Answered: Aggrava Limited is currently preparing…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter8: Budgeting

Section: Chapter Questions

Problem 4PB

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Question

Aggrava Limited is currently preparing budgets for September to December. Its estimated sales figures in units are as follows:

(financial information) =

	September	October	November	December
Sales (units)	5,569	14,234	14,847	15,121

Inventories at 31 August totalled

16,234

units, and inventories are to be kept at a constant level for all months except December, when opening inventories on 1 December are to be increased to

23,118.

Inventories will revert to the normal level on 31 December.

Inventories will cost £2 per unit throughout the period, and suppliers allow

Aggrava

Ltd to pay in the month following an order. Other relevant information is that

3,497

units were bought in August.

Requirement 1: Prepare

Aggrava

Ltd's inventories budget (in units) for September to December.

Requirement 2: Prepare the information relevant to inventories purchases that would appear in the cash budget for the period.

Question content area bottom

Part 1

Requirement 1:

Aggrava

Ltd's inventories budget (in units) is as follows:

(Fill in the relevant cells with its corresponding figures. Negative figures should be entered in brackets.)

	September	October	November	December
Opening inventories (A)
Sales forecast (B)
A - B = (C)
Inventories purchase* (E - C)
Closing inventories (E)

* same as 'sales forecast' for each month except November and December, when inventories increase and then revert to normal.

Part 2

Requirement 2: Relevant information relating to inventories purchases for the cash budget is as follows:

(Fill in the relevant cells with its corresponding figures.)

	August	September	October	November	December
Inventories purchased (units) (A)
Cost per unit (£) (B)	2	2	2	2	2
Cost of inventories bought (£) [A*B = (C)]
Cash outflow (£)

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