Asuo Ltd, plans to produce and sell 8,000 sachets of sugar during the year 2003.

The selling price is

expected to be ¢30 per sachet. 1 unit of sachet requires 4 units of material A, 3 units of Material B
and 2 units of Material C. Opening stock of raw materials is as follows:

Units Amount

Material A 45,000 270,000

Material B 35,000 70,000

Material C 25,000 50,000

The closing stock for each raw material is to be at a level which would meet the production
requirement of 7,000 sachets of sugar. There is no opening or closing stocks of sugar. Purchase
prices for all raw materials during the year 2003 are expected to be 30% higher than the prices
reflected in the opening stock values. Sales and purchases are on credit and the opening balances
being as follows: closing stock for each raw material is to be at a level which would meet the
production requirement of 7,000 sachets of sugar. There is no opening or closing stocks of sugar.

Debtors 350,000

Creditors 270,000

The Company expects to receive N525,000 from debtors during the period and to pay N235,000.

Required: Prepare a budget for raw material purchases and calculate the closing balances for
debtors and creditors.

Sakyi Ltd. produces two products, Cake and Bluna, which use the same raw materials, oil and fat.
One unit of Cake uses 3 litres of oil and 4 kgs of fat. One unit of Bluna uses 5 litres of oil and 2kgs of
fat. A litre of oil is expected to cost N3,000 and a kg of fat N7,000.

Budgeted Sales for 2019 are 8,000 units of Cake and 6,000 of Bluna; finished goods in stock at
1/1/2019 are 1,500 units of Cake and 300 units of Bluna, and the company plans to hold stocks of
600 units of each product at 31/12/19.

Stock of raw materials are 6,000 litres of oil and 2,800 kgs of fat at 1/1/19, and the company plans
to hold 5,000 litres and 3,500 kgs respectively at 31/12/19. The store’s manager has suggested that a
provision should be made for damages and deterioration of items held in store as follows:

Cake - loss of 50 units

Bluna - loss of 100 units

Oil - loss of 500 litres

Fat - loss of 200 kgs.

You are required to: (a) Prepare a material purchases budget for the year 2019

(b) Distinguish between Functional Budgets and Master Budgets

Cema Ltd. manufactures two products C1 and C 2. The products use the same raw materials RM1
and RM2 but in different proportions: One bag of C1 uses 20 kg of RM1 and 30 kg of RM2. One bag
of C2 uses 25 kg of RM1 and 25 kg of RM2.

The following estimates are relevant for next year:

(i) Raw Materials RM1 RM2

Cost per kilo N5,000 N4,000

Opening stock (kg) 10,000 8,000

Closing stock (kg) 2,000 1,000

Provision for loss (kg) 500 300

(ii) Finished Products C1 C2

Sales (bags) 200,000 150,000

Selling price per bag N2,500 N2,000

Opening stock (bag) 40,000 25,000

Closing stocks (bag) 10,000 5,000

(iii) Direct labour hours required per unit of each product 8hrs 5 hrs

Standard wage rate of direct labour is N5,000 per hour.

You are required to prepare (i) (a) Sales budget (2 marks) (b) Production budget (3
marks) (c) Material Purchase Budget for next year (4 marks) (d) Direct labour Budget for next year
(4 marks)

Vaney Company Ltd. produces household items for the domestic market. The company suffered
theft in its offices, losing all cash on hand in the process. On the date of the theft, the company had
an overdraft balance of N125 million with its bankers. Due to the good working relationship that
exists between the company and its bankers, a short-term loan of N500 million was granted to the
company on 31st December, 2003, on the following terms:

Facility - Short Term Loan

Duration - One year

Interest - 27.504% per annum simple interest.

Repayment - Principal payment in 4 equal quarterly installments - Interest payable

monthly in arrears.
(i) From the following additional information, prepare a cash budget for the company for the six
months ended 30th June 2004.

Production in units:

2003 2004

Nov Dec Jan Feb March April May June

5,000 6,000 5,000 8,000 6,000 5,000 5,000 6,000

Raw materials used for the production cost N10,000 per unit. Of this 25% is paid in the same month
as production and 75% in the month following production.

Direct labour costs of N1,000 per unit are payable in the same month as production whilst variable
expenses are N6,000 per unit, payable 50% in the same month as production and the remainder in
the following month.

Sales at N250,000 per unit are as follows:

2003 2004

Oct Nov Dec Jan Feb March April May June

200 600 600 768 720 640 500 500 560

All sales are on credit and debtors take an average credit period of two months. Fixed overheads are
N18 million per month, payable each month. A new packaging equipment costing N84 million is to
be paid for equally in March and September 2004. It has a useful life of 5 years and a straight-line
depreciation policy. The depreciation of this equipment has not been included in the fixed overheads
above. Rent income of N6 million per quarter is to be received at the end of each quarter.

Rqd; 1 Prepare Cash Budget for January to June.

2 Briefly explain the purpose and importance of Cash Budgets in business planning and
decision

Papyrus Brothers Ltd, a stationery/textbooks company, has been in business for the past ten years
but has not practiced any system of budgetary planning and control. Upon the advice of a
management consultant, the company decided to adopt this system, beginning from its 1996/97
financial year. You have been presented with the company‟s balance sheet as at 31st October 1996:

Fixed Assets at book value: N’000 N’000 N000

Freehold Land & Building* 64,000

Furniture Fittings & Equipment 8,000

Motor Vehicles 24,000

96,000
Current Assets:

Stock 6,400

Trade Debtors 40,000

Treasury Bills 9,000

55,400

Current Liabilities:

Trade Creditors 8,000

Bank Overdraft 16,400 24,400 31,000

127,000

Capital 127,000

The Land is valued at N24,000,000.

The company has a sales policy which blends both cash and credit terms in the following manner:

Month of Sale Cash Sales [%] Credit Sales [%]

November 30 70

December 45 55

All other months 20 80

Credit customers in any particular month are expected to pay up in the following month. This sales
policy has contributed to the company‟s performance and the following sales projections have been
provided:

November December January February March April

[‘000] 32,000 32,000 40,000 80,000 24,000 24,000

The price structure of the company‟s goods covers its cost and profit patterns, namely, the
stationery/books, wages and profit in the ratio 25%, 55% and 20% respectively.

A discount deal has been struck with all the Company‟s Suppliers to the effect that the company
enjoys a 3% discount on half of each month‟s purchase paid on the spot. The balance is paid in full in
the following month. The company has decided that half of the stock to be sold in December will be
acquired in November because of excessive pressure that suppliers will face in December.
Wages have never been accrued beyond the month. Other expenditures will be N5,200,000 for the
first 3 months and thereafter the vehicle running expenses which amount to 50% of these other
expenditures will go up by 10% every month.

The company plans to purchase two computers on 31st January at a cost of N5,000,000. In
anticipation of this, the company hopes to redeem N5,000,000 worth of its treasury bills at the end
of December when such bills will be three months.

The company‟s depreciation policy has been 25% on the net book value for all its fixed assets.

Required You are to prepare: (a) A cash budget for the six months of the 1996/97 financial year.
(14 marks) (b) A profit and loss account for these six months. (7 marks) (c) A balance sheet as at
30th April 1997.