QUESTION 3 30 MARKS Namic Inclusive CC is currently preparing budgets for the th

Question

QUESTION 3 30 MARKS  


Namic Inclusive CC is currently preparing budgets for the three months of the trading year. You have been provided with the following information:

Trading;

January February March Sales in Units 50 000 units 55 000 units 60 000 units

Sales are expected to increase to 75 000 units per month from 1 April as the company increases production capacity. The selling price for each unit has been set at N$90.00 per unit. All sales are on credit. 30% of sales is received in the month that the sale is made and the balance is received in the following month.

The following notes were also presented.

1. The cost of raw material for each unit of production is N$ 30.00. Namic inclusive cc holds a closing stock equal to 40% of raw material required for the next month`s production. Raw material is paid in the month following the purchase.

2. The company values closing stock of units produced on a variable costing basis. Company policy is to hold a maximum of 20% of finished units required for sales in the forthcoming month as closing stock.

3. Labour cost of production are variable at N$ 20.00 per unit. All costs are paid in the month incurred.

4. Other manufacturing overhead are N$ 8.00 per unit variable and N$ 12.00 per unit fixed. The fixed component is based on a production level of 55 000 units per month. Depreciation amounting to N$ 30 000.00 per month is included in this figure. All overheads are paid for the in the month incurred.

5. Other company costs excluding interest payable amount to N$ 5.00 variable per unit sold and further N$ 250 000.00 fixed per month. These costs are paid for in the month incurred.

Page 11 of 12

Statement of Financial Position as at 01 January 2017

Issued Share Capital N$ 10 000 000 Accumulated Profit N$ 1 517 000 N$ 11 517 000 Fixed Assets Land and Building N$ 5 000 000 Machinery and equipment N$ 2 750 000 Other Assets N$ 1 000 000 Current Assets Stock – Raw Material N$ 612 000 Stock – Finished goods N$ 580 000 Debtors – Sales N$ 2 835 000 Cash and Bank N$ 180 000 Less: Current Liabilities Creditors – Raw Material N$ 1 440 000 N$ 11 517 000

The company will raise long term loan on the 01 February 2017 for N$ 500 000 at an annual interest rate of 12% payable monthly as incurred. The interest charge has not been included in the information provided above. Interest is paid in the month after it is incurred.

Machinery costing N$ 350 000 will be purchased on 01 March 2017, monthly depreciation on the asset is budgeted to be N$ 5000.00 per month. The depreciation has not been accounted for in the information provided above.

REQUIRED:

3.1 Prepare a sales budget (3) 3.2 Prepare a production budget (4) 3.3 Indicate the closing value of debtors and closing stock for the months of January to march 2017 inclusive (3) 3.4 Prepare a material purchases budget by units as well as in value also indicate the closing creditors budget for each month of January to March 2017 (10) 3.5 Prepare a cash budget for each month of January to March 2017 inclusive (10)

Explanation / Answer

Rawmaterial needed for one unit not given, assumed it as 1 per unit.

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Rawmaterial needed for one unit not given, assumed it as 1 per unit.

1. Sales budget, including a schedule of expected cash collections. Jan Feb Mar Quarter April Estimated no of Units 50000 55000 60000 165000 75000 Selling Price per Unit 90 90 90 90 90 Total Budgeted Sales 4500000 4950000 5400000 0 14850000 6750000 Collection Schedule: Same Month 30% Accounts Receivable Next Month 70% Accounts Receivable-Last Year 835000 835000 Jan 1350000 3150000 4500000 Feb 1485000 3465000 4950000 Mar 1620000 1620000 3780000 0 Total Estimated Collection 2185000 4635000 5085000 0 11905000 2. Production Budget Jan Feb Mar Quarter April Expected units to be sold 50000 55000 60000 165000 75000 add: desired ending inventory 11000 12000 15000 15000 15000 Total Units available for sale 61000 67000 75000 180000 90000 Less: Beginning invenory 10000 11000 12000 10000 15000 Production Needed 51000 56000 63000 0 170000 75000 3. Direct materials budget, including a schedule of expected cash disbursements for materials. Jan Feb Mar Quarter April Material Needed for production Poung per Gnome 1 1 1 1 1 Total Material Needed Prod*10 51000 56000 63000 170000 75000 add: desired ending inventory 22400 25200 30000 0 Total Units available for usage 73400 81200 93000 170000 Less: Beginning invenory 20400 22400 25200 20400 Total Purchases to be made 53000 58800 67800 149600 Per Unit Purchase Price                                     30.00                                                  30.00         30.00         30.00 Total Purchases in $ 1590000 1764000 2034000 4488000 Schedule for Payment: Accounts Payable Same Month 0% Next Month 100% Accounts Payable-Last Year 957000 957000 Jan 0 1590000 1590000 Feb 0 1764000 1764000 Mar 0 0 2034000 0 Total Estimated Payment 957000 1590000 1764000 0 4311000 4. Direct Labor Budget Jan Feb Mar 0 Quarter Labor Hours Needed for production Hours per Gnome 6 Total Hours Needed Prod*6 0 0 0 0 0 Per Unit Cost 20 20 20 16 Total Labor Cost 1020000 1120000 1260000 0 3400000 6. Ending Finished Goods Inventory Budget Predetermined overhead Rate (490000*4)/510000                                       3.84 Hour/Unit needed Cost per unit/Per Hour Total Cost per unit Direct Material 30 Direct Labor 20 Variable Overhead 8 Fixed Overhead 12 Total Cost per Unit 70 Finished Goods-Units 15000 Finished Goods-Value 1050000 7. Cash Budget Jan Feb Mar Quarter Beginning Cash Balance 180000 -624000 754000 180000 Add: Collection from Customers 2185000 4635000 5085000 11905000 Add: Loan 500000 500000 Total Cash Available 2365000 4511000 5839000 12585000 Less: Cash disbursment for -Purchase of Inventory 957000 1590000 1764000 4311000 -Direct Labor 1020000 1120000 1260000 3400000 - Variable Overhead 2*Prod 102000 112000 126000 340000 - Fixed Overhead (8*55000)-30000 410000 410000 410000 1230000 -Selling and Admin (5*Saleunit)+250000 500000 525000 550000 1575000 -Machine 350000 350000 0 Total Cash Disbursment 2989000 3757000 4460000 11206000 Excess/(Deficiency) -624000 754000 1379000 1379000 Financing: Borrowing 0 Repayments 0 Interest 0 Total Financing 0 0 0 0 Ending Cash Balance -624000 754000 1379000 1379000

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