Question

Capati Corporation supplies frozen foods to hotels in Kuala Lumpur. The company has just signed a contract for a special order to supply frozen capati to Kuala Lumpur Hotel starting in April 2019 until the end of the year. The management has set up a special team for the special order and the plans for contract execution are as follows: • The team estimates the supply of capati for the first 6 months of the contract as follows: Months April May June July August September Sales Quantity (packs) 1.000 1.200 1,500 1,500 1.800 2,000 Ench pack consists 20 pieces of capati. The agreed selling price is RM40 per pack. The production plans to always keep ending inventory of finished good at the level of 20% of the following month sales. • Each piece of capati requires 20g of coarse wheat flour which cost the company RM8.00 per kilogram. The production expects to keep the level of ending inventory of wheat flour at 20% of the following months production needs. • The workers are expected to spend 0.1 direct labour-hours for each piece and the rate is RM8.50 per direct labour-hour. If the workers work beyond 3,000 hours in total per month, they will be paid 50% above the normal rate. The management reviews the plan prepared by the special order production team. The management accepts the plan except for the unit requirement for the coarse wheat flour. The standard quantity for a piece of capati in the normal production is 0.15g only. The team leader defended that the quantity is set to allow flexibility in the production of special order. 3 Required i. Prepare the following budgets for the first three months of the contract period ending June 30 (by month and total): a. Sales budget b. Production budget (in pieces) c. Direct material budget (the quantity (pieces) and the cost) d. Direct labour budget (the hours and the cost) (20 marks) Budgets are primarily a tool used to limit expenditures. Do you agree? Explain. (5 marks)