Accounting Business Reporting for Decision Making

CHAPTER 9 Budgeting 409

9.31   LO5, 6

Greenacres is a garden design and landscaping business. At 30 June 2018, it had a bank balance

of $26 500. Provided below are estimates for receipts and payments for the three months ending

30 September 2018.

July August September

Receipts

Fees

Proceeds from the sale of surplus non-current assets

$140 000 $160 000

100 000

$200 000

Payments

Salaries and wages

Supplies

New equipment

Purchase of plants

70 000

8 500

120 000

42 000

70 000

9 200

45 000

70 000

12 000

61 000

Required

a. Prepare a monthly cash budget for the three months ending 30 September 2018.

b. The owners were wondering what the effect would be on the cash position if they did not buy

the new equipment, but instead took advantage of a new rental arrangement. The equivalent

equipment would cost $10 000 per month under the rental arrangement. Redraft the cash budget

to show the impact of the rental alternative. Based on the information available, should they

lease or buy the equipment?

9.32    LO4

Aussie Manufacturing has projected sales of its product for the next six months as follows.

January

February

March

April

May

June

40 units

90 units

100 units

80 units

30 units

70 units

The product sells for $100, variable expenses are $70 per unit, and fixed expenses are $1500 per

month. The finished product requires three units of raw material and 10 hours of direct labour. The

company tries to maintain an ending inventory of finished goods equal to the next two months of

sales, and an ending inventory of raw materials equal to half of the current month’s usage.

Required

a. Prepare a production budget for February, March and April.

b. Prepare a forecast of the units of direct materials required for February, March and April.

c. Prepare a direct labour hours budget for February, March and April.

9.33    LO4

New Ventures intends to start business on the first of January. Production plans for the first four

months of operations are as follows.

January

February

March

April

20 000 units

50 000 units

70 000 units

70 000 units

Each unit requires 2 kilograms of material. The firm would like to end each month with enough

raw material inventory on hand to cover 25 per cent of the following month’s production needs.

The material costs $7 per kilogram. Management anticipates being able to pay for 40 per cent of

its purchases in the month of purchase. They will receive a 10 per cent discount for these early

payments. They anticipate having to defer payment to the next month on 60 per cent of their