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10 views4 pages

Practice question

Uploaded by

fa23-baf-063
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Question

Royal Company is preparing budgets for the quarter ending June


30. Following information is available for preparing quarterly
budget for 2nd quarter and for the monthly budgets of April, May
and June.
1. Budgeted sales in number of units for the next five months are:
April 20,000 units
May 50,000 units
June 30,000 units
July 25,000 units
The selling price is $10 per unit.
2. All sales are on account.
Royal’s collection pattern is such that 60% of cash is collected
in the month of sales and 40% collected in the month following
the month of sales. In addition to this the March 31 accounts
receivable balance of $30,000 will be collected in full during
this quarter
3. The management at Royal Company wants ending inventory to
be equal to 20% of the following month’s budgeted sales in
units.On March 31, 4,000 units were on hand.

Required:
Prepare a quarterly budget and annual budget for the coming year
including
a) Sales budget
b) Budget for Cash Collections from Sales
c) Production budget
Solution
a) Sales Budget

April May June Quarter


2
Budgeted Sales in No. 20,000 50,000 30,000 100,000
of Units
Selling Price per unit $10 $10 $10 $10
Budgeted Sales $200,00 $500,00 $300,0 $1,000,0
0 0 00 00

b) Cash Collections Budget

April May June Quarter


2
Budgeted Sales (From $200,00 $500,00 $300,0 $1,000,0
Sales Budget 0 0 00 00
Cash Collection for 30,000 30,000
Previous Month
Cash Collection for 120,000 80,000 200,000
April Sales
Cash Collection for May 300,000 200,00 500,000
Sales 0
Cash Collection for June 180,00 180,000
Sales 0
Total Cash Collection 150,000 380,000 380,00 910,000
0

c) Production Budget

April May June Quarter


2
Budgeted Sales in Units 20,000 50,000 30,000 100,000
(From data given in the
question)
Add:Units required for 10,000 6,000 5,000 21,000
ending inventory (20%
of following month’s
Sales)
Total Requirement for 30,000 56,000 35,000 121,000
Production
Less: Units already 4,000 10,000 6,000 4,000
produced in previous
month
Total Production for 26,000 46,000 29,000 117,000
the month in units

Hint:
Amounts taken from the data in the question statement
above.

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