Alhuda University
Faculty of Business and Economics
Department of Accounting
Course: Cost & Managerial Accounting II
Group Assignment- Marks 10%
Instruction
Maximum of group members is 6 students.
Deadline Jun 16, 2025
Power Manufacturing Ltd. produces and distributes a special type of chemical compound called
Compound WX. The information below about Power's operations has been assembled to assist
budget preparation. The company is preparing its master budget for the first quarter of 2025. The
budget will detail each month's activity and the activity for the quarter in total. The master
budget will be based on the following information:
A. Selling price is $75 per unit in 2024 and will not change for the first two quarters of
2025. Actual and estimated sales are as follows:
Actual 2024 Estimated 2025
November: 10,000 units January: 11,000 units
December: 12.000 units February: 10,000 units
March: 13,000 units
April: 12,000 units
May: 11,000 units
B. The company produces enough units each month to meet that month's sales plus a desired
inventory level equal to 20% of next month's estimated sales. Finished Goods inventory
at the end of 2024 consisted of 2,200 units.
C. The company purchases enough raw materials each month for the current month's
production requirement and 25% of next month's production requirements. Each unit of
product requires 5 kilograms of raw material at $3.60 per kilogram. There were 13,500
kilograms of raw materials in inventory at the end of 2024. Power pays 40% of raw
material purchases in the month of purchase and the remaining 60% in the following
month.
D. Each unit of finished product requires 1.5 labour-hours. The average wage rate is $16 per
hour.
E. Variable manufacturing overhead is 40% of the direct labour cost.
F. Credit sales are 60% of total sales. The company collects 70% of the credit sales during
the first month following the month of sale and 27.5% during the second month.
Approximately 2.5% of all credit sales end up being written off as bad debts.
G. Fixed overhead costs (per month) are as follows:
Factory supervisor's salary $15,000
Factory insurance 20,000
Factory rent 30,000
Depreciation of factory equipment 12,000
H. Total fixed selling and administrative expenses are as follows:
Advertising $2,000
Depreciation 3,000
Insurance 2,500
Salaries 20,000
Other 15,600
I. Variable selling and administrative expenses consist of $4 for shipping and 8% of sales
for commissions.
J. The company will acquire assets for use in the sales office at a cost of $300,000, which
will be paid at the end of January 2025. The monthly depreciation expense on the
additional capital assets will be $5,000.
K. The cash on hand on January 1, 2025 is $80,000. The accounts payable for raw materials
purchases are $124,740. The accounts receivable net of allowance for doubtful accounts,
are $650,250.
Additional information is as follows:
i. All cash payments except purchases of raw materials are made monthly as
incurred.
ii. All borrowings occur at the beginning of each month, and all repayments occur at
the end of the month. Borrowings and repayments may only occur in multiples of
$1,000.
iii. All interest on borrowed funds is paid at the end of each month at a rate of 0.5%
per month.
iv. A minimum cash balance of $25,000 is required at the end of each month.
Required:
Prepare the following budgets for each of the first three months of 2025 and use in excel sheet
when you compute this assignment.
1) Sales budget and cash collection budget
2) Production budget.
3) Raw materials purchase budget and cash payment for raw materials.
4) Direct labour budget
5) manufacturing overhead budget.
6) Selling and administrative budget.
7) Cash budget.