B ANSWER EITHER QUESTION THREE OR QUESTION FOUR FROM THIS SECTION. YOU MUST ANSWER ALL PARTS OF THE QUESTION SELECTED QUESTION 3 Fylde plc, based in the UK, manufactures chocolate liqueurs, using a particular brand of spirit that is imported from Europe in 1-litre bottles. Fylde plc sells these chocolates in shops, but their main source of revenue are premium hotels in London. The chocolates are sold in a standard box size of 12 pieces, at a price of 20. Customers in shops pay in cash, with half of the Hotels paying 50% on 1 month's credit and the remaining 50% on 2 months credit. Shop customers represent 25% of the total revenue, with Hotels comprising the remaining 75%. The budget shows the following sales volumes: Boxes of Month Chocolate May 350,000 June 270,000 July 320,000 August 250,000 September 310,000 October 260,000 You are given the following additional information: (i) (!!) The company's policy is for opening inventory of chocolates (unit: boxes) to equal 25% of each month's budgeted sales revenue. The actual inventory of chocolates on the 1st June was 80,000 boxes. For inventories of spirit (unit: bottle), the policy is for opening inventory to equal 40% of each month's usage. The actual inventory of spirit on the 1st June was 5,500. (iii) On average, a bottle of spirit will provide the necessary liqueur for 20 completed boxes of chocolate. The cost of the spirit is 100 per bottle. (iv) (V) Carriage on raw materials includes a 20 levy for entering the UK. As of July, this levy will increase to 39. Direct labour costs are 3 per box (this includes 1 per box for handwritten icing for the company logo). Fixed overheads are 20,000 per month (including 2,500 for depreciation). 6 Please turn over (vi) Payment for the spirits is made two months after purchase but all other expenses are paid for one month after being incurred. REQUIRED: Please note: a maximum word count applies to some parts of this question. a) For the months of June, July and August, as well as the quarter as a whole, prepare the production budget (in boxes of chocolate) and the spirit purchases budget (both in bottles and in ). (18 marks) b) For the month of August only, prepare the cash budget. Assume that the bank balance on 1st August was 500,000 overdrawn. c) i) Explain the controllability principle. (10 marks) (4 marks; max 140 words) ii) The purchasing manager reported to the supervisor that the supply of the brand of spirit that Fylde uses in their product has been impacted by a shortage of long-haul delivery drivers. What factors should the supervisor consider when evaluating the purchasing manager in the context of the budget against actual performance? (12 marks; max 420 words) c) The sales manager is considering expanding the network of hotel customers to include premium bed and breakfasts within a 40-mile range of London. The sales manager is due to meet with the credit control department to get advice on what is essential to know about potential new customers, before offering them credit. Give at least THREE key pieces of information that the sales manager should know before extending credit to new customers. (6 marks; max 210 words) (Total marks for question 3: 50 marks) 7 Please turn over