BUDGETING Do the assigned reading 'om Chapters 6 & 5 and look again at the tutorial and homework questions. Modern Products Co. This question is (much) harder than the sort of question you will get in the exam. However, it might be good practice to have to look for the relevant information, and to think about what goes into each budget. Modern Products Company, a manufacturer of moulded plastic containers, determined in October that it needed cash to continue operations. The Company began negotiating for a l-month bank loan of $100,000 starting 1 November 20XX. The loan would carry interest at the rate of 1% per month. Interest and principal would be repaid on 30 November 20XX. In considering the loan, the bank requested a projected income statement and cash budget for the month of November. The following information is available: a. d. Sales were budgeted at 120,000 units per month in October 20XX, December 20XX, and January 20XY, and at 90,000 units in November 20XX. The selling price is $2 per unit. Sales are billed on the fteenth and last day of each month. A 2% discount is offered for payment within 10 days. Payment is due, in any case, within 30 days. Experience indicates that sales occur evenly throughout the month and that 50% of the customers pay the billed amount within the discount period. The remainder pay at the end of 30 days, except for uncollectible amounts, which average 0.5% of gross sales. On its income statement the Company deducts the estimated amounts for cash discounts on sales and expected uncollectibles from sales. The inventory of nished goods on 1 October was 24,000 units. The nished goods inventory at the end of each month is to be maintained at 20% of sales anticipated for the following month. There is no work in process. The inventory of raw materials on 1 October was 22,800 kilograms. At the end of each month, the raw materials inventory is to be maintained at not less than 40% of production requirements for the following month. Materials are purchased as needed in lots of 25,000 kilograms. Raw material purchases are paid in the next succeeding month on terms of net 30 days. All salaries and wages are paid on the fteenth and last day of each month for the period ending on the date of payment. All manufacturing overhead and selling and administrative expenses are paid on the tenth of the month following the month in which incurred. Selling expenses are 10% of gross sales. Administrative expenses, which include depreciation of $500 per month on ofce furniture and xtures, total $33,000 per month. f. The manufacturing budget for moulded plastic containers, based on expected production of 100,000 units per month, is as follows: Materials (50,000 kilograms, $1.00 each) $50,000 Labour 40,000 Variable Overhead 20,000 Fixed Overhead (includes depreciation of $4,000) 10,000 Total $M g. The cash balance on 1 November is expected to be $10,000. Prepare the following for Modern Products Company, assuming that the bank loan is granted. Ignore income taxes. Required: Prepare the following: 1. Schedules computing inventory budgets by months for: (a) Finished goods production in units for the last quarter {that is, for October, November, and December}. (b) Raw materials purchases in kilogram for October and November. 2. A projected income statement for the month of November. Cost of goods sold should equal the variable manufacturing cost per unit times the number of units sold plus the total xed manufacturing cost budgeted for the period. 3. A cash forecast for the month of November showing the opening balance, receipts (itemised by dates of collection}, disbursements, and balance at the end of month. Oct Nov Dec January Units sold 120000 90000 120000 120000 Cash salses *$2 240,000 S 180,000 S 240,000 S 240,000 Production budget Sales units 120000 90000 120000 120000 Ending inventory 18000 24000 24000 Beginning inventory 24000 18000 24000 Production units 114000 96000 120000 DM budge(KG) Prodcution units: 57000 48000 60000 Ending inventory (materials) 19200 24000 Beginning inventory (materials) 22800 40800 Required purchase materials (kg) 53400 31200 Actual purchase 75000 50000 Income statement (November) Revenue 180000.0 Cash Discounts on Sales 1800 Bad Debts 900 Net sales $177,300 Cost of sales: Variable manufacturing cost: Materials $ 50,000 Labour $ 40,000 Variable OH $ 20,000 Units 100000 Total variable costs $ 99,000 Fixed cost: $ 10,000 $109,000 Total operating income $68,300 Selling *10% $18,000 Administration $33,000 Finance activities: Intrest expense $1,000 Net profit $16,300Cash Forecast for the month of November 20XX Cash Balance, Beginning of Month $10,000 Receipts: Bank Loan $100,000 Collections of Receivables: November 10 - 98% of $60,000 billed October 31 58,800 November 15 - $60,000 billed October 15 Less 1/2 per cent x $120,000 59,400 November 25 - 98% of $45,000 billed November 15 44,100 November 30 - $60,000 Billed October 31 Less 1/2 per cent x $120,000 59.400 321,700 Total $331,700 Disbursements: Accounts Payable to Suppliers for Materials Purchased in October $ 75,000 November Labour (96,000 Units x $0.40) 38,400 October Manufacturing Overhead - Variable (114,000 Units x $0.20) 22,800 October Manufacturing Overhead - Fixed Portion ($10,000 - $4,000 Depreciation) 6,000 October Selling Expenses (10% x $240,000) 24,000 October Administrative Expenses ($33,000 - $500 Depreciation) 32,500 Repayment of loan- principal 100,000 - interest 1.000 Total Disbursements 299,700 Cash Balance, End of Month $ 32,000