BA713 – Financial Management

Assignment 1 – Part B
Semester 2, 2020

Question 3 (115 marks) (Weight: 15%)

Kuku’s Ltd produces and sells a single product and is in the process of preparing the annual budget for
2021, and the company is considering the following plans and strategies as the key factors and
assumptions for the creation of 2021 Operating Budgets and Cash flow forecast.

1. The Sales forecast for the remaining months of 2020 and the first 5 months of 2021 has been
done and are as in the table below:

Sales Forecast for remaining months of 2020

  November December

Sales Units 500 600

Selling Price $ 70.00 $ 70.00

Sales amount $ 35,000.00 $ 42,000.00

Sales Forecast for first 5 months of 2020

  January February March April May
Sales Units 800 700 900 750 900
Selling Price $ 75.00 $ 75.00 $ 75.00 $ 75.00 $ 75.00
Sales amount $ 60,000.00 $ 52,500.00 $ 67,500.00 $ 56,250.00 $ 67,500.00

2. Standard requirements and budget projections for production are:

 Direct Materials (0.5kg at $25.00 per kg) per unit
 Direct Labour (0.25 hours at $20.00 per hour) per unit
 Variable MOH = 20% of current months sales amount
 Fixed MOH = $14,000 per month
3. Inventory practices and information are:
 At the end of 2020, it is projected that:
 60 units of finished goods inventory with a per unit cost of $50 will be
at hand
 20 kg of direct materials will be at hand
 Finished goods closing inventory is maintained at 20% of the next month’s
sales forecast
 Raw Materials closing inventory is maintained at 20% of the next month’s
production needs
4. Other Important Assumptions and Information
 Kuku Ltd implements a credit policy to manage its credit sales in 2020 and
wishes to continue to use the policy in 2021. The policy has ensured that 80%
of credit sales are collected on in time according to the terms of policy of 30
days credit. Because of that the business has split sales for a month 80-20
between credit and cash sales since 2020.

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BA713 – Financial Management
Assignment 1 – Part B
Semester 2, 2020

 The experience of the business has been on collecting 60% of credit sales in
the month of sales, 30% in the next month after the month of sales and
10% in the following month. The business expects this collection behaviour
to exist in 2021.
 Because of the collection behaviour that exists in 2020, the business has
practised payments of raw materials (direct materials) in the same manner:
60% of total raw material purchases are paid for in the current month,
30% in the next month and 10% in the following month
 Payment for direct labour costs and salaries of management are paid for
in the current month since this is based on fortnight payments.
 Payment for Overhead costs (including depreciation of $1,500) are planned to
be paid for in the following manner: 40% in the current month and 60% in
the next month.
 Total General Administration and Supporting Costs are estimated to be
$15,000 per month (including Salaries for management of $6,000). These
costs are paid for in the next month after the month in which the costs are
incurred.
 The business has a mortgage loan and loan repayment is fixed at $2,250 per
month.
 The projected opening cash balance for 2021 is $13,000
 Accounts Receivable that exists at the end of 2020 will be collected as
follows: 75% in the January and 25% in February
 Accounts Payable that exists at the end of 2020 will be paid for in January.

Required

(a) Prepare the operating budgets (production, raw materials, direct labour and overhead
budgets) for Kuku Ltd for the first quarter of 2021 (35 marks)
(b) Prepare budgeted cost of goods sold and the pro forma statement of financial
performance (Profit/Loss Statement) for Kuku Ltd for the first quarter of 2021 (15 marks)
(c) Prepare the supporting schedules and the pro forma cash flow statement or cash flow
budget for Kuku Ltd for the first quarter of 2021 (65 marks)

Due Date for Question 3 only is: Friday 20th November 2020 at
4.30pm

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BA713 – Financial Management
Assignment 1 – Part B
Semester 2, 2020

Due Date for Q1 and Q2 is still at: Friday 13th November 2020 at
4.30pm