Question 2
ICAN
•
2022
•
PERFORMANCE MANAGEMENT
•
mixed
Case Stimulus
Mega Laboratories plc is a successful manufacturing company in the pharmaceutical industry. The company manufactures a number of household drugs. Since the advent of the Covid-2019 pandemic, its products have been in high demand. One of its newest products is known as vacineDcovid. In order to manufacture the product, a single raw material, Zithromax is used.
Budgets are to be prepared for the quarter ending 30 June 2021 and the following information is available for this purpose:
(i) At 31 March 2021 various balances were as follows:
Receivables N500,700
Creditors (suppliers of Zithromix) N153,000
Inventory of vacineDcovid 20,300 units
Inventory of Zithromix 200,000 kg
(ii) Extracts from the ‘standard cost card’ – vacineDcovid are as follows:
N/unit
Direct material Zithromax, 10kg at N5.00 per kg N50.00
Direct labour, 2 hours at N6.00 per hour N12.00
(iii) Suppliers of Zithromax give two months credit to the company, whereas customers take one month’s credit.
(iv) Sales expectations for the quarter ending 30 June 2021 are as follows:
25,000 units of vacineDcovid at a selling price of N95.00 per unit.
(v) Assume that sales of vacineDcovid and purchases of Zithromix will be evenly spread over the three months to 30 June 2021.
(vi) Depreciation relating to plant and machinery is N55,000 for the quarter ending 30 June 2021.
(vii) ‘Other expenses’ are paid immediately in cash, and are estimated to be N200,000 for the quarter ending 30 June 2021.
(viii) The anticipated inventory levels at 30 June 2021 are as follows:
Inventory of vacineDcovid 15,000 units
Inventory of Zithromix 150,500 kgs
(ix) Assume there is no work-in-progress and that stocks of vacineDcovid and Zithromix are valued at standard direct cost – see (ii) above.
Additional Information
{
"label": "Supporting information 1",
"content": "| Description | Amount |\n|-------------------------------------|------------|\n| Receivables | ₦500,700 |\n| Creditors (suppliers of Zithromix) | ₦153,000 |\n| Inventory of vacineDcovid | 20,300 units|\n| Inventory of Zithromix | 200,000 kg |"
}
{
"label": "Supporting information 2",
"content": "| | ₦\/unit |\n|---|---|\n| Direct material Zithromax, 10kg at ₦5.00 per kg | ₦50.00 |\n| Direct labour, 2 hours at ₦6.00 per hour | ₦12.00 |\n| Inventory of vaccineDcovid | 15,000 units |\n| Inventory of Zithromax | 150,500 kgs |"
}
Requirements
(
a
)
A cash budget (amounts for each separate month are not required).
(
b
)
Income Statement budget. (clearly state any assumptions you have made)
(
c
)
Briefly state the benefits of a Cash Budget to Mega Laboratories plc.
(
d
)
Explain the meaning of a ‘principal budget factor’ and assuming that is sales, explain how sales may be forecast, making appropriate reference to the use of statistical techniques and the use of computers.
Detailed Solution & Marking Scheme
Get the step-by-step solution,
key points required by examiners
and detailed marking guidance
through the Edcrib AI Tutor.
Reveal Answer
About This Question
This is
Ican
2022
Performance Management
Question 2.
It is one of the
mixed
questions from the
2022
Ican
Performance Management
examination.