Reference no: EM132579579
AKOTOSI NATOI Company is in the process of preparing its operating BUDGET for JULY 2020. The company produces and sells product X. The following data are taken from its statement of assumptions:
Sales and Collections
The product X is currently sold at a unit price of P150.
The budgeted sales for the month of July is 49,000 units. Sales in the succeeding months are expected to increase by 10% from each month thereafter.
Sales in June is 44,546 units.
Twenty percent (20%) of total sales is cash sales while eighty percent (80%) are to be made on credit with terms of 2/10. n/40. Billings on credit sales are made on the date of sales and collections are made as follows:
40% in the month of sales with 55% paying within the discount period
60% in the following month after sale
The accounts receivable balance on June 30, 2020 is P4,000,000.
Production
The finished goods inventory at the end of each month is set at 80% of the next month's sales.
Materials
A unit of product X needs 4 lbs. of material A costing P5 per pound. Materials inventory at the end of each month is estimated to be 20% of the next month's needs plus 20,000 lbs. Payments to materials suppliers are 60% in the month of purchase and 40% in the following month of purchase. The accounts payable balance on June 30, 2020 is P600,000.
Labor
It takes 2 hours to produce a unit of product X. On the average, production workers are paid at a rate of P40 per hour. Payroll costs amounting to 20% of the total payroll cost per month are estimated to be paid in the next month. Direct labor hours incurred for the month of June is 96,218.
Factory Overhead
The standard variable factory overhead rate is P5 per hour. Fixed overhead is set at P500,000 per month that includes P200,000 of noncash costs. Cash FOH normally are paid on the month of occurrence.
Other Information Ending Cash Balance in June 2020 is P500,000.
Question a: Can you prepare the components of an operating budget which are as follows:
1. Sales Budget in units and in pesos
2. Production Budget
3. Raw Materials Purchase Budget in units and in pesos
4. Direct Labor Cost Budget
5. Factory Overhead Budget
6. Cash Collections Budget
7. Cash Disbursements Budget
8. Cash Budget