Reference no: EM133079384

Question - Baygong Ltd plans to produce a new product for which the standard marginal cost per unit is as follows:

Direct material €3 Direct wages €2

Variable overhead €1 Unit cost €6

Fixed overheads are budgeted at €96,000 for the year commencing 1 July 2019. These will be incurred and paid in equal amounts during each month. Production is to commence in July and sales from 1 August 2019. The sales budget for the period to 30 November is as follows:

	Units	Sales Value
August	2,000	€20,000
September	4,000	€40,000
October	6,000	€60,000
November	11,000	€110,000

The following data is available:

Direct wages are paid in the month in which they are incurred.

Direct materials: Starting in July, 100 percent of direct materials required for each month's production are purchased in the previous month. These are paid for in the month of production.

Variable overhead: Paid as and when incurred.

Stock: It is company policy to hold closing stocks of finished goods equivalent to the following month's sales.

All sales will be on credit and will be received as follows: 10 percent received in the month of sale, and 90 percent received in the following month. There are no bad debts or sales discounts.

Required -

a) Prepare a detailed cash budget for the new product, for the four-month period from 1 July to 31 October 2019.

b) What steps would you advise Baygong Ltd to take in order to maintain adequate financial control? Explain your reasoning?

c) What is meant by the term responsibility accounting?