Sandy Ltd manufactures and sells a single product. The following budget details are available:

$ per unit
Selling price 150
Less:
Materials 60
Labour 30
Contribution 60

Additional information:
(1) Budgeted sales units are as follows:

January February March April
5,000 2,000 2,500 6,000

(2) Opening stock of finished goods at the start of January will be 1,000 units. Closing
stock of finished goods at the end of each month is budgeted at 10% of the sales volume for that month.

(3) Sandy Ltd operates a Just-in-time ordering system. The stock of raw materials is therefore always zero.

(4) Raw material purchases are paid for in the month of purchase and labour costs are
paid for in the month of production.

(5) All goods are sold on credit. Sales revenue is received 60% in the month of sale and 35% during the following month. The remaining 5% is treated as being irrecoverable.

(6) Fixed overheads are $80,000 per month. This figure includes depreciation of $20,000.

(7) Fixed overheads are paid for in the month in which they are incurred.

(8) Machinery costing $200,000 is due to be installed in February and paid for in March.

(9) Taxation of $150,000 and proposed dividends of $75,000 are due for payment in April.

(10) At the beginning of January, trade debtors will total $130,000 and the usual collectible amount will be received during January.

(11) Overdraft interest of 1% per month will be paid in respect of the closing bank balance at the previous month's end.

(12) The opening bank balance of Sandy Ltd in January will be $200,000 overdrawn.

Required:
(a) Prepare a production budget, in units, for each of the four months, January to April.

(b) Prepare, in columnar form, a cash budget for each month. The cash balance at the end of each month must be clearly shown. (18 marks)

(c) Comment on the cash budget prepared in (b) and the implications for the company as well as proposed solutions.

Answer rating: 100% (QA)

a Production Budget B Cash Budget c According to the companys ... View the full answer