02 Jul What is the working for the attached question
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
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