Please help with Question 2-Budget preparation - intelectual and Practical skills

Sales Budget April May June July August September Sales Units Sales Price Total 0 0 #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! August September Total Debtors Budget April May June July Opening Debtors Sales 0 Cash Received Closing Debtors 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 August September Total Creditors Budget April May June July Opening Creditors Purchases 0 Cash Paid Closing Creditors 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 August September Total Raw Materials Budget April May June July Opening Stock of RM Purchases UnitsProduced Used in Production* Closing Stock of RM 0 500 0 500 0 500 0 500 0 500 0 500 0 0 0 0 0 0 0 0 0 3,000 0 0 August September Total 0 0 0 0 0 0 0 0 0 0 0 August September Total 0 0 0 0 0 0 August September Total Finished Goods Budget April May June July Opening Stock of FG Produced ** Cost of sales* Closing Stock of FG 0 0 0 0 0 0 0 0 0 0 0 0 Production Costs Budget April May June July Direct Materials Direct Labour Production Overheads 0 0 0 0 Cash Budget April Opening Cash Add Receipts May June July 0 Debtors 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Less Payments Payment for Goods Non-production exps Direct Labour Production Overhead 0 0 0 0 0 0 0 0 0 0 0 Cashflow 0 0 0 0 0 0 0 Closing Cash 0 0 0 0 0 0 0 P&L Sales 0 Cost of Sales 0 Gross Profit 0 Less Expenses Depreciation Expenses 0 0 0 Net Profit / (Loss) Balance Sheet Cost Depn NBV Fixed Assets 0 Current Assets Debtors Stock of raw materials stock of finished goods 0 0 0 0 Current liabilities Creditors Bank overdraf 0 0 0 Net Current Assets 0 Total Net Assets 0 Share Capital and Reserves Share Capital Opening P&L Loss for year Total Shareholders Funds 0 Sales Budget April Sales Units Sales Price May June July August September Total 20,000 400 22,000 440 24,000 480 26,000 520 28,000 560 30,000 600 150,000 3000 50.00 50.00 50.00 50.00 50.00 50.00 50.00 Debtors Budget April Opening Debtors Sales Cash Received Closing Debtors May June July August September Total 24,000 20,000 44,000 (10,000) 34,000 34,000 22,000 56,000 (14,000) 42,000 42,000 24,000 66,000 (20,000) 46,000 46,000 26,000 72,000 (22,000) 50,000 50,000 28,000 78,000 (24,000) 54,000 54,000 30,000 84,000 (26,000) 58,000 24,000 150,000 174,000 (116,000) 58,000 Creditors Budget April Opening Creditors Purchases Cash Paid Closing Creditors May June July August September Total 18,000 5,000 23,000 (8,000) 15,000 15,000 6,000 21,000 (10,000) 11,000 11,000 7,000 18,000 (5,000) 13,000 13,000 8,000 21,000 (6,000) 15,000 15,000 9,000 24,000 (7,000) 17,000 17,000 10,000 27,000 (8,000) 19,000 18,000 45,000 63,000 (44,000) 19,000 Raw Materials Budget April Opening Stock of RM Purchases UnitsProduced Used in Production* Closing Stock of RM May June July August September Total 9,000 5,000 14,000 500 (7,500) 6,500 6,500 6,000 12,500 500 (7,500) 5,000 5,000 7,000 12,000 500 (7,500) 4,500 4,500 8,000 12,500 500 (7,500) 5,000 5,000 9,000 14,000 500 (7,500) 6,500 6,500 10,000 16,500 500 (7,500) 9,000 9,000 45,000 54,000 3,000 (45,000) 9,000 Finished Goods Budget April Opening Stock of FG Produced ** Cost of sales* Closing Stock of FG May June July August September Total 13,000 16,000 29,000 (12,800) 16,200 16,200 16,000 32,200 (14,080) 18,120 18,120 16,000 34,120 (15,360) 18,760 18,760 16,000 34,760 (16,640) 18,120 18,120 16,000 34,120 (17,920) 16,200 16,200 16,000 32,200 (19,200) 13,000 13,000 96,000 109,000 (96,000) 13,000 Production Costs Budget April Direct Materials Direct Labour Production Overheads May June July August September Total 7,500 6,000 2,500 16,000 7,500 6,000 2,500 16,000 7,500 6,000 2,500 16,000 7,500 6,000 2,500 16,000 7,500 6,000 2,500 16,000 7,500 6,000 2,500 16,000 45,000 36,000 15,000 96,000 Cash Budget April Opening Cash Add Receipts May June July August September Total (3,000) (19,500) (34,000) (37,500) (40,000) (41,500) (3,000) Debtors 10,000 10,000 14,000 14,000 20,000 20,000 22,000 22,000 24,000 24,000 26,000 26,000 116,000 116,000 8,000 10,000 6,000 2,500 26,500 10,000 10,000 6,000 2,500 28,500 5,000 10,000 6,000 2,500 23,500 6,000 10,000 6,000 2,500 24,500 7,000 10,000 6,000 2,500 25,500 8,000 10,000 6,000 2,500 26,500 44,000 60,000 36,000 15,000 155,000 Cashflow (16,500) (14,500) (3,500) (2,500) (1,500) (500) (39,000) Closing Cash (19,500) (34,000) (37,500) (40,000) (41,500) (42,000) (42,000) Less Payments Payment for Goods Non-production exps Direct Labour Production Overhead P&L Sales 150,000 Cost of Sales (96,000) Gross Profit 54,000 Less Expenses Depreciation Expenses (20,000) (60,000) (80,000) (26,000) Net Profit / (Loss) Balance Sheet Fixed Assets Current Assets Debtors Stock of raw materials stock of finished goods Current liabilities Creditors Bank overdraf Cost Depn NBV 100000 -20000 80000 58000 9000 13000 80000 -19000 -42000 -61000 Net Current Assets 19000 Total Net Assets 99000 Share Capital and Reserves Share Capital Opening P&L Loss for year Total Shareholders Funds 100000 (1,000) 99000 Answer Draw conclusions from your budgets and prepare a short management report. Budget has been derived from the word Bouquet which means pouch of leather bag with full of money .Budget is always prepared for the future .The business plans and policies which are prepared by the managers of the business concern for a certain period and presented in the form of monetary terms is known as budget .Therefore budget is a written future working plan at present and prepared by the experienced persons on the basis of the facts for future forecasting and the main objective is to give guidance for achieving the predetermined targets . There are various types of budgets but the most useful budgets are the following; 1) Sales budget; sales budget is the most important budget. In the sales budget, the total sales are estimated for a definite future period, in which sales are presented in quantities as well as in money .On the basis of sales budget other budgets such as production budget etc, are prepared. In this case number of units sold in each month from April to September is 400 and if we divide the sales with the no. of units sold then the per unit sales comes to be 50 per unit. 2) Debtor's budget; Debtor budget has been prepared to know how much cash has been received from the debtors. In this case the amount from debtors will be collected after a period of two months which indicates that management should take steps to collect the amount from credit sales earlier. As a result of collecting cash from debtors after two months the closing balance of debtors become 58,000. 3) Creditors budget; Creditors budget has been prepared to know how much amount has been paid to creditors .In this case amount has been paid to creditors after two months which is a good sign for the company . The main reason for this is that the suppliers of raw material have faith in the company that they will pay their amount after two months. In this case closing creditors comes out to be 19,000. 4) Raw material Budget; raw material budget has been prepared to forecast the quantity, quality and cost of material used in production. In this case 500 units have been produced in each month at the rate of 15 per unit. Therefore in each month 7,500 value of raw material has been used in production. At the end of September 9,000 value of material remained unused which becomes the asset for the company and this material can be used by the company in the next month. 5) Finished Goods budget; Company has 13,000 value of finished goods balance in the beginning of April and 500 units of final or finished goods have been produced each month @32 per month which shows that the total value of goods 6) 7) 8) 9) produced or the six months amounting to 96,000.the cost of sales has been deducted from the opening balance of finished goods and goods produced on the basis of number of units that have been sold in each month @32 per month which gives us closing balance of finished goods produced each month. Closing balance of finished goods which have not been sold during the year becomes the asset for the company. Production cost Budget; This budget gives us a forecast of cost of that production which has been ascertained in the production budget. Direct material, direct labor and production overhead expenses have been included in the production budget. In this case production cost becomes 16,000 in each month from April to September. Cash budget; cash budget includes the forecast of estimated receipts and payments during the definite future period so that the proper can be taken on the cash. By this budget surplus or deficit is calculated. In this case company has deficit in very month which shows that the company has been paying more than receiving. This is not a good sign for the company because company is not having any cash in hand after paying to the suppliers and expenses. Instead it has negative balance i.e. bank overdraft and it becomes the liability of the company. At the end of September Company has 42,000 value of bank overdraft. Profit and loss account Budget; it shows the difference between the sales and expenses. In this case gross profit for the company is 54,000 but the operating and non operating expenses are more than the gross profit. Therefore, the company has to bear loss. Balance sheet budget; it shows the assets and liabilities. In this case net current assets are 19000 and net fixed assets are of 80,000. Therefore, the total assets become 99,000.on the other hand shareholders equity is 100,000 and when we add the profit and deduct the loss of the current year in the stockholder's equity we got 99,000. Recommendation; At the end it can be concluded that the company financial position is not very good and cash position of the company is very bad. Company must take steps to correct the negative cash balance into positive cash balance. This can be done by controlling the expenses and speeding up the collection procedure from the debtors