Exquisite Bedding Limited

You have recently been promoted as Management Accountant of Exquisite Bedding Limited, a small company that manufactures a specialized bed for the elderly which is sold to the public and its wholly-owned subsidiary company, Ultimate Care Ltd a retain department store. The company uses a rolling budgetary control system and is in the process of preparing the budget for the four months period from September to December 2021.

During the preliminary review, you established that the company intends to sell each bed produced for $219 to Ultimate Care in addition to individual customers on the same credit terms.

Exquisite Bedding Ltd secured a cash loan of 120,000 from Broughton Bank that was secured on the land and building at an interest rate of 7.5% per annum. The loan is due to be received in November 2021. The repayment of the loan will begin on March 1, 2022, however monthly interest payments will begin in December 2021. Also, machinery costing $112,000 will be received in November and paid for in December. You have been provided with the following budgeted balance sheet information as at September 1, 2021 as well as estimates and other operating data:

Exquisite Bedding Limited

Budgeted Balance Sheet as at September 1, 2021

ASSETSCost

Depreciation to

Date

Net book value

Non-current$

Asset

$

$

Land and Building

500,000

0

500,000

Machinery and equipment

124000

84500

39,500

Motor Vehicles

42000

16400

25,600

Current assetsClosing stock:Raw materials

Finished goods

Receivables

666,000

4320

10450

100,900

14770

565,100

9040cash at bank6790 Total Asset

Equity

500,000 $1 ordinary shares500000

Share premium50960

Retained earnings40840591800

Current liabilities

Accounts payable3900

Total Equity and liability595700Other information:

1.Estimates sales in units for September will be 80 units. Sales units will increase by 10 units each month.

2.All sales are on account. The customer is allowed to pay 50% in the month of sale and the remainder the month following sale.

3.Sales on account for August was $18,080.

4.Stock valuation was done using FIFO method and closing stock of finished goods is 100 units. The company's policy is to have the next month's sales in units in stock of finished goods at the end of each month

5.It is the company's policy to maintain 50% of the materials required for the next month's production. The opening stock of raw material is 175 kgs

6.The company estimated that it will have to pay $10 per unit for raw materials. 5 kgs of raw material is required to produce one bed.

7.All purchases of raw material are on account. 60% of raw material purchases are paid for in the month of purchase and 40% the month following purchase. Accounts payable for August 31, 2021 was 3900.

8.Fixed overheads were estimated at $1,200 per month.

9.The company sublets a section of the factory and the monthly rent of $3,000 is received in the month incurred.

10.Each bed takes 12 labour hours at a rate of $5 per labour hour.

11.An interim dividend of $20,000 for 30^thSeptember 2021 will be paid in November 2021.

12.The company will purchase a special tool for $70,000 in November to increase the production of specially designed headboards.

13.Depreciation for the four months, including the new machinery, was calculated to be:

Machinery and equipment$15,733

Motor Vehicle$3,500

14.Other monthly expenses are as follows: transportation cost $1,250 and miscellaneous expenses of $750

15.The company's policy is to maintain a minimum cash balance of $10,000 each month.

The following budgets for the four months and in total:

Sales budget

Cash collection schedule

Production budget

Direct material budget

Cash disbursement budget

Labour budget

Overhead budget

Cash budget