Dale Ltd just started business and manufactures a single Product A. The product details are as follows:
Question:
Dale Ltd just started business and manufactures a single Product A. The product details are as follows:
Selling price per unit of Product A: £80
Particulars | Quantity of inputs of Product A | Price (£) |
Direct material | 4 kg | 9/kg |
Direct labour | 5 hours | 13/hr |
Dale Ltd is considering its budget for the next year and has made the following estimates of sales demand in units for the Product A from July to October:
Month | Original Sales in units | New Sales in units |
July | 430 | 1321 |
August | 450 | 1341 |
September | 520 | 1411 |
October | 580 | 1471 |
It is company policy to hold closing stocks (ending inventories) of finished goods at the end
of each month equal to 60% of the following month’s sales demand.
There is no opening stock (beginning inventories) of finished goods at the beginning of July.
The inventory (stock) details of the direct materials are budgeted as follows:
Particulars | June | July | August | September |
Closing Stock in kgs (Ending Inventory) | 280 | 270 | 310 | 290 |
Additional information:
(1) The opening cash balance on 1st July is £6,500.
(2) Cash is collected from customers for sales in the following manner:
Month of sale (After giving them 2% cash discount) | 25% |
Month following the sale | 50% |
2 months following sale | 20% |
Amount uncollectible (bad debts) | 5% |
There were no sales receipts prior to July.
(3) 36% of purchases are paid for in cash in the month of purchase, and the balance is paid in the following month. The purchases made in June were £2,520.
(4) Labour charges of £3,500 per month are paid every month.
(5) Overheads are incurred at £1,200 per month out of which £200 per month is
depreciation on machinery.
(6) The company paid £7,500 to buy a machine in September.
Prepare the following budgets for July, August and September:
1.Prepare a sales budget for Product A in amount (£).
2.Prepare a production budget for Product A in units.
3.Prepare a raw material budget in kgs and in amount (£).
4.Prepare a direct labour budget in amount (£).
5.Prepare a cash budget showing cash inflows (receipts) and cash outflows (payments) for
July, August, and September, showing the final closing cash balance at the end of each
month.
Show all necessary notes, formula and workings. Keep two decimal places for all results in
your calculations.
Expert Answer:
Sales Budget for Product A Month Original Sales New Sales Total Sales July 430 1321 1751 August 450 ... View the full answer
