1. Periwinkle plc manufactures Product X using three different raw materials. The product details are as follows:

i. Selling price per unit 250. Seventy-five percent of sales are collected in the first month and these customers receive a 0.5% discount. The remainder is collected in the following month.

ii. Direct labour per unit 8 hrs

iii. Labour rate 7.50 per hour

iv. Materials requirement per unit:

Material Required Price

A 3 kg $3.50 per kg

B 2 kg $5.00 per kg

C 4 kg $4.50 per kg

v. The company is considering its budgets for next year and has made the following estimates of sales demand for Product X for July to October:

June 350 units

July 400 units

August 300 units

September 600 units

October 450 units

November 300 units

vi. It is company policy to hold stocks (inventories) of finished goods at the end of each month equal to 50 per cent of the following month's sales demand.

vii. Raw material stocks (inventories) are expected to be 40% of the following month's requirements. Material is paid for on a cash basis.

viii. Labour is paid on an hourly rate based on attendance. In addition to the unit direct labour hours shown above.

2. Gloria Hammond is the owner of GLOCO, which manufactures plastic water tanks. Gloria and her managers do no budgeting are planning for GLOCO. The company's management does not anticipate problems that arise and, as a result, the company has slow production, missed shipment deadlines and lost sales.

a) Discuss the reasons the reasons why Gloria should wish to engage in budgeting and planning.

b) Advise the company of the implications associated with a budgetary approach in which budgetary data are imposed on managers from above. Contrast such an approach with one in which budgetary data are self-imposed in a participatory manner

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