Question
I am trying to figure out the interview question examples, but stuck here. The question is: Sigma Ltd produces and sells product X.Following the latest
I am trying to figure out the interview question examples, but stuck here. The question is:
Sigma Ltd produces and sells product X.Following the latest market research, the marketing director anticipates increased demand for the product for the year 2020.
The director believes that sales will be 50,000 units in June; 56,000 in July and 70,000 in August. Thereafter, demand is expected to increase at a rate of 10% per month until November 2020. At that point, it is expected sales will remain at the November 2020 level thereafter.
Selling price and variable costs of producing each unit of X is provided in the table below. It is expected that selling price and costs will remain stable in the foreseeable future.
Product X
per unit
Selling Price
180.00
Variable Costs of production
Direct Material A (5 per kg)
30.00
Direct Material B (3 per kg)
6.00
Direct labour (15 per hour)
60.00
Variable production overhead (2 per direct labour hour)
8.00
The cost accountant of the company has provided the following additional information.
Company policy is for closing inventory of finished goods to be equal to 20% of next month's budgeted sales and for closing inventory of materials (A and B) to be equal to 25% of next month's usage (production requirements).On May 31st, there were 10,000 units of X; 76,800 kg of material A and 25,600 kg of material B on hand.
Other costs include the fixed manufacturing overhead which is 800,000 per month including depreciation charges of 60,000. Fixed selling and administrative costs amount to 500,000 a month.
All of the company's direct labour are on zero hour contracts and are therefore only paid for their actual work.
The company takes one month to pay for all its overheads (fixed and variable) and takes two months to pay for its purchases of materials A and B. Direct labour is paid in the month the work is undertaken.
Cash collected from sales for a month are as follows: Thirty per cent (30%) of a month's sales revenue are received the month following the sale. Fifty per cent (50%) of sales are collected two months following the sales and the remainder, (20%), are cash sales. Sigma Ltd allows a 2% cash discount on all its cash sales and the company does not anticipate any bad debts in the foreseeable future.
Due to increased demand, the company is planning to purchase new equipment for 3 million cash in August 2020.
The question is:
Prepare Sigma Ltd.'s Cash Budget for the month of August 2020, assuming that company has a cash balance of 500 000 pounds on 1st of August
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started