1.Prepare a master budget for the three month period ending 30 June. Include the following detailed budgets:
a)A sales budget, by month and in total for the quarter.
b)A schedule of expected cash collections from sales, by month and in total for the quarter.
c)A purchases budget in units and in dollars. Show the budget by month and in total for the quarter.
d)A schedule of expected cash disbursements for purchases, by month and in total for the quarter.
e)A cash budget. Show the budget by month and in total for the quarter. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000. [21 marks]
f)A budgeted income statement for the three-month period ending 30 June. Use the contribution approach.
g)A budgeted balance sheet as at 30 June.
2 Having prepared the budgets for the next quarter, you are now interested in ways that the budgeting process and profitability could be improved. Briefly discuss some areas where Gems Limited could incorporate improvements into the budgets produced in part 1 above.
You should write no more than 250 words in total for requirement 2.
Write a memo to the management team providing your views on the issues that emerged from the recent management team meeting. In doing so you need to:
a)Discuss the importance of the classification of costs into period and product costs and explain the difference between an inventoriable (product) cost and a period cost. In addition identify and explain the potential problems that an inaccurate classification of product and period costs may cause.
b)Provide a brief description of what an activity based costing system is and why it could be better than the current job order cost system when new product lines are introduced. [5 marks]
c)State whether the anger of the operating division managers is justified and whether you agree with their comments. Also identify and discuss an alternative to using actual rates for allocating support department costs that could be used by the company to alleviate the operating division managers’ anger.
You should write no more than 400 words in total for Part B.