Question

Question No. 3 (Marks 15)

1. A company makes two products – PS and TG. Sales for next year are budgeted to be 5,000 units of PS and 1,000 units of TG. Planned selling prices are $95 and $130 per unit respectively.

Required:

Prepare the sale budget for the next year.                                                      (Marks 2)

2. A company makes two products, PS and TG. Forecasts sales for the coming year are 5000 and 1000 units respectively.

                    The company has the following opening and required closing inventory levels.

	PS units	TG UNITS
Opening inventory	100	50
Required closing inventory	1,100	50

Required:

                    Prepare the production budget for the coming year.                               (Marks 3)

3. Newton Ltd manufactures three products. The expected production levels for each product are shown below.

	Product 1	Product 2
Budgeted production in units	2,700	4,100

Two types of labour are used in producing the three products. Standard times per unit and expected wage rates for the forthcoming year are shown below:

	Product 1	Product 2
Hours per unit
Skilled labour	3	1
Semi-skilled labour	4	4

Skilled labour is to be paid at the rate of $9/hour and semi-skilled labour at the rate of $6/hour.

Required:

Complete the following:                                                                                            (Marks 5)

1.                                                                              

• The number of hours of skilled labor required is
• The cost of this labour is $

• The number of hours of semi-skilled labor required is
• The cost of this labour is $

4. A manufacturing business makes and sells widgets. Each widget requires two units of raw materials, which cost $3 each. Production and sales quantities of widgets each month are as follows:

Month	Sales and production units
December (actual)	50,000
January (budget)	55,000
February (budget)	60,000
March (budget)	65,000

In the past, the business has maintained its inventories of raw materials at 100,000 units. However, it plans to increase raw material inventories to 110,000 units at the end of January and 120,000 units at the end of February. The business takes one month’s credit from its suppliers.

Required:

Calculate the forecast payments to suppliers each month, for raw material purchases

Answer 1

SOLUTION

Que 3 (a)
Sales Budget
For the next Year
	PS	TG
Budgeted Sellling units (a)	5000	1000
Price per unit (b)	$95	$130
Total sales (a x b)	$475,000	$130,000
Answer for the next que (a)
Production Budget
	PS	TG
Budgeted sales in units	5000	1000
Add: Desired ending inventory	1100	50
Total needs	6100	1050
Less: Beginning inventory	100	50
REQUIRED PRODUCTION	6000	1000

Answer for the next que (a)
(i) Computation of Number of hours of skilled labor required & Total Cost of skilled labor
	Product 1	Product 2	Total
Budgeted production in units	2700	4100	6800
Skilled labour hours required per unit	3	1	-
Total skilled labor hours required (Budgeted production*Skilled labor hours per unit)	8100	4100	12200
Rate per hour for skilled labor	$9	$9	$9
Cost of skilled labor (Total skilled hours required*Rate per hour)	$72,900	$36,900	$109,800
(i) Computation of Number of hours of Semiskilled labor required & Total Cost of Semi-skilled labor
	Product 1	Product 2	Total
Budgeted production in units	2700	4100	6800
Semi-skilled labour hours required per unit	4	4	4
Total semi-skilled labor hours required (Budgeted production*semi-skilled labor hours per unit)	10800	16400	27200
Rate per hour for semi-skilled labor	$6	$6	$6
Cost of semi-skilled labor (Total semi-skilled hours required*Rate per hour)	$64,800	$98,400	$163,200