Question
July Aug Sept Oct Nov Dec sales units 9000 9750 11,000 12,000 12500 12,800 Sales revenue 270,000 292,500 330,000 360,000 375,000 384,000 Each product unit
July | Aug | Sept | Oct | Nov | Dec | |
sales units | 9000 | 9750 | 11,000 | 12,000 | 12500 | 12,800 |
Sales revenue | 270,000 | 292,500 | 330,000 | 360,000 | 375,000 | 384,000 |
Each product unit requires 3kg of material X, which costs 4 per kg. Stocks of finished goods are maintained at 60% of the following months sales requirement.
Stocks of raw materials, sufficient for 20% of the following months requirements in kgs are held at the end of each month.
The cash collection pattern from sales is expected to be:
Cash Customers :30% of sales revenue will be for immediate cash. Credit Customers: 70% of sales revenue will be from credit customers. These debtors will pay their bills 50% in the month after sale and the remainder in
the second month of after sale.
One months credit is received from suppliers. Expenses of the business will be settled as follows:
Expected Costs :
Wages 10,000 plus 5% of sales revenue per month, payable as incurred.
Variable overheads 4 per unit, payable as incurred.
Fixed overheads (including depreciation) 28,000 per month, payable as incurred.
Capital Costs:
Equipment will be purchased on 1 July costing 60,000 which will have a useful life of 5 years.
To finance this purchase a loan of 48,000 will be secured at 10% per annum. This loan and interest will be repaid over 4 years. Monthly capital and interest payments will commence in August.
(a) Prepare a production budget for the four months July to October 2019. (4 Marks)
(b) Prepare a raw materials purchases budget (in units and ) for the four months July to October 2019. (6 Marks)
(c) Prepare a cash budget for the four months July to October 2019.
(d) Prepare a budgeted trading and profit and loss account for the four months ending 31/10/2019 (if the budgeted cost of a unit of finished goods is 20).
(e) What recommendations would you make to Irwin Ltd based on the budgets you have prepared?
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