Reference no: EM132943635
Question - Data regarding Bengal Corporation are as follows:
(a) Budgeted Sales for the year 2020 are:
January: 20,000 units
February: 35,000 units
March: 35,000 units
April: 45,000 units
May: 60,000 units
June: 75,000 units
July: 75,000 units
August: 80,000 units
September: 65,000 units
October: 50,000 units
November: 25,000 units
December: 15,000 units
(b) Selling Price per unit is usually 175 Taka. However due to increase in demand, the price was increased to 190 Taka in the second and third quarter of the year.
(c) 30% of the sales each month are in cash and the rest are on account. The cash sales are received the day the sales are made and the on-account's collection pattern are given in instruction no. (d).
(d) On account collection patterns are as follows: 45% is collected in the following month of sales and the remaining 55% is collected the second month following the month of sales. Previous Accounts receivables of 8,877,750 Taka (from June 30) will be collected in the month of July.
(e) The company wants ending inventory of finished goods to be equal to 25% of the following month's estimated sales in units.
(f) The company purchases 60% of its inventory in the month prior to the month of sale, keeping it in the ending inventory, and 40% in the month of sale. Payment for inventory in made in the month following the purchase.
(g) The company requires 3 kilograms of raw materials to manufacture one unit of final product, at a cost of 3 Taka per kilogram.
(h) In order to make one unit of product, the company requires 0.15 hours of direct labors, and the labors are paid 12 Taka per hour.
(i) The company has an incentive policy for the labors for which any extra hour the labors work beyond 8000 hours each month, they will get paid at a rate of 15 Taka for every additional hour worked (overtime payment).
(j) Manufacturing Overhead is applied to units of products on the basis of direct labor hours. The company uses variable manufacturing overhead rate of 1.50 Taka for each unit produced. Fixed manufacturing overhead is of 110,000 Taka which includes 35,000 Taka of factory related Depreciation Expense.
(k) Variable selling and administrative expenses are 4.20 Taka per unit. Fixed selling and administrative expenses are of 1000000 Taka which includes 33,000 Taka of Depreciation Expense.
(l) The company paid a cash dividend of 2500000 Taka in July, 2800000 Taka in the month of August and 5000000 Taka in the month of September.
(m) The company spent the following amounts on purchasing non-current assets in the year 2020:
February 50000 Taka
June 100000 Taka
July 800000 Taka
September 2100000 Taka
December 500000 Taka
(n) Cash Balance on July 1 2020 is 230,000 Taka . Due to the corona virus crisis, the company requires a minimum of 4000000 Taka at the beginning of each month, from August onwards.
(o) Due to the corona virus crisis, in the month of September, the company spent as additional 10000000 Taka in cash, in order to support its labor financially.
Required -
(i) Prepare the following budget for the third quarter of the year 2020: Sales Budget, Expected Cash Collection, Production Budget, Direct Material Budget, Expected Cash payment for Direct materials, Direct Labor Budget, MOH Budget, Selling & Admin Budget, Cash Budget.
(ii) Calculate the production cost per unit of Bengal Corporation's finished good. What should be the cost of budgeted finished goods inventory? Identity at least two possible ways Bengal Corporation could overcome the issue of cash deficiency the company might face (in the month of September) while operating the business. You must explain in detail how your stated solution could help the company overcome its cash deficiency problem.