QUESTION 2 LEMESOS LTD is a manufacturer of leather keyrings. Assume that currently is the year 2019 and the company prepares its budgets for the year ending 2020. You are given the following information. 1" quarter 2nd quarter 3rd quarter 4th quarter Sales in units 8.000 12.000 15.000 20.000 Additional information: Sale price is 55 per unit. The sales revenue during the last quarter of 2019 were 500.000 LEMESOS LTD wants the ending balance of finished goods to be 8% of the expected sales in units of the following quarter. . At the beginning of the year, 1.200 units of finished goods are available. During the first quarter of 2021, 25.000 units are expected to be sold. The required raw material (leather) per unit is 0,3 meters of leather. Each meter of leather has a cost of 18. The firm wants the available leather at the end of each quarter to be 10% of the required raw material of the following quarter. At the beginning of the year, 595,2 meters of leather are available. During the first quarter of 2021, the firm expects to need 6.000 meters of leather. The purchases of raw material (leather) for the last quarter of 2019 were 40.000. The workers spend 1,5 hours to produce each unit. The workers are paid 5 in cash for each hour of work in each quarter. Selling expenses are 3% on the sales revenue of the quarter and are paid in cash. General administrative expenses paid in cash are 350 in the first quarter and increase by 2% in each quarter. The beginning balance of cash is 28.830. The credit policy of the firm regarding the cash collections from sales is as follows: In each quarter the firm receives 45% of the sales of the quarter and 50% of the sales of the previous quarter. The remaining 5% is not expected to be received. The credit policy of the firm regarding the cash payments of raw material purchases is as follows: The firm pays 60% of the purchases at the quarter of the purchase and 40% during the following quarter. The firm will take a loan of 75.000 during the second quarter in order to pay for the following additions in machinery: 35.000 in the 2nd quarter and 40.000 in the 3rd quarter. The loan will be repaid with five equal installments. The repayment of the installments and interest begins in the 3rd quarter of 2020. Interest is paid at 18% on the loan balance of the previous quarter. Requirements 1. Prepare the sales budget for the year 2020. (3 marks) 2. Prepare the production budget for the year 2020. (5 marks) 3. Prepare the direct material budget for the year 2020. (15 marks) 4. Prepare the direct labor budget for the year 2020. (5 marks) 5. Prepare the selling and general administration expenses budget for the year 2020. (2 marks) 6. Prepare the cash budget for the year 2020. (Consider all the cash collections and all the cash payments made by the company.) (20 marks) (50 marks)
