“Banisco Bangladesh”, now intends to prepare the budget for direct materials purchases, direct labor, and manufacturing overhead.

Each unit of product requires 2.5 pounds of direct materials per unit, and the cost of direct materials is BDT 2 per pound. Management prefers to maintain ending raw materials inventory equal to 30 percent of next quarter’s materials needed in production. Assume raw materials inventory at the end of the fourth quarter budget period is estimated to be 39200 pounds and ending inventory as on December 31, 2020 is 35800 pounds. Each unit of product requires 0.4 direct labor hours at a cost of BDT 12 per hour.

Variable overhead costs are:
------Indirect materials BDT 0.2 per unit
------Indirect labor BDT 0.1 per unit
------Other BDT 0.35000000000000003 per unit

Fixed overhead costs each quarter are:
------Salaries BDT 27300
------Rent BDT 20000
------Depreciation BDT 20000

“Banisco Bangladesh” estimates that all selling and administrative costs are fixed. Quarterly selling and administrative cost estimates for the coming year are ------Salaries BDT 15400
------Rent BDT 56700
------Advertising BDT 5300
------Depreciation BDT 9300
------Other BDT 820

The company plans to purchase selling and administrative equipment totalling BDT 18700 and production equipment totalling BDT 26100. Both will be purchased at the end of the fourth quarter and will not affect depreciation expense for the coming year.

All sales are on credit. The company expects to collect 50 percent of sales in the quarter of sale, 30 percent of sales in the quarter following the sale, and 20 percent will not be collected (bad debts). Accounts receivable at the end of last year totalled BDT 188000, all of which will be collected in the first quarter of this coming year.

All direct materials purchases are on credit. The company expects to pay 80 percent of purchases in the quarter of purchase and rest in the following quarter. Accounts payable at the end of last year totalled BDT 4400, all of which will be paid in the first quarter of this coming year.

The cash balance at the end of last year totaled BDT 19000.

Requirements:
(viii) Prepare a cash budget for “Banisco Bangladesh”. [5 marks]


(ix) The COO (chief operating officer) of Banisco emphasised that any surplus amount of cash must be used to pay off previously borrowed money. In contrast, the CMO (chief marketing officer) argued that doing such would not fulfil our minimum cash balance target at the end of each month/quarter. Do you agree with CMO? Why or why not? What will be the optimum solution? [3 marks]


The following account balances are expected at the end of the fourth quarter:
------Property, plant, and equipment (net): BDT 318000
------Common stock: BDT 435000

Retained earnings at the end of last year totalled BDT 54300 and no cash dividends are anticipated for the budget period ending December 31, 2020.