Question

Sunshine Co. Ltd. is a manufacturing company. It manufactures 2 products, known as ‘A’ and ‘Z’. The following information is given for the year 2017: -
The standard direct materials and direct labour used for each product is as follows:
‘A’ ‘Z’
Material 1 10 units 8 units
Material 2 5 units 9 units
Direct Labour 10 hours 15 hours
Standard direct materials and direct labour costs:
($)
Material 1 8.20 per unit
Material 2 17.00 per unit
Direct Labour 14.00 per hour

ICLBAT/JANUARY 2019
4

Other important data is as follows for the year 2017:
Direct material
Material 1 Material 2
Opening inventory (units) 9,000 8,500
Closing inventory required (units) 10,000 2,000

Finished product
‘A’ ‘Z’
Forecast sales (units) 8,500 1,600
Selling price per unit $ 500 $ 660
Ending inventory required (units) 2,000 100
Beginning inventory (units) 200 90

Required:
Prepare the following budgets for the year 2017: -
(a) Sales budget

(b) Production budget

(c) Direct materials usage budget

(d) Direct materials purchase budget

(e) Direct labour budget

Answer 1

1) Sales Budget

Product	Unit Sales	Selling price per unit	Total Sales($)
A	8,500	$ 500	4,250,000
Z	1,600	$ 660	1,056,000
Total	10,100		$ 5,306,000

2) Production Budget

	A (units)	Z (units)
Ending Inventory Required	2,000	100
Add: Forecast Sales	8,500	1,600
Less:Opening Inventory	200	90
Units to be Produced	10,300	1,610

3) Direct Material Usage Budget

	A (units) (i)	Material Usage for A ($) (ii)	Z (units) (iii)	Material Usage for Z ($) (iv)	Total Usage (units)(i+iii)	Total Usage($) (ii+iv)
Material 1	10,300 *10 = 103,000	103,000 units*$8.2 = $844,600	1,610*8=12,880	12,880 units*$8.2 = $105,616	115,880	$950,216
Material 2	10,300*5 = 51,500	51,500 units*$17= $875,500	1,610*9 =14,490	14,490 units*$17 =$246,330	65,990	$1,121,830
Total	154,500 units	$1,720,100	27,370 units	$351,946	181,870	$2,072,046

4) Direct Material Purchase Budget

	Material 1 (units)	Material 2 (units)
Ending Inventory Required	10,000	2,000
Add: Material Usage Units	115,880	65,990
Less:Opening Inventory	9,000	8,500
Units to be Purchased	116,880	59,490