Individual Assignment 30% (40 marks)
Extract from module learning outcomes. Topic F: Budgeting Understand the process of budget preparation including those relating to cash flow. Upon successful completion of this topic, students should be able to: 1. Describe the purpose of budgeting and budgeting control. 2. Describe the differences between fixed and flexible budgets. 3. Outline the behavioural consequences of a budgetary control system.
Question Spears Limited is engaged in manufacturing of special component (KWQ 12) be used in for calculators. As a step towards reducing uncertainty over the finance needs of the new business, the finance manager has asked you to prepare a cash budget for Spears Ltd for the nine (9) months period from 1 January ...view middle of the document...
Collection from customers within the month of sale = 10% ( deemed to be cash sales) ii. Collection from customers following the month of sale = 50% iii. Collection from customers following the second month of sales = 30% iv. 10% of the sales are estimated to become irrecoverable. b) Direct materials are acquired one month prior to production and are paid the following month of purchase. One special component (KWQ 12) uses 2 units of direct materials. The company keeps stock of 25% of the next months estimated sales. Balance of direct materials as at 31 December 2013 amounts to 140,000 units of direct material at $0.25 per unit. There is no change in the cost direct material.
The Direct Labour cost is paid in the month when such costs are incurred.
The number of hours estimated are as follows: January February March April May June July August September 120,000 125,000 130,000 128,000 142,000 154,000 165,000 178,000 190,000 The company pays $1.50 per direct labour hour. d) Operating Expenses are estimated to be $332,000 per month and this is paid end of the month in which it is incurred. Included in the operating expenses are depreciation charges worth $15,000. Income tax payments of $ 60,000 are due both in March and June 2014. Spears Ltd’s Cash on Hand on 31 December 2013 was $500,000
To receive full credit on this assignment, please show all workings, including formulas and calculations used to arrive at the financial values. Required:
Prepare the following budgets:
1) 2) 3) 4)
Sales Direct Materials Purchase Budget Direct Labour Budget
[4.5 marks] [9 marks] [4.5 marks]
Prepare a monthly cash budget for Spears Ltd for the 9-month period of January to 30 September 2014. [20 marks]
[2 marks] Total 40 Marks
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