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Coursework: Budgeting

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‐ The management will not alter the selling price, which is currently $100 ‐ Management wants finished goods inventory to be 20% of the following month’s sales ‐ One units of finished goods require 2 kilos of raw materials. ‐ The price of materials is currently $10 per kilo and is expected to increase by 50% in February whereafter it will remain constant for the next four months. ‐ The management wants raw materials inventory to be 10% of the following month’s production needs ‐ Each unit of product requires 2 hours of direct materials for completion. ‐ The labourers are expected to work for a total of 4000 hours per month at a wage rate of $6 per hour. Any additional work requires an overtime payment of time and a half. ‐ Manufacturing overhead: variable: $5 per labour hours worked; fixed $17000 per month. ‐ Sales are 20% for cash and 80% on credit. Half of the credit sales are collected in the month following sale while the remaining half is collected in second month after the sales. The accounts receivable at December 31 are a result of December credit sales. ‐ Monthly expenses are budgeted as follows: salaries and wages, $10,000 per month: advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales.

Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 for the quarter. ‐ One‐half of a month’s raw materials purchases is paid for in the month of purchase; the other half is paid in the following month. ‐ Shipping expenses are paid in the month following the shipment., while advertising is paid in one month’s advance. ‐ During February, the company will purchase a new copy machine for $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500. ‐ During January, the company will declare and pay $45,000 in cash dividends. ‐ Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Prepare the followings for the first quarter of 2012: 1)

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