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Question 1 Exquisite Bedding Ltd. You have recently been appointed as Management Accountant for Exquisite Bedding Ltd, a small company that manufactures a specialized bed for the elderly which is sold to the public and its wholly-owned subsidiary company, Ultimate Care Ltd., a retail department store. The company uses a rolling budgetary control system and is in the process of preparing the budget for the four months' period from September to December 2020 During a preliminary review, you established that the company intends to sell each bed produced for $219 to Ultimate Care Ltd. in addition to individual customers on the same credit terms. However, the Managing Director is concerned about the performance of both entities think a different pricing strategy should be used for the beds sold to Ultimate Care Ltd. The current strategy might impact adversely on the company as a whole, in particular, the sub-optimization of goals, stakeholders' expectations and the behavior of managers and employees. Exquisite Bedding Ltd secured a cash loan of $120,000 (from Barclays Bank) that was secured on the land and buildings at an interest rate of 7 % % and this is due to be received in November 2020. The repayment of the loan will begin March 2020, however, monthly interest payment will begin in December 2020. Also, machinery costing $112,000 will be received in November and paid for in December 2020. You have been provided with the following budgeted balance sheet information as at September 1, 2020 well as estimates and other operating data: Exquisite Bedding Ltd Budgeted Balance sheet as at September 1, 2020 ASSETS Cost Depreciation to-date Net book value Non-current assets S S Land and buildings 500,000 Nil 500,000 Machinery and equipment 124,000 84,500 39,500 Motor vehicles 42,000 16,400 25,600 666,000 100,900 565,100 Current assets Closing stock: Raw materials 4,320 Finished goods 10,450 14,770 18,080 Receivables Cash at bank 6.790 39,640 604.740 Financed by: 500,000 $1 Ordinary shares 500,000 Financed by: 500,000 $1 Ordinary shares Share premium Retained earnings 600,840 Current liabilities Accounts payable 3.900 604.740 Other information: 1. Stock valuation was done using FIFO method and the closing stock of raw materials is for 100 units. 2. Receivables of $18,080 represent $7,680 for July and $10,400 for August 2020. 3. Estimates for the four months' period are as follows: September 80 October November December 90 100 110 Sales (units) Sales units increase by 10 units each month 4. Variable overheads are charged at the rate of $3 per labour hour 5. Fixed overheads were estimated at $1,200 per month. 6. The company sublets a section of the factory and the monthly rent of $3,000 is received in the month incurred. 7. The company estimated that it will have to pay $10 per unit for raw materials. 5kgs of raw material is required to produce one bed. 8. It is the company's policy to maintain 50% of the materials required for the next month's production. The opening stock for raw materials is 175 kgs. 9. All sales and purchases of raw materials are on credit and customers are allowed two months' credit and suppliers of raw materials are paid after one month's credit. 10. Variable overheads and fixed overheads are paid in the month in which they are incurred. 11. Each bed takes 12 labour hours and the rate per labour hour is $5. 12. The company's policy is to have the next month's sales units in stock of finished goods at the end of each month. 13. An interim dividend to 30 September 2020 of $12,500 will be paid in December 2020. 14. Depreciation for the four months, including the new machinery, was calculated to be: Machinery and equipment $15,733 Motor vehicles $3,500 You are required to: a. Construct the following budgets: i. Sales (2 marks) (6 marks) ii. Production Raw materials purchases (8 marks) iv. Labour (4 marks) V. Overheads (4 marks) vi. Cash Budget (21 marks) 500,000 60,000 40,840