Students are REQUIRED to use the budget templates (format) as illustrated in the Lecture Slides on BUDGETING Topic (Topic 7). The budgets are to be created in WORD, using Tables. Any supplementary working done to support the amounts in the budgets should be provided.

PREPARATION OF OPERATING AND FINANCIAL BUDGETS

TAKULAH Company is preparing budgets for the third quarter ending Sept 30, 2019. Budgeted sales for the next five (5) months are:

July 22,000 units

Aug 50,000 units

Sept 32,000 units

Oct 26,000 units

Nov 15,000 units

The selling price is $15 per unit. All sales are on account. TAKULAH's collection pattern is 60% collected in the month of sale and remaining amount in the month following sale.

The June 30 Accounts Receivable balance of $50,000 will be collected in full.

The management at TAKULAH Company wants ending Finished Goods Inventory to be equal to 25% of the following month's budgeted sales in units.

At TAKULAH Company, five pounds of material are required per unit of product. Management wants materials on hand at the end of each month equal to 15% of the following month's production. Material cost is $0.50 per pound.

30% of a month's purchases is paid for in the month of purchase and the remainder is paid in the following month. The June 30 Accounts Payable balance is $20,000.

At TAKULAH, each unit of product requires 0.06 hours (3.6 minutes) of direct labour. The company has a "no layoff" policy and in exchange for the "no layoff" policy, workers agree to a wage rate of $15 per hour regardless of the hours worked (no overtime pay). For the next three months, the direct labour workforce will be paid for a minimum of 2,000 hours per month.

At TAKULAH, manufacturing overhead is applied to units of product on the basis of direct labour hours. The variable manufacturing overhead rate is $25 per direct labour hour. Fixed manufacturing overhead is $40,000 per month and includes $10,000 of non-cash costs.

At TAKULAH, the selling and administrative expenses budget is divided into variable and fixed components. The variable selling and administrative expenses are $0.55 per unit sold. Fixed selling and administrative expenses are $60,000 per month. The fixed selling and administrative expenses include $15,000 in costs that are not cash outflows of the current month.

The company:

Has a July 1 cash balance of $55,000

Maintains a minimum cash balance of $35,000

Borrows on the first day of the month and repays loans on the last day of the quarter

Maintains a 12% open line of credit for $95,000

Pays a cash dividend of $45,000 in August

Cash purchases of equipment, $155,200 in July and $54,800 in September, respectively

TAKULAH reported the following account balances prior to preparing its budgeted financial statements:

Land - $65,000

Equipment - $180,000

Ordinary shares - $195,000

Retained earnings - $X*

*This Retained earnings figure will be the amount needed to balance off your balance sheet on June 30th i.e. the closing balances on June 30th before you step into the third quarter.

Required:

With the information provided, assist TAKULAH Company in setting up their 'Master Budget'. For this, you will need to prepare the following budgets for the third quarter of the year:

1. Sales Budget

2. Production Budget

3. Direct Materials Budget

4. Direct Labour Budget

5. Manufacturing Overhead Budget

6. Ending Finished Goods Inventory Budget

7. Selling & Administration Expenses Budget

8. Expected Cash Collections

9. Expected Cash Disbursements for Materials

10. Cash Budget 11. Budgeted Income Statement

12. Budgeted Balance Sheet*

*For the balance sheet as at Sept 30th, there will be a difference between the final totals. This is due to calculations based on rounded off units. To balance the totals, simply close off this difference to the Retained Earnings account.

(NOTE - SHOW ALL OF YOUR WORKINGS)