Question:
Company A is preparing budgets for the quarter ending September 30. You need to prepare the master budget (sales budget up to budgeted Statement of Financial Position) for Company A for July, August and September.
Related information is shown as below:
1. Budgeted sales for the next few months are:
|
Month
|
Units
|
|
May
|
15,000
|
|
June
|
20,000
|
|
July
|
30,000
|
|
August
|
40,000
|
|
September
|
50,000
|
|
October
|
35,000
|
|
November
|
25,000
|
2. The selling price is USD 12 per unit.
3. All sales are on credit and the collection methods are:
- 50% collected in the month of sales
- 30% collected in the month following sales
- 20% collected in two month following sales
4. The management at Company A determines the ending inventory in units to be equal to 20% of the following month's budgeted sales.
5. To produce one unit of output, 2 kilograms of direct material are needed.
6. Company A decides to have direct materials on hand at 10,000 kilograms every month
7. Cost of direct material is estimated at USD 1.50 per kg.
8. The payment of direct materials is below:
- 50% purchases is paid in the month of purchase
- 50% purchases is paid in the following month of purchase
9. To produce one unit of output, 0.1 hours of direct labor are required.
10. Company A pays USD 8 per hour to its direct labor.
11. All wages are paid at the end of the month.
12. Manufacturing is divided into variable and fixed overhead.
13. Variable overhead is applied to each unit of output on the basis of direct labor hours.
14. The variable overhead rate is USD 10 per direct labor hour.
15. Fixed overhead is estimated at USD 40,000 per month.
16. Ending Finished Goods Inventory is made up from direct material, direct labor and manufacturing Overhead.
17. Cost of Goods Sold is computed based on the unit production cost of USD 5.79 per unit.
18. Selling and administrative cost is divided into variable and fixed components.
19. Variable selling and administrative cost is estimated at USD 1.50 per unit sold.
20. Fixed selling and administrative cost is estimated at USD 50,000 per month, where USD 5,000 is the depreciation and it is not a cash expense.
21. Company A has the following cash policy :
- Minimum cash balance of USD 50,000 is required for every month.
- Any deficiency of cash will be covered by loans with repayment in the following month.
- The interest on loan is charged at 15% per year.
- Purchased an equipment in August totalling USD 150,000.
- Cash balance on 1 July is USD 55,000.
22. Company A's account balances are as follows:
USD
Property 458,047.50
Equipment 150,200 (net)
Ordinary Shares 500,000
Retained earnings 335,777.50