John Smith, a college student, plans to sell CD players over the internet & by mail order during the semester to help pay his expenses. He buys the players for $29 & sells them for $50. If payment by cheque accompanies the mail order (estimated to be 40% of sales), he gives 10% discount. If customers include a credit card number for either internet or mail order (estimated 30% of sales), they receive 5% discount. The remaining collections are estimated as follows: One month following 15% Two months following 8% Three months following 5% Uncollectable 2% Sales forecast are as follows: September 150 units October 250 units November 350 units December 450 units January Business terminated John plans to pay his supplier 60% in the month of purchase, and 40% in the following month. A 5% discount is granted on payments made in the month in the month of purchase. However, John will not be able to take any discounts on the September purchases because of cashflow constraints. All September purchases will be paid for in October. John has 50 players on hand (purchased in August and to be paid in September), and plans to maintain enough end-of-month inventory to meet 60% of the next month's sales. John also wished to maintain a closing cash balance of $1,500 in the bank once the business commences in September. The current interest rate on short term loans is 3.5% pa. 3 Required: Prepare schedules for monthly budgeted cash receipts (10 marks) & cash disbursements (13 marks) & the cash budget (5 marks). During which month will John need to organise a shortterm loan & for how much? (2 marks) Q.2 (Max Marks:60) Warsaw Ltd operates at capacity and makes glass-topped dining tables and wooden chairs, which are then typically sold as sets of four chairs with one table. However, some customers purchase replacement or extra chairs, and others buy some chairs or a table only, so the sales mix is not exactly 4:1. Warsaw Ltd is planning its annual budget for the financial year 2020. Information for 2020 is as follows: Input prices Direct materials Wood $5.30 per board metre Glass $11.5 per sheet Direct manufacturing labour $14 per direct manufacturing labourhour Input quantities per unit of output Chairs Tables Direct materials Wood 1.2 board metres 1.7 board metres Glass 2 sheets Direct manufacturing labour 3 hours 6 hours Machine-hours (MH) 2 MH 5 MH 4 Inventory information, direct materials Wood Glass Beginning inventory 27 200 board metres 8 700 sheets Target ending inventory 29 360 board metres 9 500 sheets Sales and inventory information, finished goods Chairs Tables Expected sales in units 172 000 45 000 Selling price $70 $900 Target ending inventory in units 8 400 2 050 Beginning inventory in units 7 500 2 150 Chairs are manufactured in batches of 500 and tables are manufactured in batches of 50. It takes three hours to set up for a batch of chairs and two hours to set up for a batch of tables. Warsaw Ltd uses activity-based costing and has classified all overhead costs as shown in the table below: Cost type Budgeted variable Budgeted fixed Cost driver/allocation base Manufacturing: Materials handling $342 840 $600 000 Number of board metres used Set-up 97 000 300 740 Set-up hours Processing 789 250 5 900 000 Machine-hours Nonmanufacturing: Marketing 2 011 200 4 500 000 Sales revenue Distribution 54 000 380 000 Number of deliveries Delivery trucks transport units sold in delivery sizes of 500 chairs or 500 tables. 5 Required For the year 2020: 1. Prepare the revenues budget. (1 mark) 2. Use the revenues budget to: 1. find the budgeted allocation rate for marketing costs (1.5 marks) 2. find the budgeted number of deliveries and allocation rate for distribution costs. (3.5 marks) 3. Prepare the production budget in units. (2 marks) 4. Use the production budget to: 1. find the budgeted number of set-ups, set-up hours and the allocation rate for set-up costs (5 marks) 2. find the budgeted total machine-hours and the allocation rate for processing costs. (2.5 marks) 5. Prepare the direct materials usage budget and the direct materials purchases budget. (5 marks) 6. Use the direct materials usage budget to find the budgeted allocation rate for materials-handling costs. (2.5 marks) 7. Prepare the direct manufacturing labour cost budget. (1.5 marks) 8. Prepare the manufacturing overhead cost budget for materials handling, setup and processing. (1.5 marks) 9. Prepare the budgeted unit cost of finished good (16.5 marks) and ending inventories budget. (4.5 marks) 10. Prepare the cost of goods sold budget. (3 marks) 11. Prepare the non-manufacturing overhead costs budget for marketing and distribution. (1 mark) 12. budgeted income statement (ignore income taxes). (3 marks) 13. Compare the budgeted unit cost of a chair to its budgeted selling price. Why might Warsaw Ltd continue to sell the chairs for only $70? (6 marks)