Nidhi Ltd has had a difficult time. New competitors have entered the market and they have offeredconsiderably lower prices than Nidhi Ltd. Moreover, Nidhi Ltd has found that their costs keep rising, they are not sure why, but operational managers believe that inflation is to blame.

Consequently, the company has lost market share and reported two consecutive operating losses. To turn things around the company has decided to discontinue their older products and concentrate on just one product line, the high quality, and highly innovative NM100. While they are confident in the new strategy the company has limited funding and will need to break even relatively quickly.

To help them implement this new strategy you have suggested that they use a budgetary control system and you have offered to produce a draft budget for the first four months of the new financial year. you have collected the following data:

- Selling price per unit = 97

- Materials = 38 per unit

- Labor cost per unit = 4.2 per unit

- Labor hours per unit =0.3

- In January they are expecting to sell 35,000 units. This is expected to increase by 5,000 units each month until April when demand will level out at 50,000 units permonth.

- Stocks of finished goods at the end of each month are required to be 10% of the expected sales for the following month. They expect to have 3,500 finished units in stock at the beginning of the year. Materials are purchased on a just-in-time basis.

- The company currently employs 55 factory workers. They all work a 39-hour week and most of these are skilled or semi-skilled & require significant training. The change in strategy has meant that the company has had to reduce headcount by 20% in the past 6 months, this has caused considerable unrest and the human resource manager believes that many of the more qualified staff are actively looking for new employment

- Fixed costs for production, administration, and distribution will be 2,400,000 per month in January & February, this includes a depreciation charge of 350,000 per month. These fixed costs will increase in March as the company is planning to hire four engineers to help design a range of new products. They pay engineers 45,000 p.a. and the on-costs (NI & pension contributions) are estimated to be 30% of the gross salary

- All sales are credit sales. 70% of sales are collected in the month in which the goods are sold and 30% of sales are collected in the following month. Sales revenue in December is forecast to be 3,200,000

- All material purchases are made on credit and are paid in full in the month following delivery, the material purchases in December are expected to be 1,253,000. Direct labor and fixed costs are paid in the month they are incurred.

- The management intends to spend 500,000 on purchasing new fixed assets in February, these fixed assets are to produce the next variant of the NM100 which they aim to launch in June. They expect to have an overdraft of 400,000 as of 1^st January and an overdraft limit of 750,000.

a) Prepare the following budgets for Nidhi Ltd for the four months of 2022 (use excel)

1. The production budget (units)
2. The labor hours budget
3. The profit & loss budget
4. The cash flow budget

b) Explain how the budgets you have prepared will help Nidhi Ltd.'s managers manage their organization?

c) With reference to the scenario, explain what is meant by a feed-forward control