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REQUIRED: 1. Prepare the following budgets for March and April 2021: (5 marks) (i) Production Budget (ii) Material Purchases Budget 2. In March 2021, the manager decides the business needed to have the security of a three- month loan of $200,000 starting on 1 April 2021 as its cash balance has been diminished because of recent equipment upgrades. The interest rate for the loan will be 9% per annum repaid monthly commencing on 30 April 2021. The principal is paid at the end of the three-month term. To consider the loan application, the bank requested the provision of a number of budgets for April including the Cash Budget. All sales are made on credit and customers pay 40% in the month of sale; 58% in the month following. The remaining 2% is uncollectable. Assume that materials are paid 65% in the month purchased and 35% in the following month. Labour and relevant overhead costs are paid in the month the liability is incurred. Selling and administration expenses are paid each month as incurred, except for commissions that are paid in the subsequent month. The opening cash balance at 1 April (before the loan drawdown) is planned to be $30,190. Assume the short-term loan has been secured, prepare the Cash Budget for the month of April, 2021. (7 marks) 3. The Board of Directors of Petra and Co. is concerned that the use of participative budgeting and the provision of monetary bonus incentives for production and sales managers that achieve their budgeted levels of prot has resulted in the company's budgets being underestimated. They believe the targets seemed to be met with ease. What are the issues? Discuss the issues briey and provide one recommendation to address the issues. (3 marks) Petra & Co. produces camping refrigerators. The plan for the next four months is the following: The company plans to sell 50,000 units per month for April, May, and June, and 40,000 units for March of 2021. The selling price will be set at $45 per unit. It is planned that Finished Goods inventory on March 1 will be 12,000 units at $279,375. The company follows a policy requiring ending nished goods inventory each month to be 30% of next month's sales. There is no WIP. The inventory of raw materials on March 1 was 12,900kg. The policy is that the ending inventory amounts to 15% of next month's production requirements. The company plans $55,000 of selling & administrative expenses (including $12,000 of depreciation) plus 5% of sales for commissions. Additional data relating to manufacturing costs for April 2021 is as below: Direct Materials 2 kg per unit @ $14 per kg Direct Labour (DLH) 15 minutes per unit @ $25 per hour Variable Manufacturing Overhead allocated @$4 per DLH Budgeted xed manufacturing overhead is $104,000 (based on practical capacity of 52,000 units per month) and excludes $40,000 of depreciation
