Qurstion 2 Buumuno Lid has been tornred to buy gold bars and then modified into

Question

Qurstion 2 Buumuno Lid has been tornred to buy gold bars and then modified into jewelry to meet the nes oi its customers. The business would acquire Non-Current Assets costing GH ¢ 110.000 and 5000 bars of gold on the first day of busness. The non-current assets are expected to have a six- year life with a residual value of GHC 2.000 at the end of the period. Buamono Ltd expects sales for the first two months to be 10.000 units with a 10% increase in each month following. The selling price would be GH¢ 1,500 per unit for the first four months and increase it further by 15% thereafter. The firm's cost of production for a unit of item is as followings: Cost of gold bars Direct labour Production overheads GHC 500 GHC 350 GIIC 350 The production overhead per unit includes allocation of depreciation. The annuai depreciation is calculated on a straight line basis and is allocated on a monthly basis. Suppliers of gold bars will allow one month's credit. Sales are settled as follows: 70% in the month of sale and the remaining 30% in the month following. Wages are paid for as they are incurred. Production overheads would be paid for as they are incurred. The stock of finished goods at the end of each month will be sufficient to satisfy 20% of the planned sales of the same month whereas that of gold bars would remain unchanged. It may be assumed that sales are evenly spread throughout the month. Required Produce for each month of the first six months of trading: 1. Sales budget 2. Production budget 3. The Cash budget

Explanation / Answer

1 Sales budget Month 1 2 3 4 5 6 Total Estimated sales (units) 10000 10000 11000 12100 13310 14641 71051 (10000*110%) (11000*110%) (12100*110%) (13310*110%) Selling price 1500 1500 1500 1500 1725 1725 (1500*15%) (1500*15%) Estimated sales (GH) 15000000 15000000 16500000 18150000 22959750 25255725 112865475 2 Production budget Month 1 2 3 4 5 6 Total Estimated unit sales 10000 10000 11000 12100 13310 14641 Add:Ending inventory 2000 2000 2200 2420 2662 2928 (10000*20%) (10000*20%) (11000*20%) (12100*20%) (13310*20%) (14641*20%) Total production required (A)+(B) 12000 12000 13200 14520 15972 17569 Less:Beginning inventory 5000 2000 2000 2200 2420 2662 Products to be manufactured 7000 10000 11200 12320 13552 14907 68979 3 Cash budget Month 1 2 3 4 5 6 Total Beginning balance (A) 0 5601500 10103000 13314500 16747000 22618925 Add:Receipt from customers 70% in the month of sale 10500000 10500000 11550000 12705000 16071825 17679007.5 79005833 (15000000*0.70) (15000000*0.70) (16500000*0.70) (18150000*0.70) (22959750*0.70) (25255725*0.70) 30% in the month following sale 4500000 4500000 4950000 5445000 6887925 26282925 (15000000*0.30) (15000000*0.30) (16500000*0.30) (18150000*0.30) (22959750*0.30) (B) 10500000 15000000 16050000 17655000 21516825 24566932.5 105288758 Less:Payment to suppliers in the month following purchase 3500000 5000000 5600000 6160000 6776000 (7000*500) (10000*500) (11200*500) (12320*500) (13552*500) Payment towards wages 2450000 3500000 3920000 4312000 4743200 5217450 (7000*350) (10000*350) (11200*350) (12320*350) (13552*350) (14907*350) Payment towards production overhead 2448500 3498500 3918500 4310500 4741700 5215950 (Note:1) (7000*350)-1500 (10000*350)-1500 (11200*350)-1500 (12320*350)-1500 (13552*350)-1500 (14907*350)-1500 © 4898500 10498500 12838500 14222500 15644900 17209400 Ending balance (A)+(B)-© 5601500 10103000 13314500 16747000 22618925 29976457.5 Notes: 1. Depreciation=(Acquisition cost-salvage value)/Life of asset=(110000-2000)/6=18000 Per moth=18000/12=1500

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