Reference no: EM132570782

As a trainee management accountant, you are supplied with the following information. Sales for October, November, and December are expected to be £200,000, £180,000, and £220,000, respectively. All sales are "on-credit" and a 2% cash discount is given if paid within 30 days. Sales are collected 50% in the month-of-sale and 50% in the following month. Accordingly, one-half of all sales discounts accounted for (on average). Materials are purchased one month before being required, and all purchases and expenses are paid for as they happen. Activities for the quarter are expected to be:

           October November December

Materials used £40,000 £36,000 £44,000

Salaries £70,000 £68,000 £72,000

Maintenance and repairs £18,000 £18,000 £18,000

Depreciation £36,000 £36,000 £36,000

Utilities and other £14,000 £14,000 £14,000

Dividends paid £10,000

Payment on bonds £8,000 £8,000 £8,000

Required:

Question 1: Using the given information, calculate the budgeted net cash flow for November.

Part B: Browning Ltd. has the following budgeted sales for the selected six-month period:

Month Unit Sales

June 15,000

July 20,000

August 35,000

September 25,000

October 30,000

November 20,000

There were 7,500 units of finished goods in inventory at the beginning of June. Plans are to keep an inventory of finished product equal to 20 percent of the unit sales for the next month. Three kgs of materials are required for each unit produced. Each kg of material costs £20. Inventory levels for materials equal 30 percent of the needs for the next month.

Required:

Question (a) Prepare production budgets in units for July, August, and September.

Question (b) Prepare a material purchases budget in kgs and £s for July, August, and September.

Question (c) Briefly explain any criticisms of the traditional budgeting system, and how budgeting relates to "management performance evaluation"