Reference no: EM133060660

Question - Budgeting - Illuminate Ltd. is a company that produces various coloured lights that is distributed through gift shops located in major shopping centres across Fiji. One of its best sellers is the Aura coloured lights. In 2021, the company projects selling 100 000 of Aura lights in April, 120 000 in May, and 140,000 in June. The Aura light sells for $20 and has the following standard unit production costs at a monthly volume of 100,000 units:

Raw materials $5.00

Direct labour 8.00

Variable overhead 2.00

Fixed overhead 0.50

The budgeted fixed production costs include non-cash expenses of $20,000. Under-or overapplied overhead is closed to the Cost of Goods Sold each month. Other monthly expenses include distribution expenses of 10 percent of sales and administrative expenses of $5,000.

The Company currently has 40,000 Aura lights on hand and sufficient raw materials to produce 100,000 additional units. The company desires to have sufficient quantities of the finished product on hand at the end of each month to supply 50 percent of the following month's sales and sufficient raw materials to supply 80 percent of the following month's production.

The Company believes in "cash on the barrel head." It pays all debts immediately and it does not sell on account. The current March 31 cash balance is $10,000.

Required -

(a) Prepare a production budget (in units) for April and May.

(b) Prepare a purchases budget for April.

(c) Prepare a Cash budget for April.

(d) Write a memo to the senior management on Illuminate's cash position in April and give your recommendations (use proper memo format).