As a trainee management accountant, you are supplied with the following information. Sales for October, November, and December are expected to be £200,000, £180,000, and £220,000, respectively. All sales are “on-credit” and a 2% cash discount is given if paid within 30 days. Sales are collected 50% in the month-of-sale and 50% in the following month. Accordingly, one-half of all sales discounts accounted for (on average). Materials are purchased one month before being required, and all purchases and expenses are paid for as they happen.
Activities for the quarter are expected to be:
October November December Materials used £40,000 £36,000 £44,000 Salaries £70,000 £68,000 £72,000 Maintenance and repairs £18,000 £18,000 £18,000 Depreciation £36,000 £36,000 £36,000 Utilities and other £14,000 £14,000 £14,000 Dividends paid £10,000 Payment on bonds £8,000 £8,000 £8,000
Required: Using the given information, calculate the budgeted net cash flow for November. (30% of the marks)
Part B: Browning Ltd. has the following budgeted sales for the selected six-month period: Month Unit Sales June 15,000 July 20,000 August 35,000 September 25,000 October 30,000 November 20,000 There were 7,500 units of finished goods in inventory at the beginning of June. Plans are to keep an inventory of finished product equal to 20 percent of the unit sales for the next month. Three kgs of materials are required for each unit produced. Each kg of material costs £20. Inventory levels for materials equal 30 percent of the needs for the next month.
(a) Prepare production budgets in units for July, August, and September. (15% of the marks)
(b) Prepare a materials purchases budget in kgs and £s for July, August, and September. (30% of the marks)
(c) Briefly explain any criticisms of the traditional budgeting system, and how budgeting relates to “management performance evaluation”
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