PLEASE ANSWER QUESTIONS 1 2 AND 3 at the following budget requirements.

Question 1

Exquisite Bedding Ltd.

You have recently been appointed as Management Accountant for Exquisite Bedding Ltd, 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 retail 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 2020.

During a preliminary review, you established that the company intends to sell each bed produced for $219 to Ultimate Care Ltd. in addition to individual customers on the same credit terms. However, the Managing Director is concerned about the performance of both entities think a different pricing strategy should be used for the beds sold to Ultimate Care Ltd. The current strategy might impact adversely on the company as a whole, in particular, the sub-optimization of goals, stakeholders expectations and the behavior of managers and employees.

Exquisite Bedding Ltd secured a cash loan of $120,000 (from Barclays Bank) that was secured on the land and buildings at an interest rate of 7 % and this is due to be received in November 2020. The repayment of the loan will begin March 2020, however, monthly interest payment will begin in December 2020. Also, machinery costing $112,000 will be received in November and paid for in December 2020.

You have been provided with the following budgeted balance sheet information as at September 1, 2020 well as estimates and other operating data:

Exquisite Bedding Ltd

Budgeted Balance sheet as at September 1, 2020

ASSETS	Cost	Depreciation to-date	Net book value
Non-current assets	$	$	$
Land and buildings	500,000	Nil	500,000
Machinery and equipment	124,000	84,500	39,500
Motor vehicles	42,000	16,400	25,600
	666,000	100,900	565,100
Current assets
Closing stock: Raw materials Finished goods	4,320 10,450	14,770
Receivables		18,080
Cash at bank		6,790	39,640
			604,740
Financed by:
500,000 $1 Ordinary shares		500,000
Share premium		60,000
Retained earnings		40,840	600,840
Current liabilities
Accounts payable			3,900
			604,740

Other information:

1. Stock valuation was done using FIFO method and the closing stock of raw materials is for 100 units.

2. Receivables of $18,080 represent $7,680 for July and $10,400 for August 2020.

3. Estimates for the four months period are as follows:

	September	October	November	December
Sales (units)	80	90	100	110

Sales units increase by 10 units each month

4. Variable overheads are charged at the rate of $3 per labour hour

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

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

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

8. It is the companys policy to maintain 50% of the materials required for the next months production. The opening stock for ra materials is 175 kgs.

9. All sales and purchases of raw materials are on credit and customers are allowed two months credit and suppliers of raw materials are paid after one months credit.

10. Variable overheads and fixed overheads are paid in the month in which they are incurred.

11. Each bed takes 12 labour hours and the rate per labour hour is $5.

12. The companys policy is to have the next months sales units in stock of finished goods at the end of each month.

13. An interim dividend to 30 September 2020 of $12,500 will be paid in December 2020.

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

Machinery and equipment $15,733

Motor vehicles $ 3,500

You are required to:

a. Construct the following budgets:

1. Sales

2. Production

3. Raw materials purchases