Question

Emanuel Products produces coat racks in Toronto, Canada. The accountant has presented you the following budgeted data for the third quarter of 2020. Sales are forecasted to be 70,000 units at a price per unit of $35. The budgeted beginning and ending finished goods inventories are 6,000 and 12,000 units respectively. It is estimated that each rack requires five kilograms of metal at a budgeted price of $3 per kg. The beginning raw materials inventory is estimated as 3,500 kilograms. George Products wants to keep ending raw materials inventory of 5,500 due to fluctuations in demand. Each rack requires 1.4 hours of direct labour and the standard hourly pay rate is $18.

Required: (please show all steps of your computation in proper format)

1. Prepare a sales budget for the third quarter of 2020.

2. Prepare a production budget for the third quarter of 2020. (1.5 marks)

3. Prepare a direct materials purchases budget for the third quarter of 2020. (1.5 marks)

4. Prepare a direct labour budget for the third quarter of 2020. (1 mark)

5. Mr Peter started a business by acquiring a medium sized manufacturing firm. He hired you to work in the accounting department. You are in charge of providing management accounting reports to aid him in the planning and control of operations and make sure that everything the company does is consistent to the plan. He advised you not to implement a standard costing system as he does not see any purpose in doing that. What is your reaction to his advice? If you don’t agree on his idea, how do you convince him to accept the importance of standard costing? (1 mark)

(Total 6 Marks)

Answer 1

	Emanuel Products
	Sales Budget
	For the third Quarter of 2020
1)
	Sales (Units)=(A)	70000
	Selling Price per unit=(B)	$                     35.00
	Sales Price=(A)*(B)	$      24,50,000.00
	Emanuel Products
	Production Budget
2)
	Expected Unit Sales=(A)	70000
	Finished Goods Inventory=(B)	12000
	Total Units Required=(C )=(A)+(B)	82000
	Beginning Finished Goods Inventory=(D )	6000
	Required Production units=(C )-(D)	76000
	Emanuel Products
3)	Direct Material Budget
	Units to be produced=(A)	76000
	Direct Material required per unit in Kgs(B)	5
	Total lbs required for production=(C )=(A)*(B)	380000
	Ending Raw Material=(D)	5500
	Total Raw Material Required=(E )=(C )+(D)	385500
	Beginning Raw Material=(F )	3500
	Direct Raw Material Purchase=(G)=(E )-(F )	382000
	Cost per pound of raw material=(H)	$                       3.00
	Cost of Direct Material purchase(G)*(H)	$      11,46,000.00
4)	Direct Labor Budget
	Units to be produced=(A)	76000
	Direct labor per unit in hours=(B)	1.4
	Direct labor hour needed(C )=(A)*(B)	106400
	Direct Labor Cost per hour=(D)	$                     18.00
	Cost of Direct Labor*C )*(D)	$      19,15,200.00