Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Q3 A new company, is being established to manufacture and sell an electronic tracking device: the Trackit. The owners are excited about the future profits

Q3

A new company, is being established to manufacture and sell an electronic tracking device: the Trackit. The owners are excited about the future profits that the business will generate. They have forecast that sales will grow to 2,600 Trackits per month within five months and will be at that level for the remainder of the first year.

The owners will invest a total of $250,000 in cash on the first day of operations (that is the first day of July). They will also transfer non-current assets into the company.

Extracts from the company's business plan are shown below.

Sales

The forecast sales for the first five months are:

Month Trackits (units)

July 1,000

August 1,500

September 2,000

October 2,400

November 2,600

The selling price has been set at $140 per Trackit.

Sales receipts

Sales will be mainly through large retail outlets. The pattern for the receipt of payment is expected to be as follows:

Time of payment % of sales value

Immediately 15 *

One month later 25

Two months later 40

Three months later 15

The balance represents anticipated bad debts.

* A 4% discount will be given for immediate payment

Production The budget production volumes in units are:

July August September October

1,4501,650 2,120 2,460

Variable production cost

The budgeted variable production cost is $90 per unit, comprising:

$

Direct materials 60

Direct labour 10

Variable production overheads 20

Total variable cost 90

Direct materials: Payment for purchases will be made in the month following receipt of materials. There will be no opening inventory of materials in July. It will be company policy to hold inventory at the end of each month equal to 20% of the following month's production requirements.

Direct labour will be paid in the month in which the production occurs. Variable production overheads: 65% will be paid in the month in which production occurs and the remainder will be paid one month later.

Fixed overhead costs Fixed overheads are estimated at $840,000 per annum and are expected to be incurred in equal amounts each month. 60% of the fixed overhead costs will be paid in the month in which they are incurred and 15% in the following month. The balance represents depreciation of noncurrent assets.

Required:

a) create cash receipts budget schedule for each of the first three months(July - September), including the total receipts per month.

b) create material purchases budget schedule for each of the first threemonths (July - September), including the total purchases per month.

c) create cash budget for the month of July. Include the owners' cashcontributions

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Marketing And Export Management

Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr

8th Edition

1292016922, 978-1292016924

More Books

Students also viewed these Accounting questions

Question

Pay him, do not wait until I sign

Answered: 1 week ago

Question

Speak clearly and distinctly with moderate energy

Answered: 1 week ago