Question

In: Accounting

Question 2 (24 marks) Motswatswa (Pty) Ltd manufactures a special make of lounge suite covers and...

Question 2

Motswatswa (Pty) Ltd manufactures a special make of lounge suite covers and has compiled the following data in order to put together their first quarter operating budget for 2020:

January February March April

Sales (units) 35,000 31,000 38,000 29,000

Additional information:

Motswatswa sells each cover for R95.

Company policy is to have 30% of next month's sales (in units) in ending finished goods inventory. This policy was met in December.

Company policy is to have 40% of next month's production needs in ending raw materials inventory. The production needs for April is 95,500. This policy was met in December. It takes three meters of material to produce each cover and the cost is R2.75/meters.

Required:

A. Prepare a sales budget for the January, February and March and for the first quarter in total. (4)

B. Prepare a production budget for January, February and March and for the first quarter in total. (8)

C. Prepare a direct material purchases budget for January, February and March and for the first quarter in total. (12)

Solutions

Expert Solution

A.Sales Budget

Jan

Feb

Mar

Quarter

Sales Units

35,000

31,000

38,000

104,000

Unit Sales Price

95

95

95

95

Budgeted Sales

3,325,000

2,945,000

3,610,000

9,880,000

B.Production Budget

Jan

Feb

Mar

Quarter

Sales Units

35,000

31,000

38,000

104,000

Add: Desired Ending Inventory

9,300

11,400

8,700

29,400

Total required

44,300

42,400

46,700

133,400

Less: Beginning Inventory

10,500

9,300

11,400

31,200

Budgeted Production (units)

33,800

33,100

35,300

102,200

C.Direct Material Purchases Budget

Jan

Feb

Mar

Quarter

Budgeted Production (units)

33,800

33,100

35,300

102,200

Material per unit

3

3

3

3

Material Required

101,400

99,300

105,900

306,600

Add: Desired Ending Inventory

39,720

42,360

38,200

120,280

Total required

141,120

141,660

144,100

426,880

Less: Beginning Inventory

40,560

39,720

42,360

122,640

Purchases

100,560

101,940

101,740

304,240

Cost per metre

2.75

2.75

2.75

2.75

Budgeted Purchases

276,540

280,335

279,785

836,660


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