Question

Jamdown & Associates Ltd produces two products, Glam120 and Glam220. The following table provides information on budgeted production for 2018:

                                                     Production Forecast

Product	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Glam120	5,000	6,000	4,800	5,500	21,300
Glam220	6,500	4,600	5,400	6,200	22,700

Notes:

It is the company’s policy to have stock on hand at the end of each quarter equaling to 10% of production for the next quarter.

Budgeted production for the first quarter of 2019 were: Glam120, 7,000 units and Glam220, 5,800 units.

During 2018, the company plans to sell one unit of Glam120 for $600 and one unit of Glam220 for $700.       

Management has forecasted that variable overhead cost per unit for Glam120 and Glam200 would be $100 and $120 respectively during 2018, while fixed overheads for the same period were estimated to be $2,400,000 and would be incurred in equal amounts quarterly.

Required:

Calculate the number of units to be sold for both products during each quarter of 2018.

Prepare the sales budget for 2018.

Prepare the overhead cost budget for the four quarters in 2018.

Explain what is meant by a limiting budget factor.

Describe two limiting factors that could influence the achievement of Jamdown & Associates profit objectives for 2018.

Answer 1

1)
	Product
	GLAM 120	Quarter 1	Quarter 2	Quarter 3	Quarter 4
	Opening Stock	-	600	480	550
Add:	Production	5,000	6,000	4,800	5,500
	Goods available	5,000	6,600	5,280	6,050
Less:	Closing stock required@10% of next month production	600	480	550	700	=7000*10%
	Units sold	4,400	6,120	4,730	5,350
	Product
	GLAM 220	Quarter 1	Quarter 2	Quarter 3	Quarter 4
	Opening Stock	-	460	540	620
Add:	Production	6,500	4,600	5,400	6,200
	Goods available	6,500	5,060	5,940	6,820
Less:	Closing stock required@10% of next month production	460	540	620	580	=5800*10%
	Units sold	6,040	4,520	5,320	6,240
2)	Sales Budget	Quarter 1	Quarter 2	Quarter 3	Quarter 4
	GLAM 120
a	Units sold	4,400	6,120	4,730	5,350
b	Sales Price	600	600	600	600
c=a*b	Sales in $	2,640,000	3,672,000	2,838,000	3,210,000
	GLAM 220
a	Units sold	6,040	4,520	5,320	6,240
b	Sales Price	700	700	700	700
c=a*b	Sales in $	4,228,000	3,164,000	3,724,000	4,368,000
3)	Overhead Cost Budget
	GLAM 120
a	Production	5,000	6,000	4,800	5,500
b	Variable Overhead per unit	100	100	100	100
c=a*b	Variable overhead cost	500,000	600,000	480,000	550,000
d	Fixed Overhaed cost	600,000	600,000	600,000	600,000	=2400000/4
e=c+d	Total Overhead cost	1,100,000	1,200,000	1,080,000	1,150,000
	GLAM 220
a	Production	6,500	4,600	5,400	6,200
b	Variable Overhead per unit	120	120	120	120
c=a*b	Variable overhead cost	780,000	552,000	648,000	744,000
d	Fixed Overhaed cost	600,000	600,000	600,000	600,000	=2400000/4
e=c+d	Total Overhead cost	1,380,000	1,152,000	1,248,000	1,344,000
4)
	Limiting factor is the factor that restricts the expansion of business when budget is prepared. It may be direct labour,machine hour, sales or other similar factor.