Question

Question 4 (22 marks) Glamping Products Pty Ltd is a supplier of modern camping beds to the retail sector They are currently designing their first forward budgeting reports, and have asked for your assistance in preparing some sample budgets for their internal management use. They have provided you with the following information: Estimated sales units: Month (2019) June July Sales units 1,000 900 Month (2019) August September Sales units 1,000 1,000 The selling price per unit is $80, which will remain constant over the budget period. Inventories of finished goods as at 31 May is 300 units. From June, the company would like to maintain an inventory of finished goods at a level equal to 40% of the following month's sales units. There is no WIP. Inventories of direct material (fabric) used to manufacture the beds as at 31 May is 2000 metres (at $5 per metre). For the reminder of the budget period, the company would like to maintain enough inventory of direct materials at the end of each month to cover 50% of the following month's production needs. Budgeted manufacturing costs are as follows: Direct materials (5 metres per bed at $5 per metre) $25 per unit Direct labour (0.5 hours per bed at $26 per hour) $13 per unit Variable overhead (allocated at $8 per DLH) $4 per unit Fixed overhead (including depreciation of $2000) $10,000 Selling and administrative expenses are expected to be $8750 per month All sales are made on credit, with 50% of customers paying in the month of sale, 45% paying in the following month, and 5% being uncollectable. Purchases are paid 50% in the month of purchase, and 50% the following month. All other relevant manufacturing costs as well as selling and administrative expenses are paid as incurred. The opening cash balance as at 1 July 2019 is $5000. • Required: Prepare the following budgets for the company a) Production Budget for the months of June and July. (4 marks) b) Direct Material Purchases Budget for the months of June and July (in both metres and dollars). (9 marks) c) Cash Budget for the month of July only. (9 marks)

Answer 1

a 1000 PRODUCTION BUNGET: - June Estimated Sales (units) 1000 Add. Gnuentory to be maintained 360 (407.4 900) Les: opening Incentery Units to be produced 1060 Tuly August gool you - 400 (407.41000) (407,04 rooo) (360) (400) (300) 940 1000 b) DIRECT MATERIAL PURCHASES BUDGET (metres and Dollars) (metres) o June [ Units to be produced 1060 - Direct mat required for production 5300 (1060x5 J Add: Direct mat inventory to be maintained 2350 (4700 X50%) Less: Opening Inventory of om (2000) - Direct material to be puchased 5650m (metres July 9400 470o (940x5 ) 2500 (1000x 5 x50%) (2350) 485om ३ २५.२० ($) (6 Spumetre) $ 20.250

C) CASH BUDGET (1) cash received from custiones & for July Sales = 900x80x50%= 36000 for Tune sales = 1000 480 x 45% 36000 $ 72000 — @ 72000 I Cash paid for leuchases & - for July Pruchass= 24250 X50% = 8 12125 for Jane Purchases = 28250 X50% = 14125 $ 262.50 B I other Expenses ) Labour = 26 40.5x quo = 12220 Variable OH= 4x940 I 3760 fined OH = 10000-2000 = 80000 $ 95,980— Cash Budget - ② + ① - ② = 262.50 +95980- 5000-72000 = $ 45,230