Question

Question 2 (24 marks)

Motswatswa (Pty) Ltd manufactures a special make of lounge suite covers and has compiled the following data in order to put together their first quarter operating budget for 2020:

January February March April

Sales (units) 35,000 31,000 38,000 29,000

Additional information:

Motswatswa sells each cover for R95.

Company policy is to have 30% of next month's sales (in units) in ending finished goods inventory. This policy was met in December.

Company policy is to have 40% of next month's production needs in ending raw materials inventory. The production needs for April is 95,500. This policy was met in December. It takes three meters of material to produce each cover and the cost is R2.75/meters.

Required:

A. Prepare a sales budget for the January, February and March and for the first quarter in total. (4)

B. Prepare a production budget for January, February and March and for the first quarter in total. (8)

C. Prepare a direct material purchases budget for January, February and March and for the first quarter in total. (12)

Answer 1

A.Sales Budget

	Jan	Feb	Mar	Quarter
Sales Units	35,000	31,000	38,000	104,000
Unit Sales Price	95	95	95	95
Budgeted Sales	3,325,000	2,945,000	3,610,000	9,880,000

B.Production Budget

	Jan	Feb	Mar	Quarter
Sales Units	35,000	31,000	38,000	104,000
Add: Desired Ending Inventory	9,300	11,400	8,700	29,400
Total required	44,300	42,400	46,700	133,400
Less: Beginning Inventory	10,500	9,300	11,400	31,200
Budgeted Production (units)	33,800	33,100	35,300	102,200

C.Direct Material Purchases Budget

	Jan	Feb	Mar	Quarter
Budgeted Production (units)	33,800	33,100	35,300	102,200
Material per unit	3	3	3	3
Material Required	101,400	99,300	105,900	306,600
Add: Desired Ending Inventory	39,720	42,360	38,200	120,280
Total required	141,120	141,660	144,100	426,880
Less: Beginning Inventory	40,560	39,720	42,360	122,640
Purchases	100,560	101,940	101,740	304,240
Cost per metre	2.75	2.75	2.75	2.75
Budgeted Purchases	276,540	280,335	279,785	836,660