QUESTION 2 LONDON LTD is a manufacturer of fabric dolls. It prepares its budgets for the year ending 2022. You are given the following information. 1" quarter 2nd quarter 3rd quarter 4th quarter Sales in units 18.000 20.000 24.000 28.000 Additional information: . Sale price is 35 per unit. . The sales revenue during the last quarter of 2021 was 600.000. LONDON 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, 1.500 units of finished goods are available. . During the first quarter of 2023, 25.000 dolls are expected to be sold. The required raw material per doll is 1,2 meters of fabric. Each meter of fabric has a cost of 8. . . The firm wants the available fabric at the end of each quarter to be 12% of the required fabric of the following quarter. At the beginning of the year, 926,08 meters of fabric are available. During the first quarter of 2023, the firm expects to require 30.000 meters of fabric. The cost of the purchases of fabric for the last quarter of 2021 was 45.000. . . The workers spend 1,5 hours to produce each doll. . The workers are paid 6 in cash for each hour of work in each quarter. Selling expenses are 2,5% of the sales revenue of the quarter and are paid in cash. General administrative expenses paid in cash are 990 in the first quarter and increase by 2% in each quarter. . . The beginning balance of cash is 45.725. The credit policy of the firm regarding the cash collections from sales is as follows: In each quarter the firm receives 30% of the sales of the quarter and 65% 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 40% of the purchases at the quarter of the purchase and 60% during the following quarter. The firm will take a loan of 125.000 during the second quarter of 2022 to pay for the following additions in machinery: 70.000 in the 2nd quarter and 55.000 in the 3rd quarter of 2022. The loan will be repaid with five equal installments. The repayment of the installments and interest begins in the 3rd quarter of 2022. Interest is paid at 8% the loan balance of the previous quarter. . . Requirements 1. Prepare the sales budget for 2022. (3 marks) 2. Prepare the production budget for 2022. (5 marks) 3. Prepare the direct material budget for 2022. (15 marks) 4. Prepare the direct labor budget for 2022. (5 marks) 5. Prepare the selling and general administration expenses budget for 2022. (2 marks) 6. Prepare the cash budget for 2022. (Consider all the cash collections and all the cash payments made by the company.) (20 marks) (50 marks)
