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1 0 . 1 1 There is a continuing demand for three sub - assemblies, A , B , and C , made and sold
There is a continuing demand for three subassemblies, A B and C made and sold by MW Limited. Sales are in the ratios of A: :: and selling prices are A: R B: R C: R
Each subassembly consists of a copper frame onto which are fixed the same components but in differing quantities, as follows:
tableSubassembly,Frame,Component,Component,ComponentDEFABCBuying in costs per unit,RRRR
Operation times by labour for each subassembly are:
tableSubassembly,Skilled hours,Unskilled hoursABC
The skilled labour is paid R per hour, and unskilled labour is paid R per hour. The skilled labour is located in a machining department, and the unskilled labour in an assembly department. A fiveday week of hours is worked, and each accounting period is for four weeks. Variable overhead per subassembly is A: R B: R and C: R At the end of the current year, stocks are expected to be as shown below, but because interest rates have increased and the company utilises a bank overdraft for working capital purposes, it is planned to effect a
Budgets
reduction in all finished subassemblies and boughtin stocks during Period of the forthcoming year.
Forecast stocks at current year end are:
tableStockQuantitySubassembly ASubassembly BSubassembly CCopper frames,Component DComponent EComponent F
Workinprogress stocks are to be ignored.
Overheads for the forthcoming year are budgeted to be as follows:
Production
R
Selling and distribution R
Administration R
These costs, all fixed, are expected to be incurred evenly throughout the year and are treated as period costs.
Within Period it is planned to sell one thirteenth of the annual requirements, which are to be the sales necessary to achieve the company profit target of R million before tax.
Required:
a Prepare budgets in respect of Period of the forthcoming year for
i sales, in quantities and value
ii production, in quantities only
iii materials usage, in quantities
iv materials purchases, in quantities and value
v labour force budget, that is numbers of people needed in each of the machining department and the assembly department.
b Discuss the factors to be considered if the boughtin stocks were to be reduced to one week's requirements. This has been proposed by the purchasing officer but resisted by the production director.
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