Question: Lewisham Ltd manufactures one product line - the Zenith. Sales of Zeniths over the next few months are planned as follows:
1. Demand
units
July 180,000
August 240,000
September 200,000
October 180,000
Each Zenith sells for £3.
2. Debtor receipts
Credit customers (recievables) are expected to pay as follows:
70% during the month of sale
28% during the following month
The reminder of the credit customers are expected to go bad (that is, to be uncollectable).
credit customers who pay in the month of sale are entitled to deduct a 2 percent discount from the invoice price.
3. Finished goods inventories Inventories of finished goods are expected to be 40,000 units at 1 July. The business's policy is that, in future, the inventories at the end of each month should equal 20 per cent of the following month's planned sales requirements.
4. Raw materials inventories Inventories of raw materials is expected to be 40,000 kg on 1 July. The business's policy is that, in future, the inventories at the end of each month should equal 50 per cent of the following month's planned production requirements. Each Zenith requires 0.5 kg of the raw material, which costs £1.50 per kg. Raw materials are paid for in the month after purchase.
5. Labour and overheads The direct labour cost of each Zenith is £0.50. The variable overhead element of each Zenith is £0.30. Fixed overheads, including depreciation of £25,000, total £47,000 a month. All labour and overheads are paid during the month in which they arise.
6. Cash in hand The business plans to have a bank balance (in funds) at 1 August of £20,000.
Required: Prepare the following budgets:
(a) Finished inventories budget (expressed in units of Zenith) for each of the three months July, August and September.
(b) Raw materials inventories budget (expressed in kg of the raw material) for the two months July and August.
(c) Cash budget for August and September.