1.

Draw up the following for the six months ending 31 December:

1.1 A raw materials inventories budget, showing both physical quantities and financial values.
1.2 A trade payables budget.
1.3 A cash budget.
1.4 A budgeted income statement for the month of July.
2. The cash budget reveals a potential cash deficiency in specific months. Can you show which months occur this
deficiency and suggest any ways in which a modification of plans could overcome this problem?
3. Calculate the actual profit for July and reconcile it with the budgeted profit for the month calculated in (1.4)
above. The reconciliation should include the following variances:
3.1 sales volume
3.2 sales price
3.3 direct materials
3.4 direct labour
3.5 fixed overheads.
The following information is relevant:
During July, 790 units were sold for a total of £20,000. The raw material cost was £8,100. The labour cost was
£5,500. The fixed production overheads cost was £2,550.

1. Raw materials inventories budget

July August September October November
Units of raw materials 800 850 900 1000 1100
Cost of materials 10 10 10 10 10
Total purchase cost 8000 8500 9000 10000 11000

2. Trade payables budget

July August September October November
Cost of materials 8000 8500 9000 10000 11000
Trade payable budget 8000 8000 8500 9000 10000

3. Sales budget
Selling price per unit will be £25 throughout the period:
July August September October November
Units of sales 800 820 830 900 970
Price 25 25 25 25 25
Sales 20000 20500 20750 22500 24250

4. Cash budget for each month

July August September October November
Cash from customers
70% of sales 14000 14350 14525 15750 16975
30% of sales 4725 5250 6000 6150 6225
Total cash received 18725 19600 20525 21900 23200
Cashpayment
Various fixed production overheads
60% of overheads 1200 1200 1200 1200 1380
40% of overheads 680 800 800 800 800
Total various fixed cost 1880 2000 2000 2000 2180
Purchase a new item 3000 3000 3000
Payments for advertising 1500 2000
Labour cost 6400 6400 6800 7200 8000
Payments to suppliers 8000 8000 8500 9000 10000
Total cash payments 17780 16400 20300 23200 23180
Receipts less payments 945 3200 225 -1300 20

5. Budget income statement for the month of July

July
Total sales 20000
Materials costs 8100
Labour cost 5500
Total variable cost 13600
Contribution 6400
% on sales
Production overheads 2550
Gross profit 3850
Marketing cost 1500
Net profit 2350
 During the period, the business plans to advertise so as to promote sales. Payments for a
£2,000 will be made in July and October respectively.
The selling price per unit will be £25 throughout the period. Thirty per cent of sales are n
months’ credit. The other 70 per cent are settled within the month of the sale.
Raw materials will be held for one month before they are taken into production. Purchas
h months occur this on one month’s credit (buy one month, pay the next). The cost of raw materials is £10 pe
The direct labour cost will be £8 per unit of production. This is a variable cost. It will be pa
calculated in (1.4) concerned.
Various fixed production overheads, which during the period to 30 June had run at £2,20
rise to £2,500 each month from 1 July to 31 October. These are expected to rise again fro
month and to remain at that level for the foreseeable future. These overheads include a s
depreciation.
Overheads are planned to be paid 60 per cent in the month of production and 40 per cen
To help to meet the planned increased production, a new item of plant will be bought an
The cost of this item is £9,000; the contract with the supplier will specify that this will be
e labour cost was amounts in September, October and November.
The business plans to hold raw materials inventories of 700 units on 1 July. The balance a
is planned to be £9,900.

December
950
10
9500

December
9500
11000

Converting from units of production to costs of production

December July August September October
1050 Units to be produced 800 800 850 900
25 8 8 8 8
26250 Direct labour cost 6400 6400 6800 7200
10 10 10 10
Materials cost 8000 8000 8500 9000
December Total
TÍNH Various fixed production overheads có trừ 500 depreciation
18375 Cash from customer 30% của tháng 7,8
6750 Various 40% tháng 6
25125 129075
 1380
920
2300 12360
9000
3500
8800 43600
11000 54500
22100 122960
3025 6115
te sales. Payments for advertising of £1,500 and

y per cent of sales are normally made on two

h of the sale.
nto production. Purchases of raw materials will be
raw materials is £10 per unit of production.
ariable cost. It will be paid in the month

0 June had run at £2,200 a month, are expected to

xpected to rise again from 1 November to £2,800 a
se overheads include a steady £500 each month for

oduction and 40 per cent in the next month.

plant will be bought and delivered in September.
specify that this will be paid in three equal

on 1 July. The balance at the bank on the same day

November December
1000 1100
8 8
8000 8800
10 10
10000 11000