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.

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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)

Answer 1

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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