CHAPTER 16 Sample Question 80 Mark Question
Production and Cash Budgeting Duggan Ltd is preparing to set up a business on 01/01/2016 to manufacture a single product. Below is the sales budget for the company for the first six months of 2016:
Jan Sales Unit 5,000 Feb
Sales Budget Mar
5,500 5,800 Apr 6,000 May 6,200
(i) The cash collection pattern from sales is expected to be as follows: Cash Customers
June 6,400
Sales Revenue 150,000 165,000 174,000 180,000 186,000 192,000 20% of sales revenue will be for immediate cash
Credit Customers 80% of sales revenue will be from credit customers. These debtors will pay their bills, 50% in the month after sale and the remainder in the second month after sale.
(ii) The product requires 5 kg of material A which costs €1.20 per kg. (iii) Stocks of finished goods are maintained 50% of the following month’s requirement. (iv) Stocks of raw materials sufficient for 10% of the following month’s in kgs, are held at the end of each month.
(v) One month’s credit is received from suppliers. (vi) Business expenses will be settled as follows:
Projected Costs Capital Costs
Wages €25,000 per month, payable as incurred. Variable overheads €4 per unit, payable as incurred. Fixed overheads (including depreciation) €30,000 per month, payable as Incurred.
Equipment will be purchased in January costing €36,000 which will have a useful life of 6 years. A loan of €20,000 will be secured at 6% per annum to help finance this purchase. Interest will be paid monthly with capital repayments to begin in January 2017.
You are required to: (a) Prepare a Production Budget for the four months January to April, 2016 [11 Marks] (b) Prepare a Materials Purchase Budget in units and € for the four months January to April, 2016 [13 Marks]
(c) Prepare a Cash Budget for the four months January to April, 2016 [37 Marks] (d) Prepare a budgeted Trading Profit and Loss Account for the four months ending 30/4/2016 (Budgeted cost of a unit of finished goods is €25) [13 Marks]
(e) What is a Cash Budget? Outline the advantages of preparing a budget. [6 Marks]
This is a mixture of a Production Budget and a Cash Budget.
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