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1 0 . 1 1 There is a continuing demand for three sub - assemblies, A , B , and C , made and sold

10.11 There is a continuing demand for three sub-assemblies, A, B, and C, made and sold by MW Limited. Sales are in the ratios of A: 1,B:2,C:4, and selling prices are A: R215, B: R250, C: R300.
Each sub-assembly consists of a copper frame onto which are fixed the same components but in differing quantities, as follows:
\table[[Sub-assembly,Frame,Component,Component,Component],[,,D,E,F],[A,1,5,1,4],[B,1,1,7,5],[C,1,3,5,1],[Buying in costs per unit,R20,R8,R5,R3]]
Operation times by labour for each subassembly are:
\table[[Sub-assembly,Skilled hours,Unskilled hours],[A,2,2],[B,1.5,2],[C,1.5,3]]
The skilled labour is paid R6 per hour, and unskilled labour is paid R4.50 per hour. The skilled labour is located in a machining department, and the unskilled labour in an assembly department. A five-day week of 37.5 hours is worked, and each accounting period is for four weeks. Variable overhead per sub-assembly is A: R5, B: R4, and C: R3.50. 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
10% reduction in all finished sub-assemblies and bought-in stocks during Period 1 of the forthcoming year.
Forecast stocks at current year end are:
\table[[Stock,Quantity],[Sub-assembly A,300],[Sub-assembly B,700],[Sub-assembly C,1600],[Copper frames,1000],[Component D,4000],[Component E,10000],[Component F,4000]]
Work-in-progress stocks are to be ignored.
Overheads for the forthcoming year are budgeted to be as follows:
Production
R728000
Selling and distribution R364000
Administration R338000
These costs, all fixed, are expected to be incurred evenly throughout the year and are treated as period costs.
Within Period 1, 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 R6.5 million before tax.
Required:
(a) Prepare budgets in respect of Period 1 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 bought-in 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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