QuestionI Fokac Ltd is a new business which has been formed to buy standad radio

Question

QuestionI Fokac Ltd is a new business which has been formed to buy standad radio units and modity them to the specific needs of customers The business will acquire fixed assets costing GHC500,000 and stock of 5,090 standard radio unit on the first day of business. The fixed assets are expected to have a five year life with a residual valiue of GHC40,000 at the end of that time. Sales are forecast as follows: Year 2 Quarter 1 40,500 Year 1 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Modified radio units 40,500 42,000 43,500 39,000 The sellirng price of each unit will be GHc450. The cost of production of each unit is specified as follows: ost of standard unit purchased Direct Labour Fixed overhead GHC150 GHC 165 GH¢60 Tne fixed overhead per unit includes allocation of depreciation. The annual depreciation is calculated on a straight line basis and is allocated on monthly basis. suppliers of standard radio units will allow one month's credit. Sales are settled as follows: 60% in the month of sale, 30% in the next month and 8% in the month following Wages will be paid as they are incurred in production. Fixed overhead costs will be paid as they are incurred. The stock of finished goods at the end of each quarter will be sufficient to satisfy 20% of the planned sales of the following quarter. The stock of standard radio units will be held constant at 5,000 units It may be assumed that the year is divided into quarters of equal lengths and that sales, production and purchases are spread evenly throughout any quarter Required Produce for each quarter of the first year of trading: a. The sales budget; b. The production budget; c. Schedule of Payment to Suppliers; and d. The cash budget

Explanation / Answer

Answer for question no.a:

Answer for question no.b:

Answer for question no.c:

Answer for question no.d:

Depreciation on straight line basis= (cost-salvage value)/Life of the asset

=500,000-40,000/5

=92000 per year.

Per month=92000/12

=7,667.

Per unit fixed overhead=60.

Fixed overhead quarter wise is as follows:

Sales collections is as follows:

Direct labour payment budget:

Cash budget:

Particulars Q1 Q2 Q3 Q4 Sales in units(1) 40500 42000 43500 39000 Unit sales price(2) 450 450 450 450 Sales revenue(1)*(2) 18225000 18900000 19575000 17550000

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