Required: Prepare the following budgets. (a) Sales budget (4 marks) (b) Production budget (in numbers of Dog, Bunny and Cat) (5 marks) (c) Materials usage budget (for recycled glass and silicates in kgs) (3 marks) (d) Materials purchases budget (in quantities and £s) (4 marks) (e) Labour budget (in hours and £s) (4 marks) (20 marks)
FINANCIAL MANAGEMENT AND CONTROL Accountancy Tuition Centre (International Holdings) Ltd 2005 12 Question 13 MCLELLAN & CO The management of McLellan & Co has been informed that the union representing the direct production workers at one of the factories, where a standard component is produced, intends to call a strike. The accountant has been asked to advise the management of the effect the strike will have on cash flow. The following data have been made available. Week 1 Week 2 Week 3 units units units Budgeted sales 400 500 400 Budgeted production 600 400 Nil The strike will commence at the beginning of week 3 and it should be assumed that it will continue for at least four weeks. Sales at 400 units per week will continue to be made during the period of the strike until stocks of finished goods are exhausted. Production will stop at the end of week 2. The current stock level of finished goods is 600 units. Stocks of work-in-progress are not carried. The selling price of the product is £60 and the budgeted manufacturing cost is as follows. £ Direct materials 15 Direct wages 7 Variable overheads 8 Fixed overheads 18 —– Total 48 —– Direct wages are regarded as a variable cost. The company operates a full absorption costing system and the fixed overhead absorption rate is based upon a budgeted fixed overhead of £9,000 per week. Included in the total fixed overheads is £700 per week for depreciation of equipment. During the period of the strike direct wages and variable overheads would not be incurred, and the cash expended on fixed overheads would be reduced by £1,500 per week. The current stocks of raw materials are worth £7,500; it is intended that these stocks should increase to £11,000 by the end of week 1 and then remain at this level during the period of the strike. All direct materials are paid for one week after they have been received. Direct wages are paid one week in arrears. It should be assumed that all relevant overheads are paid for immediately the expense is incurred. All sales are on credit, 70% of the sales value is received in cash from the debtors at the end of the first week after the sales have been made, and the balance at the end of the second week. The current amount outstanding to material suppliers is £8,000 and direct wage accruals amount to £3,200. Both of these will be paid in week 1. The current balance owing from debtors is £31,200, of which £24,000 will be received during week 1 and the remainder during week 2. The current balance of cash at bank and in hand is £1,000.
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