16


BUDGETING


Question 15 McLoughlin 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 5,500 Feb


Sales Budget Mar


6,500 7,500 Apr 8,500


(i) The cash collection pattern from sales is expected to be: Cash Customers


May 9,500 June 10,500 Sales Revenue 275,000 325,000 375,000 425,000 475,000 525,000 30% of sales revenue will be for immediate cash.


Credit Customers 70% of sales revenue will be from credit customers. These debtors will pay their bills, 60% in the month after sale and the remainder in the second month after sale.


(ii) The product requires 3 kg of material A which cost €2 per kg. (iii) Stocks of finished goods are maintained 60% of the following month’s requirement. (iv) Stocks of raw materials sufficient for 10% of the following months in kgs are held at the end of each month.


(v) 50% of supplies are paid for with immediate cash. The remainder is paid for in the month after purchase.


(vi) Business expenses will be settled as follows: Projected Costs


Wages €22,000 per month, payable as incurred. Variable overheads €2 per unit, payable as incurred. Fixed overheads (including depreciation) €60,000 per month, payable as incurred.


Capital Cost


Equipment will be purchased in January costing €48,000 which will have a useful life of 4 years. A loan of €40,000 will be secured at 6% per annum to help finance this purchase. Interest will be paid monthly. The first capital repayment of €10,000 will be made in June and bi-annually thereafter.


You are required to: (a) Prepare a Production Budget for the four months January to April 2016 (b) Prepare a Materials Purchase Budget in units and € for the four months January to April 2016


(c) Prepare a Cash Budget for the four months January to April 2016 (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 €15)


16


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