Mira Textile Ltd., is a leading local brand selling customized T-shirts. The company has a wide consumer base, and it delivers its textile products in four major Indian cities –Delhi, Mumbai, Pune, and Chennai. Mr. Anuj, CEO of Mira Textiles Ltd., analysed the current period cost and found discrepancies therein. He called a meeting with the management team consisting of head of all departments, to examine the root cause for the cost variance. During the discussion with the core members, he found that the actual cost incurred was much higher than that budgeted during the previous quarter. The team deliberated on probable cause of variance and analysed that the projected figures of demand of t-shirt, its cost, sales revenues, quantity and price of raw materials, labor may have been wrongly estimated. The actual cash balance at end of current quarter was also less than the budgeted cash balance, leading to cash deficit balance, this was despite a growth in actual sales revenue as compared to previous quarter.

Mr. Anuj doesn’t want the variances in budgeted number in next quarter, so he appoints a cost consultant to prepare budget for next quarter, i.e., Jan- March 2022. The management has decided to keep the target selling price of ₹150 per t-shirt for the next quarter. The current quarter closing inventory of finished goods is 3000 units and raw material closing inventory is 20,000 mtrs. of cotton cloth as of the quarter ending March 31.

The company currently operates at 60% plant capacity at the operational level and Mr. Anuj wants to extend their production level to 100% of the capacity level.

Assuming that you are hired as a cost consultant by Mr. Anuj you are required:

1. To prepare sales, production, material and cash budget.
2. Will you suggest extending the plant capacity?

Note: You can make assumptions for the sales quantity, opening and closing inventory, credit period allowed to customers and credit period availed from suppliers, material required for each unit of product.

For any other assumption that you wish to make, please write it explicitly.

Answer rating: 100% (QA)

Yes I would recommend extending the plant capacity to 100 as it would help the c... View the full answer