Prepare the production budget and the purchases budget

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Reference no: EM132807070

Pierce Pommery specializes in the manufacture of dry cider. The one-liter bottles sell for €3.00 each, with 25% of sales on cash terms and 75% on one month's credit. The budget shows the following sales volumes.

Month Liters

August 400,000

September 340,000

October 300,000

November 260,000

December 320,000

January 250,000

The company's policy is for opening stock of cider to equal one-fifth of each month's sales, but the stock of cider on September 1st was actually 80,000 liters. For stocks of apples, the policy is for opening stock to equal 50% of each month's usage. On September 1st, the stock of apples was actually 2,200 tons.

On average, 15 kilograms of apples are needed to produce 1 liter of cider. The cost price of apples is €50/ton in September and October but €150/ton in November and December as they have to be imported. Direct labour costs €0.20 a liter. Fixed overheads are €30,000 a month (including €5,000 for depreciation). Payment for apples is made two months after purchase and all other expenses (including wages) are paid for one month after being incurred.

Required :

Problem 1. For the months of September, October, November and for the quarter as a whole, prepare the production budget (in liters) and the purchases budget (in tons and €).

Problem 2. For November only, prepare the cash budget (assume the bank balance on November 1st is €-495,900).

Reference no: EM132807070

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