Reference no: EM132323813

Question

Myra Manufacturing is located in Ballarat and has just commenced business; the projected sales for the first four months of operations:

               Units         Dollars

January     25,000    $450,000

February    30,000    $540,000

March       32,000     $576,000

April         35,000     $630,000

The product sells for $18 per unit. Twenty five percent of the customers are expected to pay in the month of sale and take a 3 percent discount; 70 percent are expected to pay in the month following sale. The remaining 5 percent will never pay.

It takes 2 kilograms of material to produce one unit of product. The material costs $0.75 per kilogram. In January no raw materials are in beginning inventories, but the managers want to end each month with enough materials for 20 percent of the next month's production. The company pays for 60 percent of its material purchases in the month of purchase and 40 percent in the month following purchase.

It takes 0.5 hours of labour to produce each unit. Labour is paid at $15 per hour and it is paid in the same month that production occurs. Overhead is estimated to be $2 per unit produced plus $25,000 per month ( including depreciation of $12,000). Overhead costs are paid as incurred.

Myra will begin January with no finished goods or work in process inventory. The managers wish to end each month with 25 percent of the following month's sales in finished goods inventory. They will not plan for any ending work in process inventory.

Required: with solution method

Prepare the following budgets:

1. Production budget for January and February

2. Direct material purchases budget for January and February

3. Direct labour budget for January and February

4. Overhead budget for January and February

5. Cash budget for February. The company will begin February with a cash balance of $80,000.