Question

Question 3 (15 marks) - Topic 7 Regal International produces three products. Dux. Margrave, and Comte. The company operates a continuous manufacturing process and does not have any work. in-process inventory. Projected sales (in units) for the three products for 20X7 and 20X8 are as follow: 20x7 20X8 Dux 60,000 65,000 Margrave 40,000 35,000 Comte 25,000 30,000 The budgeted opening inventory for each product in a particular year is equal to 10% of the projected sales of the product The per unit requirements of plastic for the three products is provided as follow: Unit Price Quantity per unit Dux Margrave Comte Kg $3.0/kg 1.2 kg 1 kg 0.5 kg Inventory of plastic at the beginning of a year is equal to 20% of previous year's usage. door e dall Required: a) Prepare a production budget for the three products for 20x7. (8 marks) b) Assume the usage of plastic in 20X6 was. 60.000 kg, determine Regal International's direct material budget for plastic for 20x7 (4 marks) c) Explain why many companies believe that cash budget is important. (3 marks)

Answer 1

a	Particulars	Dux	Margrave	Comte
1	Sales Units (Forecasted)	60000	40000	25000
2	Planned ending units of Inventory	6500	3500	3000
3	Total production required (1+2)	66500	43500	28000
4	Beginning inventory of finished goods	6000	4000	2500
5	Units to be Produced (3-4)	60500	39500	25500
b	Direct material budget for 20X7
Particulars		Dux	Margrave	Comte
	Units to be produced (calculated above)	60500	39500	25500
	material used per unit (in Kg)	1.2	1	0.5
	Total material required	72600	39500	12750
	Aggregate material required			124850
c	why cash budget is important
	"Cash is to business what blood is to body"
	There are a number of reasons why cash budget is important , some of which have been discussed below
1	Cash budgets are generally used to estimate that whether the company has sufficient cash balance to upload regular operations .
2	Cash budeget also helps to check that it isn't spent in unproductive way or inefficiently.
3	A cash budget helps avoid a shortage of cash during periods in which a company encounters a high number of expenses i.e It can be planned earlier to tackle such situations
4	Cash budget is very important, especially for smaller companies to allow them to determine the credit amount that it can extend to customers without having problems with liquidity. It helps in framing credit policy.