Question 2

Lewis Ltd manufactures one product line: Delta. Sales of Delta over the next few months are planned to reflect the market demand

1. Demand

	Units
July	180000
August	240000
September	200000
October	180000

Delta sells for 3 British pounds.

The remaining trade receivables are expected to go bad (that is, to be uncollectible). Credit customers who pay in the month of sale are entitled to deduct a 3 per cent discount from the invoice price. 3. Finished goods inventory: Finished goods inventory is expected to be 3000 units on June 30th. The business's policy is to maintain an amount of finished goods inventory at the end of month equal to 10 per cent of the following month's planned sales. 4. Raw materials inventory: Raw materials inventory is expected to be 10000kg on June 30th. The business's policy is to maintain an amount of raw materials inventory at the end of each month equal to 20 per cent of the following month's planned production. Each device requires 2kg of the raw material, which costs 5.50/kg. Raw materials purchases are paid in the month after purchase. 5. Labour and overheads: The direct labour cost of each device is 1.75. The variable overhead element of each device is 1.25. Fixed overheads, including depreciation of 43000, total 151000 per month. All labour and overheads are paid during the month in which they arise. 6. Cash in hand: On August 1st the business plans to have a bank balance (in funds) of 35000. Required: Prepare the following budgets: (a) Finished goods inventory budget (expressed in units of devices) for each ree months July, August, and September. (9 points) (b) Raw materials inventory budget (expressed in kilograms of raw material) for each of the two months July and August. (6 points) (c) Cash budget for each of the two months August and September. (10 points)