P9.41 LO 9.11 (appendix) Production, materials, labour and overhead budgets: manufacturer The La Casa division of Peters Ltd produces an intricate component used in Peters' major product line. Recently, the divisional manager has been concerned by a lack of coordination between purchasing and production personnel and believes that a monthly budgeting system should be introduced to manage these interdependencies. As an experiment, La Casa's divisional manager has decided to develop budget information for the third quarter of the current year to test the system, before the full budget system is implemented for the following year. In response to the divisional manager's request, the divisional accountant has accumulated the following data: Internal Sales: Sales to 30 June, the first six months of the current year, are 24000 units. Actual sales in units for May and June, and estimated unit sales for the next four months, are as follows: May (actual) June (actual) July (estimated) August (estimated) September (estimated) October (estimated) 4000 4000 5000 6000 7000 7000 The La Casa division expects to sell 60000 units during the year ending 31 December. Direct material: Data regarding the materials used in the component are shown in the following schedule. The desired monthly ending inventory for all direct materials is an amount sufficient to produce the next month's estimated sales.

Direct material No. 101 No. 211 No. 242 Units of direct material per finished component 6 4 2 Inventory level Cost per unit $2.40 30 June (units) 35000 3.60 1.20 30000 14000 Direct labour: Each component must pass through three different processes to be completed. Data regarding direct labour follows: Process Forming Assembly Finishing Direct labour hours per finished component Cost per direct labour hour 0.400 $40.00 1.000 0.125 32.00 36.00 Manufacturing overhead: The division produced 27000 components during the six-month period ending 30 June. The actual variable overhead costs incurred during this six-month period are given in the following schedule.

The divisional accountant believes that the variable overhead costs will be incurred at the same rate per unit of output during the last six months of the year. Supplies Electricity Indirect labour Other Total variable overhead $ 59 400 27000 54000 8100 $148500 The fixed overhead costs incurred during the first six months amounted to $93500. Fixed overhead costs are budgeted for the full year as follows: Supervision Taxes $ 60000 7200 86400 Depreciation Other Total fixed overhead Finished goods: 32 400 $186000 The desired monthly ending inventory of completed components is 80 per cent of the next month's estimated sales. There are 5000 finished units in inventory on 30 June. Required 1. Prepare a production budget in units for the La Casa division for the third quarter, ending 30 September. 2. Independent of your answer to requirement 1, assume that the La Casa division plans to produce 18000 units during the third quarter, ending 30 September, and 60000 units for the year ending 31 December.

(a) Prepare a direct material purchases budget, in units and dollars, for the third quarter.

(b) Prepare a direct labour budget, in hours and dollars, for the third quarter.

(c) Prepare a manufacturing overhead budget for the six-month period ending 31 December.