Question

Sunshine Co. Ltd. is a manufacturing company. It manufactures 2 products, known as ‘A’ and ‘Z’. The following information is given for the year 2017: -
The standard direct materials and direct labour used for each product is as follows:
‘A’ ‘Z’
Material 1 10 units 8 units
Material 2 5 units 9 units
Direct Labour 10 hours 15 hours
Standard direct materials and direct labour costs:
($)
Material 1 8.20 per unit
Material 2 17.00 per unit
Direct Labour 14.00 per hour

ICLBAT/JANUARY 2019
4

Other important data is as follows for the year 2017:
Direct material
Material 1 Material 2
Opening inventory (units) 9,000 8,500
Closing inventory required (units) 10,000 2,000

Finished product
‘A’ ‘Z’
Forecast sales (units) 8,500 1,600
Selling price per unit $ 500 $ 660
Ending inventory required (units) 2,000 100
Beginning inventory (units) 200 90

Required:
Prepare the following budgets for the year 2017: -
(a) Sales budget (3 marks)

(b) Production budget (4 marks)

(c) Direct materials usage budget (7 marks)

(d) Direct materials purchase budget (4 marks)

(e) Direct labour budget (3 marks)

Answer 1

a	Sales Budget
		Product 'A'	Product 'Z'
	Forecasted Unit Sales	8500	1600
	Selling Price per Unit	$              500.00	$              660.00
	Forecasted Sales	$ 4,250,000.00	$ 1,056,000.00
b	Production Budget
		Product 'A'	Product 'Z'
1	Budgeted Unit Sales	8500	1600
2	Add: Ending Inventory	2000	100
3	Total Needs	10500	1700
4	Less: Beginning Inventory	200	90
5	Required Production in Unit	10300	1610

c	Direct Material Usage Budget
		Material 1			Material 2
		Product 'A'	Product 'Z'	Total	Product 'A'	Product 'Z'	Total
1	Required Production unit of Finished Product	10300	1610	11910	10300	1610	11910
2	Unit of raw material need per unit of finished goods	10	8		5	9
3	Units of Raw Material needed to meet production (1*2)	103000	12880	115880	51500	14490	65990

d	Direct Material Purchase Budget
		Material 1	Material 2
1	Units of Raw Material needed to meet production	115880	65990
2	Add: Ending Inventory	10000	2000
3	Total Units of raw material needed (1+2)	125880	67990
4	Less: Beginning Inventory	9000	8500
5	Units of Raw Material to be purchased (3-4)	116880	59490
6	Unit Cost of raw material	$                   8.20	$                17.00
7	Cost of Raw material to be purchased (5*6)	$      958,416.00	$ 1,011,330.00

e	Direct Labour Budget
		Product 'A'	Product 'Z'	Total
1	Required Production unit of Finished Product	10300	1610	11910
2	Direct labour hours required per unit of finished goods	10	15
3	Total Direct labour hour required to meet production (1*2)	103000	24150	127150
4	Direct Labour Cost per hour			$                14.00
5	Total Direct Labour Cost (3*4)			$ 1,780,100.00

Answer 2

a	Sales Budget
		Product 'A'	Product 'Z'
	Forecasted Unit Sales	8500	1600
	Selling Price per Unit	$              500.00	$              660.00
	Forecasted Sales	$ 4,250,000.00	$ 1,056,000.00
b	Production Budget
		Product 'A'	Product 'Z'
1	Budgeted Unit Sales	8500	1600
2	Add: Ending Inventory	2000	100
3	Total Needs	10500	1700
4	Less: Beginning Inventory	200	90
5	Required Production in Unit	10300	1610

c	Direct Material Usage Budget
		Material 1			Material 2
		Product 'A'	Product 'Z'	Total	Product 'A'	Product 'Z'	Total
1	Required Production unit of Finished Product	10300	1610	11910	10300	1610	11910
2	Unit of raw material need per unit of finished goods	10	8		5	9
3	Units of Raw Material needed to meet production (1*2)	103000	12880	115880	51500	14490	65990

d	Direct Material Purchase Budget
		Material 1	Material 2
1	Units of Raw Material needed to meet production	115880	65990
2	Add: Ending Inventory	10000	2000
3	Total Units of raw material needed (1+2)	125880	67990
4	Less: Beginning Inventory	9000	8500
5	Units of Raw Material to be purchased (3-4)	116880	59490
6	Unit Cost of raw material	$                   8.20	$                17.00
7	Cost of Raw material to be purchased (5*6)	$      958,416.00	$ 1,011,330.00

e	Direct Labour Budget
		Product 'A'	Product 'Z'	Total
1	Required Production unit of Finished Product	10300	1610	11910
2	Direct labour hours required per unit of finished goods	10	15
3	Total Direct labour hour required to meet production (1*2)	103000	24150	127150
4	Direct Labour Cost per hour			$                14.00
5	Total Direct Labour Cost (3*4)			$ 1,780,100.00