Task 2 Viago is also planning to launch a memorabilia chain by the name Memories

Question

Task 2
Viago is also planning to launch a memorabilia chain by
the name Memories Unlimited. The new business will
start production on 1 April, but sales will not start until
1 May. Planned sales for the next nine months are as
follows:
Months Sales Units
May
June
July
August
September
October
November
December
January
500
600
700
800
900
900
900
800
700    
The additional information available includes: o The selling price of a unit will be a consistent
$100 and all sales will be made on one month’s
credit.


o It is planned that sufficient finished goods
inventories for each month’s sales should be
available at the end of the previous month. o Raw materials purchases will be such that there
will be sufficient raw materials inventories
available at the end of each month to meet
precisely the following month’s planned
production. This planned policy will operate
from the end of April. o Purchases of raw materials will be on one
month’s credit. o The cost of raw material is $40 a unit of
finished product. o The direct labor cost, which is variable with the
level of production, is planned to be $20 a unit
of finished production. o Production overheads are planned to be
$20,000 each month, including $3,000 for
depreciation. o Nonproduction overheads are planned to be
$11,000 a month, of which $1,000 will be
depreciation. o Various noncurrent (fixed) assets costing
$250,000 will be bought and paid for during
April. o Except where specified, assume that all
payments take place in the same month as the
cost is incurred.

we are only required to do up to september...


o The business will raise $300,000 in cash from a
share issue in April.
Based on the given data, draw the cash budget for
Memories Unlimited.

Explanation / Answer

Cash collected from sales April may june july august september October Units sold 500 600 700 800 900 900 Selling price per unit($) 100 100 100 100 100 100 Sales Rvenue($) 50000 60000 70000 80000 90000 90000 Collected 50000 60000 70000 80000 Production Budget ending inventory (units) 500 600 700 800 900 900 900 sales 0 500 600 700 800 900 900 Total 500 1100 1300 1500 1700 1800 1800 less: opening inventory (units) 0 500 600 700 800 900 900 production 500 600 700 800 900 900 900 raw material required 1100 700 800 900 900 900 Note: for April raw materials required = RM for producing 500 units + RM required to produce 600 units for May direct material and direct labour cost budget direct matrial cost 44000 28000 32000 36000 36000 36000 Direct material cost paid 44000 28000 32000 36000 36000 Direct labour cost (production *$20 per unit) 12000 14000 16000 18000 18000 Production Overhead Budget production overhead 20000 20000 20000 20000 20000 less: depreciation -3000 -3000 -3000 -3000 -3000 cash cost of production overhead 17000 17000 17000 17000 17000 Non production overhead budget non production overhead 11000 11000 11000 11000 11000 less: depreciation -1000 -1000 -1000 -1000 -1000 Cash codt of non production overhead 10000 10000 10000 10000 10000 Cash Budget April May June July August September Opening Balance 50000 -33000 -52000 -67000 -78000 issue of shares 300000 cash collected from sale 50000 60000 70000 80000 total Cash available - A 300000 50000 17000 8000 3000 2000 Expenses Direct material cost 44000 28000 32000 36000 36000 Direct labour cost 12000 14000 16000 18000 18000 production overhead cost 17000 17000 17000 17000 17000 non production overhead cost 10000 10000 10000 10000 10000 non current fixed assets 250000 Total expense - B 250000 83000 69000 75000 81000 81000 ending balance (A-B) 50000 -33000 -52000 -67000 -78000 -79000

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