Metals Limited manufactures reinforcement products used in West Midlands Province's civil construction industry. Trust Metals currently...

  

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Metals Limited manufactures reinforcement products used in West Midlands Province's civil construction industry. Trust Metals currently sell all its products in its factory shop. Its preliminary budget is provided below. Budgeted Income Statement for the Year Ending 31 December 2022 £ Sales (20,000 boxes) Direct materials Direct labour Variable overhead Fixed overhead Profit Budgeted Net Assets as at 31 December 2022 Non-current assets Receivables Inventory Payables (450,000) (120,000) (90,000) (150,000) Net assets employed £ 80,000 70,000 (40,000) £ 1,000,000 (810,000) 190,000 £ 610,000 110,000 500,000 Trust Metals Limited's manufacturing plant had spare capacity and a proposal is being considered to increase its production quantity and engage a distributor to sell under the distributor's own brand name. The estimated effects of the proposal are: • Additional annual distributor sales of 15,000 boxes at £20 per box. • Cost of direct materials would be reduced as a result of 3% quantity discount on all purchases. • Extra supervisory and administrative staff will be required at a cost of £20,000 per annum. • Market research has indicated that sales to existing retail outlets would fall by 8%, there will be no change in sellin customers. 'o thos • Inventory and payables would increase by £20,000 and £20,000 go || Trust Metals Limited's manufacturing plant had spare capacity and a proposal is being considered to increase its production quantity and engage a distributor to sell under the distributor's own brand name. The estimated effects of the proposal are: • Additional annual distributor sales of 15,000 boxes at £20 per box. • Cost of direct materials would be reduced as a result of 3% quantity discount on all purchases. • Extra supervisory and administrative staff will be required at a cost of £20,000 per annum. • Market research has indicated that sales to existing retail outlets would fall by 8%, there will be no change in selling price to those customers. • Inventory and payables would increase by £20,000 and £20,000 respectively and the credit period extended to supermarkets will be twice that allowed to existing customers. Required: a) Prepare a revised budgeted statement of comprehensive income and statement of net assets employed incorporating the results of the proposal. b) Calculate the effect on profit of each of the changes resulting from the proposal. c) Advise management on the suitability of the proposal making any further calculations you consider necessary and adding any comments or reservations you think relevant. Metals Limited manufactures reinforcement products used in West Midlands Province's civil construction industry. Trust Metals currently sell all its products in its factory shop. Its preliminary budget is provided below. Budgeted Income Statement for the Year Ending 31 December 2022 £ Sales (20,000 boxes) Direct materials Direct labour Variable overhead Fixed overhead Profit Budgeted Net Assets as at 31 December 2022 Non-current assets Receivables Inventory Payables (450,000) (120,000) (90,000) (150,000) Net assets employed £ 80,000 70,000 (40,000) £ 1,000,000 (810,000) 190,000 £ 610,000 110,000 500,000 Trust Metals Limited's manufacturing plant had spare capacity and a proposal is being considered to increase its production quantity and engage a distributor to sell under the distributor's own brand name. The estimated effects of the proposal are: • Additional annual distributor sales of 15,000 boxes at £20 per box. • Cost of direct materials would be reduced as a result of 3% quantity discount on all purchases. • Extra supervisory and administrative staff will be required at a cost of £20,000 per annum. • Market research has indicated that sales to existing retail outlets would fall by 8%, there will be no change in sellin customers. 'o thos • Inventory and payables would increase by £20,000 and £20,000 go || Trust Metals Limited's manufacturing plant had spare capacity and a proposal is being considered to increase its production quantity and engage a distributor to sell under the distributor's own brand name. The estimated effects of the proposal are: • Additional annual distributor sales of 15,000 boxes at £20 per box. • Cost of direct materials would be reduced as a result of 3% quantity discount on all purchases. • Extra supervisory and administrative staff will be required at a cost of £20,000 per annum. • Market research has indicated that sales to existing retail outlets would fall by 8%, there will be no change in selling price to those customers. • Inventory and payables would increase by £20,000 and £20,000 respectively and the credit period extended to supermarkets will be twice that allowed to existing customers. Required: a) Prepare a revised budgeted statement of comprehensive income and statement of net assets employed incorporating the results of the proposal. b) Calculate the effect on profit of each of the changes resulting from the proposal. c) Advise management on the suitability of the proposal making any further calculations you consider necessary and adding any comments or reservations you think relevant.

Answer rating: 100% (QA)

a The revised budgeted statement of comprehensive income and statement of net assets employed incorporating the results of the proposal is shown below ... View the full answer