Question

You need to prepare the budget for Yellow tree for the quarter ending June 2018. The budget must be prepared monthly. The quarter consists of 13 weeks. The forecasted sales are as follows:

April 4 weeks May 5 weeks June 4 weeks July 4 weeks

Sales Units 1,250 1,500 1,750 1,800

The company’s policy changed the inventory policy to keep closing inventory of completed units at 25% of the following month’s sales. Opening inventory on the 1st of April was 475 units.

The labour information is as follows:

Normal working hours 8 hours per day

Weekend work None, only if overtime is required.

Number of employees 20 currently Additional 10 employees will be employed for the month of June

Normal time rate R32.50 per hour

Overtime rate 30% above normal time rate per hour

Hours per unit 3 hours

1. Calculate the production budget for the quarter. (3)
2. Calculate the budgeted labour hours per month. Split the hours between normal time and overtime. (9)
3. Calculate the budgeted labour cost monthly. Split the cost between normal time and overtime. (6)

Answer 1

1.

Production Budget
	April	May	June
Expected Sales Units	1,250	1,500	1,750
Ending Inventory	375	437.5	450
Beginning Inventory	475	375	437.5
Expected production	1,150	1,562.5	1,762.5

2.

Budgeted labour hours
	April	May	June
Expected production	1150	1562.5	1762.5
Hours per Unit	3	3	3
Total Hours	3450	4687.5	5287.5
Normal Hours	3200	4000	4800
Overtime Hours	250	687.5	487.5

3.

Budgeted labour cost
Normal Hours	3200	4000	4800
Overtime Hours	250	687.5	487.5
Normal Rate per Hour	32.5	32.5	32.5
Overtime Rate per Hours	42.25	42.25	42.25
Normal Labour Cost	104,000.00	130,000.00	156,000.00
Overtime Labour cost	10,562.50	29,046.88	20,596.88
Total Labour Cost	114,562.50	159,046.88	176,596.88

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