Question

• Xavier Sound Industries manufactures and sells two models of headphones, Regular and Classic. It expects to sell 6,000 units of Regular and 2,000 units of Classic in 2021.The following estimates are given for 2021:

                                                   Regular                   Classic

Selling price                           Rs. 1000          Rs. 1500

• Xavier had an inventory of 400 units of Regular and 150 units of Classic at the end of 2020. It has decided that as a measure to counter stock outages it will maintain ending inventory of 700 units of Regular and 400 units of Classic.

• Each headphone requires 5 units of material- C, and 6 units of Material-D. Both have to be imported at a cost of Rs. 20 per unit. There were 1000 units of material- C, and 1200 units of material- D in stock at the end of 2020.The management does not want to have any stock of both materials at the end of 2021.

• It requires 30 minutes of direct labor time to produce Regular and 45 minutes Classic, direct labor cost is Rs. 500 per hour.

• Variable overhead costs Rs. 55 per direct labor hour. Fixed overhead costs Rs. 300,000 per year.

You are required to apply fixed budgeting knowledge and answer the following with respect of 2021:

1. Sales budget
2. Production budget
3. Direct material purchase budget
4. Direct labor cost budget
5. Factory overhead budget
6. Manufacturing cost budget

Answer 1

Solution : Answer of the Following Budget are as follows

1)

	Sales Budget
	Particulars		Regular	Classic
	Expected units to be sold	6000	2000
	Selling price per unit		₹ 1,000.00	₹ 1,500.00
	Expected Sales		₹ 6,000,000.00	₹ 3,000,000.00

2)	Production Budget
	Particulars		Regular	Classic
	Expected units to be sold	6000	2000
Add:	Desired ending inventory	700	400
Less:	Beginning inventory		400	150
	Production Required		6300	2250

3)	Direct Material Purchase Budget
	Particulars		Regular	Classic	Total
	Production Required		6300	2250	8550
	Material C required per unit			5
	Total Material C required			42750
Less:	Beginning Stock of Material C			1000
	Material C req. to be purchased		(A)	41750
	Production Required		6300	2250	8550
	Material D required per unit			6
	Total Material C required			51300
Less:	Beginning Stock of Material C			1200
	Material C req. to be purchased		(B)	50100
	Total Req. of Materials		(A+B)	91850
	Import Cost per unit				₹ 20.00
	Total Expected Purchase Cost			₹ 1,837,000.00

4)	Direct Labor Cost Budget
	Particulars		Regular	Classic	Total
	Production Required		6300	2250
	Hours required per unit	0.5	0.75
	Total Hours Required	3150	1687.5	4837.5
	Labor Cost per hour				₹ 500.00
	Total Direct Labor Cost			₹ 2,418,750.00

5)	Factory OH Budget
	Total Hours Required	4837.5
	Variable OH rate		₹ 55.00
	Total Variable OH cost	₹ 266,062.50
	Fixed OH Cost		₹ 300,000.00
	Total OH cost		₹ 566,062.50

6)	Manufacturing Cost Budget
	Raw Materials Purchase	₹ 1,837,000.00
	Direct Labor Cost		₹ 2,418,750.00
	Factory OH		₹ 566,062.50
				₹ 4,821,812.50