Question

Rayyan Builder Berhad manufactures specialist insulating products that are used in both residential and commercial buildings. One of the products, Product W, is made using two different raw materials and two types of labor. The company operates a standard absorption costing system and is now preparing its budgets for the next six quarters. The following information has been identified for Product W:

Sales:
Selling price	RM220 per unit
Sales demand:
Quarter 1	2,250 units
Quarter 2	2,050 units
Quarter 3	1,650 units
Quarter 4	2,050 units
Quarter 5	1,250 units
Quarter 6	2,050 units
Costs:
Materials:
A	5 kgs per unit @ RM4 per kg.
B	3 kgs per unit @ RM7 per kg.
Labour Skilled	4 hours per unit @ RM15 per hour.
Semi-skilled	6 hours per unit @ RM9 per hour.
Annual overheads	RM280,000

Inventory policy:
Closing inventory of finished goods - 30 percent of the following quarter’s sales demand.
Closing inventory of materials - 45 percent of the following quarter’s materials usage.

The management team is concerned that Rayyan Builder has recently faced increasing competition in the marketplace for Product W. As a consequence, there have been issues concerning the availability and costs of the specialized materials and employees needed to manufacture Product W, and there is concern that these might cause problems in the current budget setting process.

Required:
Prepare the following budgets for each quarter for Rayyan Builder Berhad:
a) Sales budget.
b) Production budget in units.
c) Raw material purchases budget in kgs and value for Material A.
d) Raw material purchases budget in kgs and value for Material B.
e) Direct labor budget for skilled labor in hours and RM.
f) Direct labor budget for semi-skilled labor in hours and RM.

Answer 1

Rayyan Builder Berhad
SALES BUDGET
QUARTER	Q1	Q2	Q3	Q4	Q5	Q6	TOTAL
SALES(UNIT)	2250	2050	1650	2050	1250	2050	11300
SALES($)	220	220	220	220	220	220
TOTAL SALES AMOUNT	495000	451000	363000	451000	275000	451000	2486000

PRODUCTION BUDGET
PARTICULARS	Q1	Q2	Q3	Q4	Q5	Q6
SALES UNIT (FORECASTED)(A)	2250	2050	1650	2050	1250	2050
ADD- CLOSING INVENTORY(B)	615	495	615	375	615	0
	(30 %OF 2050)	(30 %OF 1650)	(30 %OF 2050)	(30 %OF 1250)	(30 %OF 2050)
TOTAL PRODUCTIONREQUIREDC=(A+B)	2865	2545	2265	2425	1865	2050
LESS:- BEGINNEING INVENTORY(D)	0	615	495	615	375	615
UNITS TO BE PRODUCED E=(C-D)	2865	1930	1770	1810	1490	1435

DIRECT MATERIAL PURCHASE BUDGET FOR MATERIAL A
PARTICULARS	Q1	Q2	Q3	Q4	Q5	Q6	TOTAL
UNITS TO BE PRODUCED(E)	2865	1930	1770	1810	1490	1435
DIRECT MATERIAL A REQUIRED PER UNIT(F)in kg	5	5	5	5	5	5
TOTAL DIRECT MATERIAL A NEEDED FOR
PRODUCTION G=E*F	14325	9650	8850	9050	7450	7175	56500
ADD:- DESIRED ENDING INVENTORY(H)	4343	3983	4073	3353	3229	0	0
	(45% of 9650)	(45% of 8850)	(45% of 9050)	(45% of 7450)	(45% of 7175)
LESS:- BEGINNING MATERIAL INVENTORY(I)	0	4343	3983	4073	3353	3229	0
TOTAL DIRECT MATERIAL A TO BE PURCHAED
J=(G+H-I)	18668	9290	8940	8330	7326	3946	56500
COST PER UNIT(K)OF MATERIAL A pe kg	4	4	4	4	4	4	4
COST OF DIRECT MATERIAL PURCHASE(J*K)	74672	37160	35760	33320	29304	15784	226000

DIRECT MATERIAL PURCHASE BUDGET FOR MATERIAL B
PARTICULARS	Q1	Q2	Q3	Q4	Q5	Q6	TOTAL
UNITS TO BE PRODUCED(E)	2865	1930	1770	1810	1490	1435
DIRECT MATERIAL B REQUIRED PER UNIT(F) IN KG	3	3	3	3	3	3
TOTAL DIRECT MATERIAL B NEEDED FOR
PRODUCTION G=E*F	8595	5790	5310	5430	4470	4305	33900
ADD:- DESIRED ENDING INVENTORY(H)	2606	2390	2444	2012	1937	0	0
	(45% of 5970)	(45% of 5310)	(45% of 5430)	(45% of 4470)	(45% of 4305)
LESS:- BEGINNING MATERIAL INVENTORY(I)	0	2606	2390	2444	2012	1937	0
TOTAL DIRECT MATERIAL B TO BE PURCHAED
J=(G+H-I)	11201	5574	5364	4998	4395	2368	33900
COST PER UNIT(K)OF MATERIAL B	7	7	7	7	7	7	7
COST OF DIRECT MATERIAL PURCHASE(J*K)	78407	39018	37548	34986	30765	16576	237300

DIRECT LABOR BUDGET FOR SKILLED LABOR
PARTICULARS	Q1	Q2	Q3	Q4	Q5	Q6	TOTAL
UNITS TO BE PRODUCED (E)	2865	1930	1770	1810	1490	1435
DIRECT SKILLED LABOR REQUIRED PER UNIT (L)	4	4	4	4	4	4
TOTAL DIRECT LABOR HRS NEEDS M=E*L	11460	7720	7080	7240	5960	5740	45200
LABOR COST PER UNIT N	15	15	15	15	15	15	15
TOTAL COST OF SKILLED LABOR(M*N)	171900	115800	106200	108600	89400	86100	678000

DIRECT LABOR BUDGET FOR UNSKILLED LABOR
PARTICULARS	Q1	Q2	Q3	Q4	Q5	Q6	TOTAL
UNITS TO BE PRODUCED (E)	2865	1930	1770	1810	1490	1435
DIRECT UNSKILLED LABOR REQUIRED PER UNIT (L)	6	6	6	6	6	6
TOTAL DIRECT LABOR HRS NEEDS M=E*L	17190	11580	10620	10860	8940	8610	67800
LABOR COST PER UNIT N	9	9	9	9	9	9	9
TOTAL COST OF UNSKILLED LABOR(M*N)	154710	104220	95580	97740	80460	77490	610200