Question

Question 1: Budget (20 marks in total)

You are now preparing the budget for the Sheep Drench department for the months of April and May. Sheep Drench manufacturing costs have been budgeted as follows:

Direct materials				$ 3.0	per unit
Direct labour				$ 1.5	per unit
Factory overhead
	Variable			$ 0.25	per unit
	Fixed			$ 5,000	per month
	(Includes $1000 depreciation)

Selling and administrative expenses, including depreciation of $400 per month, are all fixed and total $2500 per month.

Other information is as follows:

There is an opening inventory of direct materials of $22,500 purchased in February.

The selling price of the product has been set at $26 per unit. Collections are scheduled as follows: 70% in month of sale, 28% in month following sale, and 2% uncollectable.

The inventory of direct materials will be maintained at 25% of the next month's production requirements. 70% of each month's purchases will be paid for in the month of purchase, and the remainder in the following month. A cash discount of 2% will be taken on all purchases. Opening inventory at the beginning of March was $22,500 purchased in February.

The direct labour payroll, factory overhead and selling and administrative expenses will be paid for in the month incurred.

Sales and production for the March, April, May and June have been scheduled as follows:

	Units Sold	Units Produced
March	8000	11000
April	7000	10000
May	10000	12000
June	9000	8000

Required:

1. Use a spreadsheet to prepare a budget showing the cash receipts and cash payments for the months of April and May with supporting calculations. Paste the result view and formula view into your Word document.

Answer 1

Answer along with supporting calculations is given below: