uestion 3 production of Koleko for sale. The company has been o years and as suc

Question

uestion 3 production of Koleko for sale. The company has been o years and as such expects the following levels of sales for the next six otal sales for each month for the first three months is 15,000 in units remaining months. Due to recent increase in demand for the t ¢50 per unit in the first four months and Crystal Ltd. is a business that deals in in this item for the past two and Crystal Lid is a business that deals in tiepowing levels ofsales 1s,00 in units and 24,000 units each month for the months product, management believes it can sell the product a increase it further by 10% thereafter The firm's cost of production for a unit of item is as followings Direct material Direct labour Production overheads ¢10 Wages will be paid for as they are incurred whereas production overheads incurred are paid for a month later. Suppliers allow for a month's credit for 50% of each month's purchases. Customers are expected to pay goods sold to them on the following terms: 40% in the month of sales, 30% in the following month and the remaining in the subsequent month. The inventory policy of the firm in relation to finished goods and inputs are as followings: The stock of finished goods at the end of each month is 15% of planned sales for that month whereas that of input is 10% of planned input usage of the following month It may be assumed that sales are evenly spread throughout the month and that depreciation expense of two cedis per unit is included in production overheads Required Produce for each month for the first six months: 1. Sales budget; 2. The production budget; 3. The cash budget. Total: 30 marks

Explanation / Answer

Crystal Ltd. Sales Budget Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Budgeted Sales Units 15000 15000 15000 24000 24000 24000 Sales price per unit 50 50 50 50 55 55 (50*110%) Material needed for production 750000 750000 750000 1200000 1320000 1320000 Crystal Ltd. Production Budget Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Budgeted Sales Units 15000 15000 15000 24000 24000 24000 (+) Ending inventory (15% of next months sales) 2250 2250 3600 3600 3600 3600 (-) Begning Inventory 2250 2250 2250 3600 3600 3600 Budgeted Production 15000 15000 16350 24000 24000 24000 Crystal Ltd. Cash Budget Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Beginning balance 0 37500 66487.5 291112.5 541950 862950 Cash Receipts: Collection from accounts receivables (WN1) 300000 525000 750000 930000 1113000 1284000 Total cash available 300000 562500 816487.5 1221112.5 1654950 2146950 Cash Payments: Purchases 112500 226012.5 241875 308362.5 360000 360000 (225000*50%) (225000*50%)+(227025*50%) (227025*50%)+(256725*50%) (256725*50%)+(360000*50%) (360000*50%)+(360000*50%) (360000*50%)+(360000*50%) Direct labor 150000 150000 163500 240000 240000 240000 (15000*10) (15000*10) (16350*10) (24000*10) (24000*10) (24000*10) Production overhead 120000 120000 130800 192000 192000 0 (15000*8) (15000*8) (16350*8) (24000*8) (24000*8) Total cash Payments 262500 496012.5 525375 679162.5 792000 792000 Closing balance 37500 66487.5 291112.5 541950 862950 1354950 WN1 - Collection from accounts receivables Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Regarding sales of month1 300000 225000 225000 0 0 0 (750000*40%) (750000*30%) (750000*30%) Regarding sales of month2 0 300000 225000 225000 0 0 (750000*40%) (750000*30%) (750000*30%) Regarding sales of month3 0 0 300000 225000 225000 0 (750000*40%) (750000*30%) (750000*30%) Regarding sales of month4 0 0 480000 360000 360000 (1200000*40%) (1200000*30%) (1200000*30%) Regarding sales of month5 0 0 0 0 528000 396000 (1320000*40%) (1320000*30%) Regarding sales of month6 0 0 0 0 528000 (1320000*40%) Total collection 300000 525000 750000 930000 1113000 1284000 Direct Material Purchase Budget Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Budgeted Production 15000 15000 16350 24000 24000 24000 Material requirement per unit 1 1 1 1 1 1 Material needed for production 15000 15000 16350 24000 24000 24000 Budgeted ending inventory (10% of next months production) 1500 1635 2400 2400 2400 2400 Total material requirements 16500 16635 18750 26400 26400 26400 Budgeted begning inventory 1500 1500 1635 2400 2400 2400 Material to be purchased 15000 15135 17115 24000 24000 24000 Direct material cost per unit 15 15 15 15 15 15 Total budgeted direct material 225000 227025 256725 360000 360000 360000

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