Paramel Beverages bottles two soft drinks under licence to Cadaver Ltd. at its Newcastle plant. Bottling at this plant is highly repetitive, automated process. Empty bottles are removed from their carton, placed on a conveyor, and cleaned, rinsed, dried, filled, capped and heated (to reduce condensation). The only stock held is direct materials or else finished goods. There is no work in process.
The two soft drinks bottled by Paramel Beverages are lemonade and diet lemonade. The syrup for both soft drinks is purchase from Cadaver Ltd. Syrup for the regular brand contains a higher sugar content than the syrup for the diet brand.
Paramel Beverages uses a lot size of 1,000 cases as the unit of analysis in its budget. (Each case contains 24 bottles). Direct materials are expressed in terms of lots, where one lot of direct materials is the input necessary to yield one lot (1,000 cases) of beverage. In 2010, the following purchase prices ae forecast for direct materials:
|Syrup||$1,200 per lot||$1,100 per lot|
|Containers (bottles, caps, etc.)||$1,000 per lot||$1,000 per lot|
|Packaging||$800 per lot||$800 per lot|
The two soft drinks are bottled using the same equipment. The equipment is cleaned daily, but it is only rinsed when a switch is made during the day between diet lemonade and lemonade. Diet lemonade is always bottled first each day to reduce the risk of sugar contamination. The only difference in the bottling process for the two drinks is syrup.
Summary data used in developing budgets for 2010 are as follows:
- Lemonade, 1080 lots at $9,000 selling price per lot
- Diet lemonade, 540 lots at $8,500 selling price per lot
- Opening (1 January 2010) stock of direct materials
- Syrup for lemonade, 80 lots at $1,100 purchase price per lot
- Syrup for diet lemonade, 70 lots at $1,000 purchase price per lot
- Containers, 200 lots at $950 purchase price per lot
- Packaging, 400 lots at $900 purchase price per lot
- Opening (1 January 2010) stock of finished goods
- Lemonade, 100 lots at $5,300 per lot
- Diet lemonade, 50 lots at $5,200 per lot
- Target closing (31 December 2010) stock of direct materials
- Syrup for lemonade, 30 lots.
- Syrup for diet lemonade, 20 lots.
- Containers, 100 lots.
- Packaging, 200 lots.
- Target closing (31 December 2010) stock of finished goods
- Lemonade, 20 lots.
- Diet lemonade, 10 lots.
- Each lot requires 20 direct manufacturing labour hours at the 2010 budgeted rate of $25 per hour. Indirect manufacturing labour costs are included in the manufacturing overhead budget.
- Variable manufacturing overhead is forecast to be $600 per hour of bottling time; bottling time is the time the filling equipment is in operation. It takes 2 hours to bottle one lot of lemonade and 2 hours to bottle one lot of diet lemonade. Fixed manufacturing overhead is forecast to be $1,200,000 for 2010.
- Hours of budgeted bottling time is the sole allocation base for all fixed manufacturing overheads.
- Administration costs are forecast to be 10% of the cost of goods manufactured for 2010. Marketing costs are forecast to be 12% of sales for 2010. Distributions costs are forecast to be 8% of sales for 2010.
Assume Paramel Beverages uses the first in– first out (FIFO) method of costing all stock. On the basis of the preceding data, prepare the following budgets (in units and/or dollars as applicable) for 2010:
- Revenue budget
- Production budget
- Direct material usage budget
- Direct material purchase budget
- Direct manufacturing labour budget
- Manufacturing overhead cost budget
- Closing finished goods stock budget
- Cost of goods sold budget
- Marketing cost budget
- Distribution cost budget
- Administration cots budget
- Budgeted profit & loss.
John Smith, a college student, plans to sell CD players over the internet & by mail order during the semester to help pay his expenses. He buys the players for $29 & sells them for $50. If payment by cheque accompanies the mail order (estimated to be 40% of sales), he gives 10% discount. If customers include a credit card number for either internet or mail order (estimated 30% of sales), they receive 5% discount. The remaining collections are estimated as follows:
|One month following||15%|
|Two months following||8%|
|Three months following||5%|
Sales forecast are as follows:
John plans to pay his supplier 60% in the month of purchase, and 40% in the following month. A 5% discount is granted on payments made in the month in the month of purchase. However, John will not be able to take any discounts on the September purchases because of cashflow constraints. All September purchases will be paid for in October.
John has 50 players on hand (purchased in August and to be paid in September), and plans to maintain enough end-of-month inventory to meet 60% of the next month’s sales. John also wished to maintain a closing cash balance of $1,500 in the bank once the business commences in September. The current interest rate on short term loans is 3.5% pa.
Prepare schedules for monthly budgeted cash receipts & cash disbursements & the cash budget. During which month will John need to organise a short term loan & for how much?
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