Question

6.12 Production, labour, materials and sales budgets Bullen & Company makes and sells upmarket carry bags for laptop computers. John Crane, controller, is responsible for preparing Bullen's master budget and has assembled the following data for 2016. The direct labour rate includes wages, all employee-related benefits and the employer's share of payroll tax. Labour-saving machinery will be fully operational by March. Also, as of 1 March, the entity's enterprise agreement calls for an increase in direct labour wages that is included in the direct labour rate. Bullen expects to have 10 000 bags in inventory at 31 December 2015, and has a policy of carrying 50 per cent of the following month's projected sales in inventory. 2016 Estimated unit sales Sales price per unit Direct labour hours per unit Direct labour hourly rate Direct materials cost per unit January 20 000 $ 80 4.0 $ 15 $ 10 February 24 000 $ 80 4.0 $ 15 $ 10 March 16 000 $ 75 3.5 $ 16 $ 10 April 18000 $ 75 3.5 $ 16 $ 10 Required (a) Prepare the following budgets for Bullen & Company for the first quarter of 2016. Be sure to show supporting calculations: (i) production budget in units (ii) direct labour budget in hours (iii) direct materials budget (iv) sales budget. (b) Calculate the total budgeted contribution margin for Bullen & Company for the first quarter of 2016. Be sure to show supporting calculations. (c) Discuss at least three behavioural considerations in the profit- planning and budgeting process. (LO2)

Answer 1

Answer:

Budgets for Bullen & Company for the first quarter of 2016 which means three months Jan- Mar 2016

(a) (i) Production budget (units)

Particulars	Jan	Feb	Mar	Total
Sales Units (given)	20000	24000	16000	60000
Add closing inventory (50% of months sales)	12000	8000	9000	29000
Total Inventory	32000	32000	25000	89000
Less Opening inventory (50% of months sales)	(10000)	(12000)	(8000)	(30000)
Total units to be produced.........(1)	22000	20000	17000	59000

(ii) Direct labour budget in hours

Particulars	Jan	Feb	Mar	Total
Units to be produced....(1)	22000	20000	17000	59000
Direct labour hours per unit (given)	4	4	3.5	11.5
Total labour Budget per hours	88000	80000	59500	227500

(iii) Direct materials budget

Particulars	Jan	Feb	Mar	Total
Units to be produced.....(1)	22000	20000	17000	59000
Cost per unit (given)....(c)	$10	$10	$10
Total Direct material cost$	$220000	$200000	$170000	$590000

(iv) Sales Budget

Particulars	Jan	Feb	Mar	Total
Sales units.....(given)	20000	24000	16000	60000
sales price per unit	$80	$80	$75
Total Sales Revenue Budget...(2)	$1600000	$1920000	$1200000	$4720000

(b) BULLEN & COMPANY

Budgeted Contribution Margin

first quarter 2016

Particulars	Jan	Feb	Mar	Total
Direct Labour hours per unit (given)	4	4	3.5
Direct Labour Hourly rate (given)	15	15	16
Direct Labour cost per unit ...(a)	$60	$60	$56
Sales Units (given)...(b)	20000	24000	16000	60000
Total Sales Revenue Budget....(2)	$1600000	$1920000	$1200000	$4720000
Direct Labour cost (a) * (b)	$1200000	$1440000	$896000	$3536000
Direct Materials Cost (b) * (c)	$200000	$240000	$160000	$600000
Contribution Margin	$200000	$240000	$144000	$584000

Working notes of Contribution Margin:

Contribution Margin = Total sales revenue - Total Variable cost

1. Contribution Margin Jan= 1600000- (direct labour = direct materials)=1600000- (1200000+200000)

=1600000-1400000=$200000 (Jan)

2. Contribution Margin Feb= 1920000- (direct labour = direct materials)=1920000- (1440000+240000)

=1920000- 1680000=$240000 (Feb)

3. Contribution Margin Mar= 1200000- (direct labour = direct materials)=1200000- (896000+160000)

=1200000-1056000=$144000(Mar)

(C) three behavioural consideration in the profit planning and budgeting process

1. It helps in attaining the goal/objective of any business concern. When any activities are properly budgeted then it motivates the managers to attain the goal or the target. Well planned decisions also takes place

2. for the process of budget or decision making it leads to the participation from the lower level to the top level of managment. Maximum production can be attained with efficient and effective workings of the managers in all level, from the least to the top participation

3. Communication process and feedback improvement: since during planning and budgeting process the steps comes through from down till top managment , interaction between employees is possible and different feedback can be received from which the decision can be improved as well.