Case Analysis (1 30)

Case analysis (1*30)
A manufacturing company has estimated sales for coming year, the sales budget by product line
in units for next year 3,000, 4,000, 5,000, 6,000 and 6,000 respectively for coming January,
February, March, April of 2018 and selling price per unit to be estimated $150. With the help of
operation manager, they reached to the conclusion and estimates that each unit of finished goods
required 2 kg of raw materials @ $ 20 per kg, 0.5 DLH per unit @ $100 per DLH, other variable
manufacturing cost per unit $ 8 and direct expenses per unit $ 12. Fixed manufacturing cost per
month $ 75,000 including depreciation of $25,000. They estimates 20% sales would be on cash,
50% of credit sales collected on same month, 30% on next month and remaining on next
following month with 2 % bad debts. 50% of purchases are to be Payable on next month. Lag in
payment of wages 15 days, other variable manufacturing costs are payable on next month and
fixed manufacturing cost payable on same month. Variable selling and administrative cost per
unit to be estimated $ 6 on sales payable on same month. Fixed assets costing $ 3,00,000 plan to
be purchase on January but planned to be pay half on same month and remaining on next month.
Inventory policy of the company is to keep sufficient inventory required for next month
production and sales needs. Short deficiency of cash loan taken from commercial bank in
multiple of 20,000 interest payable on repaid @ 12 % p. a. The information regarding the last
year financial position is as follows:
Liabilities Amount $ Assets Amount $

Share capital 5,90,000 Fixed assets 6,00,000
Share premium 60,000 10% investment 5,00,000
8% debenture 3,00,000 Account receivable
10% long-term bank loan 3,00,000 November 48,000
Account payable 60,000 December 1,80,000 2,28,000
Outstanding wages 50,000 Inventory
Outstanding other variable mfg. cost 16,000 Raw materials 6,000 kg 1,20,000
Outstanding direct expenses 24,000 Finished goods 2,000 units 2,20,000
Retained earnings 2,93,000 Closing cash (minimum) 25,000
16,93,000 16,93,000
Required:
a. Prepare production budget.

b. Prepare raw materials uses purchase and cost budget for 3 months ending March
c. Direct Labour hours and cost budget for first three months ending March.
d. Prepare a schedule of expected cash collections and disbursements for three
months
e. Cost of goods sold budget for three months ending March.
f. Income statement for three months ending March.
g. Budgeted balance sheet for three months ending March. (2+3+2+12+4+4+3)
2. The schedule of the sales forecasts of the finished goods for the first three months of
the year 2017 and their probability are as follows:
Jan Prob. Feb. Prob. Mar. Prob. Apr. Prob. May. Prob.
40,000 0.30 30,000 0.50 45,000 0.20 50,000 0.50 60,000 units 0.40
units 0.50 units 0.30 units 0.50 units 0.25 50,000 units 0.25
30,000 0.20 50,000 0.20 50,000 0.30 60,000 0.25 40,000 units 0.25
units units units units
25,000 25,000 40,000 40,000
units units units units
The factory sells each finished goods @ $ 100 per unit. 20% of sales would be expected on cash,
80% on credit. 50% of credit sales realized on same month, 30% on next month and remaining
on next following month with 1% uncollectable debt to be consider. Each finished goods unit
needs 2 kg of raw materials @ $ 10 per kg one month credit allowed by suppliers. Each unit of
finished goods required 90 minutes. The wage rate per direct labour hour would be $ 20. The
wage payments will be paid in lag of 15 days.
The variable factory overheads will be $ 10 per unit payable on next month and variable
selling and distribution overheads will be $ 8 per unit payable on same month. The monthly fixed
factory overheads will be $ 4,50,000 inclusive of monthly depreciation. Monthly fixed selling
and distribution overheads will be $ 1,50,000. The overheads payments should be made when
such expenses arise. The plant depreciates @ 10 % per annum on straight line method. Plant
assets costing $ 4,00,000 to be purchase on early January.
The factory has a line of credit agreement with its commercial bank to make up cash
shortage of any month in the multiples of $ 10,000 and repayments at the end of the month out of
surplus cash balance in the multiples of $ 5,000. The interest on the borrowing will be 12% per
annum payable at the time of repayment.
The factory maintains its raw materials and finished goods stock sufficient to meet next month’s
raw materials usages and sales respectively. The monthly minimum cash balance should not fall
below $ 20,000.
The balance sheet as of December 2016 compiled by the factory’s budget committee for
Master Budget preparation is as follows:
Equity share capital $45,00,000 Plant $ 20,00,000
Profit and loss account 10,05,000 Finished goods stock (39,000 23,40,000
Payable account 8,20,000 units) 7,80,000
Outstanding wages 5,85,000 Raw Material stock (78,000 kg) 4,80,000
Outstanding variable mfg 3,90,000 Investment 50,000
Accumulated depreciation 3,00,000 Goodwill
Account Receivables
November $ 18,80,000
4,80,000 70,000
December
$14,00,000
Cash
$76,00,000 $76,00,000
Required:
a. The expected sales for first three month of 2017.
b. Sales budget for first three month of 2017.
c. Production budget for first three month of 2017.
d. Material purchase cost budget for first three month of 2017.
e. Labour cost budget for first three month of 2017.
f. Cash collectins and disbursements budget for first three month of 2017.
g. Projected income statement for first three month of 2017.
h. Projected balance sheet as on 31 March 2017. (2+2+3+3+1+10+6+4)

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Case analysis (1*30)

Liabilities Amount $ Assets Amount $

a. Prepare production budget.

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