Question

Assessment Task 3 - Operating & cash budgets for a manufacturer Assessment scenario Sparks Pty Ltd has requested your assista nce in preparing their budgets. The demand for the product they manufacture and sell is seasonal and peaks in the third quarter. They have provided you with the following information relating to their forecasts and expectations for 2018 and the first half of 2019: Spark's product retails at $8 per unit. Budgeted sales for the 2018 year and first half of 2019 are as follows: 2018 year 2019 year Q1 Q2 Q3 Q4 Q1 Q2 Budgeted Sales (units) 40,000 60,000 100,000 50,000 70,000 80,000 Seventy-five per cent of sales are collected in the same quarter the sales are made and the remaining 25% in the following quarter. On 1 January 2018 the company will have $65 000 worth of accounts receivable which will all be collected in the first quarter of the year. Sparks Pty Ltd would like their ending inventory of finished goods at the end of each quarter to be equal to 30% of the budgeted sales for the next period. At the end of 2011 an ending balance of 12 90 units was in stock. Each unit requires 5 kilos of raw materials. The ending balance of raw materials should equal 10% of the following quarter's production needs. At the end of 2011 an ending balance of 23 000 kilos of raw materials was in hand. The cost of raw materials is $0.80 per kilo. Sixty per cent of purchases made are paid for in the same quarter and the remaining 40 % are paid for in the following quarter. The accounts payable balance relating to raw materials on 1 January 2018 will be $81 500. This will all be paid in the first quarter. Assessment Questions Using the information provided, prepare the following budgets and schedules for 2018 and the first half of 2019 showing both the quarterly and total amounts: 1. Sales budget 2. Production budget 3. Purchases budget for direct materials 4. Cash collection schedule 5. Cash disbursement schedule.

Answer 1

1.

Sales Budget	2018					2019
	Q1	Q2	Q3	Q4	2018	Q1	Q2	First Half
Sales Units	40000	60000	100000	50000	250000	70000	80000	150000
Sales Price per unit	$                 8.00	$                    8.00	$              8.00	$             8.00		$            8.00	$             8.00
Sales Revenue	$          320,000	$             480,000	$       800,000	$      400,000	$    2,000,000	$     560,000	$      640,000	$      1,200,000

2.

Production Budget
	2018					2019
	Q1	Q2	Q3	Q4	2018	Q1	Q2	First Half
Sales Units	40000	60000	100000	50000	250000	70000	80000	150000
Add : Desired Ending Inventory	18000	30000	15000	21000	21000	24000
Total Units required	58000	90000	115000	71000	271000	94000
Less : Beginning Inventory	12000	18000	30000	15000	12000	21000
Production Required	46000	72000	85000	56000	259000	73000

3.

Purchases Budget
	2018
	Q1	Q2	Q3	Q4	2018	Q1
Production Required	46000	72000	85000	56000		73000
Raw Material Per unit (Kilos)	5	5	5	5		5
Raw Material for Production	230000	360000	425000	280000		365000
Add : Desired Ending Inventory	36000	42500	28000	36500
Total Needs	266000	402500	453000	316500
Less : Beginning Inventory	23000	36000	42500	28000
Raw Material Purchase Units	243000	366500	410500	288500
Cost per kilo	$                 0.80	$                    0.80	$              0.80	$             0.80
Raw Material Purchase	$          194,400	$             293,200	$       328,400	$      230,800	$    1,046,800

4.

Cash Collection Schedule
	2018
	Q1	Q2	Q3	Q4	2018
Collection for Current Quarter	$          240,000	$             360,000	$       600,000	$      300,000	$    1,500,000
Collection for Previous Quarter	$             65,000	$               80,000	$       120,000	$      200,000	$       465,000
Total Collections	$          305,000	$             440,000	$       720,000	$      500,000	$    1,965,000

5.

Cash Payment Schedule
	2018
	Q1	Q2	Q3	Q4	2018
Payments for Current Quarter	$          116,640	$             175,920	$       197,040	$      138,480	$       628,080
Payments for Previous Quarter	$             81,500	$               77,760	$       117,280	$      131,360	$       407,900
Total Payments	$          198,140	$             253,680	$       314,320	$      269,840	$    1,035,980