remainder of the year.
Wages are paid at the end of the week in which they are earned.
Overheads: Variable overheads vary directly with production activity and there will be no price increases from the previous year.
Rxed overheads will increase by £12 000 p.a. and the total amount will be incurred evenly throughout the year. All relevant overheads are paid in cash immediately they are incurred.
Stocks: Stocks of work in progress and finished goods will not be carried. However, stocks of raw materials will increase by £3000 in the first week of the third quarter and remain at £11 000 throughout the remainder of the year.
Capital expenditure: Additional equipment costing £20 000 will be purchased and paid for during the second quarter of the year.
Depreciation on this equipment will not commence until the following year.
Dividends: The dividends outstanding will be paid in the first quarter of the year.
Required:
Prepare the company's quarterly cash budgets for the year ended 30 November 1983.
Note: It should be assumed there are 12 weeks in each quarter and any other assumptions which you consider to be necessary should be clearly stated.
Step by Step Answer:
