Budgeting: Illustration

The following data relate to Hypothetical Limited:

Balance Sheet as on Dec 31, current year
Liabilities
Amount
Dhs
Assets
Amount
Dhs

Accounts Payable
(all for December purchases)

Taxes payable
(all for December income)

Share Capital

Retained Earnings

40,000


25000


1,100,000

1,026,800

Cash

Accounts Receivable
(all from December sales)

Inventories:
Raw materials (9600 kgs*dhs 3)
Finished goods(1800 units*dhs 35)

Fixed Assets:
Cost dhs 2,000,000
Less: Accum Depn (450,000)



300,000

250,000



28,800
63,000



1,550,000
21,91,800 21,91,800

2. Sales Forecasts: Assume the marketing department has developed the following sales forecast for
the first quarter of the next year and the selling price of Dhs.50 per unit
Month Unit Sales
Jan 9000
Feb 12000
Mar 16000
3. The management desires closing inventory to equal 20 percent of the following months sales.
4. The manufacturing costs are as follows:
Direct Materials: (5kgs * dhs3) (per unit) Dhs 15
Direct Labour Dhs 5
Variable Overheads dhs 9
Total fixed overheads(per annum) 720,000
5. Normal capacity is 120,000 units per annum .Assume absorption costing basis
6. Each unit of final product requires 5kgs of raw materials. Assume management desires closing raw
material inventory to equal 20 percent of the following months requirements of production
7. Assume fixed selling and administrative expenses are Dhs 20,000 per month and variable selling
and administrative expenses are Dhs 5 per unit sold.
8. All sales are on account. Payments received within 10 days from the date of sale are subject to a 2
percent cash discount. In the past, 60 per cent of the sales were collected during the month of sale
and 40 per cent are collected during the following month. Of collections during the month of sale, 50
per cent are collected during the discount period. Accounts receivable are recorded at the gross
amount and cash discounts are treated as a reduction in arriving at net sales during the month the are
taken.
9. Tax rate is 35 percent.
10. Additional information:
a. All purchases are on account. Two-thirds are paid for in the month of purchase and one-third, in
the following month.
b. Fixed manufacturing costs include depreciation of Dhs. 20,000 per month.
c. Taxes are paid in the following month.
d. All other costs and/or expenses are paid during the month in which incurred.
From the foregoing information prepare a master budget for the month of April only.