The VF Company has produced the following information from which a cash budget for the first six-month of the next year is required. The company makes a single product that sells for $50 and variable cost of each unit is:
Material .......... $26
Labour..............$8
Overhead.........$2
Fied costs,excluding depreciation, are budgeted at $5,500 monthly payable on the 23rd of each month.
Other details:
-Sales in units for the last two months of the previous year are:
November 1000 December 12000
-Budgeted sales in units for the period January to June are:
January 1400, February 1600, March1800, April 2000, May 2000, June 2600
-Production quantities (units) for the last two months of the previous year are:
November 1200, December1400
-Budgeted production in units for the period January to June is:
January 1600, February 2000, March 2400, April 2600, May 2400, June 2200
Additional Information:
1. Wages are paid in the month when output is produced.
2. Variable overheads are paid as follows: 50% in the month when the cost is incurred and the balance the following month
3. Supplies of materials are paid two months after the materials are used in production
4. Customers are expected to pay at the end of the month following the sale
5. A new machine is scheduled to be purchased in January costing $34,000; this is to be paid for in February
6. An old machine is to be sold in February for cash of $1,200
7. The company expects to have a cash balance of $35,000 on January 1st.
8. A 6-month loan of $15,000 will be obtained in march.
9. No minimum cash balance policy is in effect
REQUIRED:
a) A cash budget for the six months January to June
b) The debtors' and creditors' balances t the end of the period.