Question

Question

Simple Life Food Ltd is a manufacturer of ‘ready to eat meal’ and sells to various food outlets for credit and cash basis. The management wants to prepare a master budget for the first ten months of the year ending 31 October 2019, and has compiled the following data:

1. The firm sells a single type of set menu at a price of $24 per set. The sales forecast (in sets) prepared by the marketing department for the ten months 30 October 2019 is as follows:

Number of set meals

January 12 000

February 12 000

March 12 500

April 13 000

May 14 000

June 14 000

July 15 500

August 16 000

September 18 000

October 24 000

2. 40% of the sales are collected in the month of sale, 40% are collected in the following month, and 20% are collected in the second month following the sale.

3. The beginning inventories on 1 April 2019 will be 4200 units of finished goods and no raw materials. The ending finished goods inventory should equal 20% of the sales requirements for the next 3 months, and the raw materials ending inventory should equal 40% of the next month’s production.

4. 80% of the food ingredients purchases (materials) are paid in the quarter of purchase and 20% are paid in the following quarter. The amount owing for purchases at 1 April 2019 is $82 000.

5. Variable selling expenses are 5% of sales. Administrative expenses are $52 500 per quarter, of which $8200 represents depreciation expense and $40000 is wages. Fixed selling expenses are $15 200 each quarter. All selling and administrative expenses are paid in the quarter in which they are incurred.

6. The production requirements are:   

Direct materials Direct labour
Per unit -------------------- ----------------------

1 kg 0.4 hour

The direct materials are purchased for $4 a kilogram. The direct labour wage rate is $16 an hour. The factory overhead cost is $64 000 per month, and is paid in the month incurred (except for depreciation of $12 000).

7. The 1 April 2019 cash balance is expected to be $16 800.

Required:
A. Prepare a sales budget by month for the period February to June 2019.

B. Determine estimated cash collections from receivables for the second quarter of the financial year commencing 1 April 2019.

C. Calculate the number of units to be produced in the second quarter of the financial year commencing 1 April 2019.

D. Prepare a direct materials budget for the second quarter of the financial year commencing 1 April 2019.

E. Prepare a cash budget for the second quarter of the financial year commencing 1 April 2019including any necessary schedules.

F. Prepare a budgeted income statement for the second quarter of the financial year commencing 1 April 2019.

G. Briefly discuss (any 5) advantages and (any 3) disadvantages of preparing budgets forhospitality industry business.

H. Proper referencing

Answer 1