Lance Limited_Budgets

Class Name FTDipCom16 / FTDipGS12 / FTDipHRM8 / FTDipSRM1 / FTPSIM3 / PTDipCom8 / 

PTDipSRM2 

Module Accounting for Managers 

Individual Assignment 30% (40 marks) 

Date Due: Session 14 

Topic F: Budgeting (Extract from module learning outcomes). 

Understand the process of budget preparation including those relating to cash flow. 

Question 

Lance Limited manufactures a special component (WKQ 14) that is used in the making 

of calculators. As a step towards reducing uncertainty over the finance needs of the 

new business, the finance manager has asked you to prepare a cash budget for Lance 

Ltd for the eight (8) months period from 1 March 2014 till 31 October 2014. 

You have collected some raw data from the concerned department heads and tabulated 

them as follows: 

a) The following projected sales figures are given: 

Sales Forecast 

 Month Estimated Sales Units 

 March 260,000 

April 250,000 

May 270,000 

June 280,000 

July 300,000 

August 290,000 

September 310,000 

October 270,000 

November 280,000 

The estimated selling price per special component is $5.00.  

The collections for the above sales forecast are as follows: 

i. Collection from customers within the month of sale = 10% ( deemed to be cash 

sales) 

ii. Collection from customers following the month of sale = 50% 

iii. Collection from customers following the second month of sales = 30% 

iv. 10% of the sales are estimated to become irrecoverable. 

b) Direct materials are acquired one month prior to production and are paid the 

following month of purchase. One special component (WKQ 14) uses 2 units of 

direct materials. The company keeps stock of the direct materials, equal to 25% of 

the next month’s requirements. 

Balance of direct materials as at end of February 2014 amounts to 130,000 units 

of direct material at $0.30 per unit. There is no expected change in the direct 

material costs. 

c) The Direct Labour cost is paid in the month when such costs are incurred. 

The number of hours estimated are as follows: 

March April May June July August September October 

130,000 

135,000 140,000 148,000 152,000 154,000 150,000 148,000 

The company pays $2.50 per direct labour hour. 

d) Operating Expenses are estimated to be $332,000 per month and this is paid at 

the end of the month in which it is incurred. Included in the operating expenses are 

depreciation charges worth $16,000 per month. 

e) Income tax payments of $60,000 are due both in June and September 2014. 

f) Lance Ltd’s Cash on Hand at the end of February 2014 was $350,000 

Credit for this assignment will be given on the workings, formulas and calculations 

used to arrive at the financial values. 

Required: 

Prepare the following budgets: 

1) Sales [4 marks] 

2) Direct Materials Purchase Budget [8 marks] 

3) Direct Labour Budget [4 marks] 

4) A monthly cash budget for the 8-month period of March to 31 October 2014. 

 [22 marks] 

Format and presentation [2 marks] 

Total 40 Marks