AUDP Subjects

Q1
Cora Ltd is preparing budgets for the six month period ending 30 June 2005. It produces one product, the standard variable costs of which are as follows:

Material $10 per unit
Labour $3 per unit
Overhead $3 per unit

The budgeted production in units is:
January February March April May June
4,000 5,000 4,500 3,500 4,000 4,500

The budgeted sales in units are:
January February March April May June
3,500 4,000 4,500 5,000 4,000 3,500

The following information is also available:
(i) The standard selling price per unit is $20.
(ii) Material purchases are on credit and are paid for one month after usage. Material is delivered on a Just in Time basis and a buffer stock of 600 units is carried.
(iii) Labour is paid in the month of production.
(iv) Variable overhead is paid for in the month after production.
(v) Fixed overheads for the six months are $50,000 of which $20,000 relates to depreciation. The remainder accrue evenly over the period and are paid for in the month after they are incurred.
(vi) Ten per cent of the sales are for cash, payment for the remainder is received in the month after the sales are made.
(vii) Dividends of $2,000 are expected to be received in May.
(viii) A new vehicle will be purchased for $12,000 and paid for in January, an older vehicle will be sold for $6,000 which will be received in March.
(ix) Taxation of $50,000 will be paid in June.
(x) Finished stocks are valued in the budgeted balance sheet at standard variable cost per unit.
(xi) The following is an extract from the budgeted balance sheet as at 31 December 2004:

$
Raw Material Stock 6,000
Finished goods Nil
Debtors 70,000
Cash 10,000
–––––––
86,000
Raw Material Creditors 21,000
Variable Overhead Creditors 10,500
Fixed Overhead Creditors 5,000
–––––––
36,500
Net Current Assets 49,500

Required:
(a) Prepare a cash budget for the six months ending 30 June 2005. (30 marks)
(b) Calculate Cora’s Working Capital at 30 June 2005. (14 marks)
(c) State how the calculation of an Economic Order Quantity would assist the company in the control of its Raw Material stocks. (6 marks)
(Total 50 marks)


Q2
Noddy Ltd produces four products, A, B, C, and D. The budget for the forthcoming year shows the following results.

$000 A B C D Total
Sales 700 400 250 340 1,690
Material 210 60 30 40 340
Labour 100 200 200 200 700
Variable overhead 90 60 50 50 250
Fixed overhead 20 40 40 40 140
Profit/Loss 280 40 (70) 10 260
Sales (units) 140 20 25 20
The directors are worried about C and the loss that it appears to make. The following suggestions have been put forward to improve the situation.
1 To cease production and sales of C.
2 To increase the selling price of C by 20%; this would decrease the sales volume by 10%.
3 To decrease the selling price of C by 10%; this would increase the sales volume by 10%.
4 To reduce the labour costs of C by $100,000, by purchasing a new machine which would cost $350,000, and have a life of five years and no residual value. The selling price and other variable costs per unit would remain the same.

Required:
(a) Evaluate each of the four proposals above individually, by calculating the effect on the budgeted profit of implementing the suggestions. (12 marks for each)
(b) Suggest the best course of action for the company to follow. (2 mark)
(Total 50 marks)


Format: Hard copy only and prepared by using Spreadsheets for Financial statements and word processor for Essay questions.
Due date: Latest by Week 13 - 15th November 2005
Late Submission: Loss of one mark for each day late.