4. The labour union of Empire plc announced a strike commencing at the beginning of week...

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4. The labour union of Empire plc announced a strike commencing at the beginning of week 3 that will last 4 weeks. This means production will stop at the end of week 2. Empire plc intends to continue sales in week 4 selling all finished products from inventory. The inventory level of finished products at the beginning of week 1 is 1200 units (there is no inventory of partly finished goods). The budgeted sales and production levels for week 1-3 are given below: Budgeted sales Budgeted production Week 1 800 units 1200 units Week 2 1000 units 800 units Week 3 800 units The budgeted standard manufacturing cost (per unit) is given below: Direct materials Direct labour Variable overhead Fixed overhead () 30 14 16 36 The company uses a full absorption costing system and the overhead absorption rate is based on a budgeted fixed overhead of 36,000 per week (including 2,800 depreciation). During the strike Empire will not incur any labour or variable costs and fixed costs per week reduce by 6,000. The current inventory of raw materials is worth 15,000 and this will rise to 22,000 by the end of week 1 and remain at this level during the strike. Direct materials and direct labour expenses are paid one week after they are incurred. Overhead costs are paid when incurred. Empire sells their product at 120 and receives 70% 1 week after sales and 30% 2 weeks after sales. They currently have a 32,000 outstanding bill from their material suppliers (due in week 1) and a 12,800 unpaid wages bill in respect of their labour force (due in week 1). Receivables are 124,800 (96,000 due in week 1, the remainder due in week 2). REQUIRED: (a) Prepare a cash budget for week 1-6 showing the balance of cash at the end of each week. The cash balance at the start of week 1 is 2,000. (22 marks) 4. The labour union of Empire plc announced a strike commencing at the beginning of week 3 that will last 4 weeks. This means production will stop at the end of week 2. Empire plc intends to continue sales in week 4 selling all finished products from inventory. The inventory level of finished products at the beginning of week 1 is 1200 units (there is no inventory of partly finished goods). The budgeted sales and production levels for week 1-3 are given below: Budgeted sales Budgeted production Week 1 800 units 1200 units Week 2 1000 units 800 units Week 3 800 units The budgeted standard manufacturing cost (per unit) is given below: Direct materials Direct labour Variable overhead Fixed overhead () 30 14 16 36 The company uses a full absorption costing system and the overhead absorption rate is based on a budgeted fixed overhead of 36,000 per week (including 2,800 depreciation). During the strike Empire will not incur any labour or variable costs and fixed costs per week reduce by 6,000. The current inventory of raw materials is worth 15,000 and this will rise to 22,000 by the end of week 1 and remain at this level during the strike. Direct materials and direct labour expenses are paid one week after they are incurred. Overhead costs are paid when incurred. Empire sells their product at 120 and receives 70% 1 week after sales and 30% 2 weeks after sales. They currently have a 32,000 outstanding bill from their material suppliers (due in week 1) and a 12,800 unpaid wages bill in respect of their labour force (due in week 1). Receivables are 124,800 (96,000 due in week 1, the remainder due in week 2). REQUIRED: (a) Prepare a cash budget for week 1-6 showing the balance of cash at the end of each week. The cash balance at the start of week 1 is 2,000. (22 marks)

Answer rating: 100% (QA)

To prepare the cash budget we need to account for all cash inflows and outflows for each week Lets start Week 1 Cash balance at the start 2000 Cash in... View the full answer