The Budgeting Process of Sloe Gin Cake Company - Essay Example

Secondly, the process incorporated controls that laid the foundation for attaining the objectives at the planning stage (Drury, 2005). The relevant budgets preceding the actual cash budget have been tabulated in the Excel sheets attached to this document. According to Rao, McGuigan & Moyer (2011), effective cash budgeting helps companies to determine cash flow problems. The selling price for the fruit cakes had been set at 20 for the entire seven months. Schedule for Expected Cash Collections Sales would be on account incorporating both cash and credit transactions. The company would collect 50% of the credit sales in the month of the sale and 50 % the following month, except for the seventh month when the company would manage the entire value in cash. The company had a soft loan of 3000 to start the business on July 1, 2014. Further, no interest on the loan was to be paid, but the principal amount had to be paid at the end of the seven months.

Production Products for every month would only cover the month's sales; that is, projection production for each month would cover sales for that month. Direct Materials Budget Ten kilograms of assorted materials produce one unit of the fruit cake. The company receives all the materials necessary for the month's production on the last day preceding the month of operations. As of July 1st, 2014, there were 1000 kilograms of various materials in the warehouse. The average price of the multiple materials stood at 0. 1 per kilo. Schedule for Expected Cash Disbursements for the Materials 50% of the month’s raw material purchases are paid for in the month of the purchase, with the remaining fifty percent paid for in the succeeding month. Purchases of raw materials in December are paid for 100% in cash. Direct Labour Budget A unit of fruit case is estimated to be produced in 0.05 hours of direct labor. An hour of production has been projected would cause the company 10. Payments for immediate delivery would be made in the month of production.

Manufacturing Overhead Budget Variable manufacturing has been estimated would cause the company to pay 10 per direct labor. Fixed manufacturing overhead per month would be 100. depreciation has been calculated to be 10% of the fixed overhead monthly. Ending Finished Goods Inventory Budget Sloe Gin Cake Company uses the absorption costing method in producing its end-of-the-period income and balance sheet statements. Determinable overhead rate/hour = Total manufacturing overhead Total direct labor Total manufacturing overhead = total manufacturing variable cost+ total fixed manufacturing overheads.

Selling and Administrative Expense Projection Variable selling and administrative expenses are 1 per unit sold. Rent and other fixed selling and administrative expenses have been projected to cost the company 100 every month, and an allowance of 10% has been made for depreciation which is included in the fixed costs. Cash Budget An overdraft credit has been arranged with the bank in case of a shortfall in cash to meet the intended expenses of 500. The interest applicable to the overdraft as it has been placed would be 1%.

The company projects that the monthly cash balance would show a net amount of 500. Furniture and equipment purchases scheduled for the operation have been estimated to cost 3000, and they will be procured on July 1, 2014, just before the operations commence. The owner of the company would be paid part of the profit at the end of the six months, amounts totaling 5000. Furniture and equipment totaling 7,320 were given to the project by the local authority under a youth empowerment program to facilitate the process.

Conclusion The business looks lucrative if the actual activities match the budgeted projections. Still, due to the uncertain and turbulent market, the budgeted estimates might differ from the actual results. The paper has not provided for differences. However, a careful appraisal of the values and steady work might help the company to achieve the budgeted values. The budgeting process, from the first budget document to the last one, the cash budget, collectively provides a rough estimate of the company's health.