A company manufactures and sells only Product X. The unit selling price of Product X is $100. The following budget details are also available:
Budgeted sales units are as follows:
January February March April May
2,000 1,000 3,500 4,000 7,000
- All sales are cash only.
- Opening inventory (units) at the start of January will be 500 units. Closing inventory (units) is budgeted at 5% of the sales volume of the next month.
- Production and sales occur in the same month.
- Raw materials are acquired and paid for in the month of production. A single unit of Product X requires 2 kg of raw materials. In January the price per kg is expected to be $ 15. This price is expected to increase to $ 25 per kg from March and remain at this level for the rest of the year.
- Labour costs are paid for in the month of production. It takes 5 hours to make a single unit of Product X. In January the labour rate is expected to be $ 2 per hour. However this rate is expected to increase by 50% from the month of April.
- Fixed overheads are paid for in the month in which they are incurred. These overheads are expected to be: $80,000 in January and February, thereafter overheads will increase by 10% on the previous figure.
- Machinery costing $ 500,000 is due to be installed in February and paid for in March.
- Taxation of $150,000 will be paid in April.
- A loan of $ 2,000,000 will be received in March. A loan interest payment of 1% will be made in the month of May.
- The opening cash balance in January is $100,000.
Prepare the following budgets for each of the four months January to April:
- Sales budget (showing volume and revenue);
- Production budget (in units) and
- Cash budget