(a) Elizabeth Eleanor Limited has decided to produce and sell a new product commencing in January. To assist in budget preparation the following information is available (1) Production and sales January February March 15 units 15 units 30 units Selling price of all units 1,100 (ii) Direct labour: It is estimated that direct labour will be subject to a 90 per cent cumulative-average learning curve. The very first unit is expected to take 120 hours. The labour output rates from the commencement of production, after adjusting for the effect of the learning curve are as follows Total Units Produced 15 30 45 60 Cumulative Average Time Per Unit (Hours) 79.51 71.56 67.28 64.40 Labour is paid at a rate of F4 per hour and is recruited as needed (iii) Variable overhead is estimated at 200 per cent of direct labour (iv) Direct material is used at the rate of 300 kgs per unit for the first 20 units. Thereafter, material usage per unit will fall by 4 per cent of the original level for each 20 units produced as the learning curve effect improves the efficiency with which the material is used. All material can be bought for 1 per kg. Requirement Prepare a budget for each of the first three months of the year, showing the contribution earned from the product. 18 marks (b) Explain how the learning curve may impact on the preparation of the cash budget. Use the example in part (a) of the question to illustrate your discussion. 7 marks Total 25 marks (a) Elizabeth Eleanor Limited has decided to produce and sell a new product commencing in January. To assist in budget preparation the following information is available (1) Production and sales January February March 15 units 15 units 30 units Selling price of all units 1,100 (ii) Direct labour: It is estimated that direct labour will be subject to a 90 per cent cumulative-average learning curve. The very first unit is expected to take 120 hours. The labour output rates from the commencement of production, after adjusting for the effect of the learning curve are as follows Total Units Produced 15 30 45 60 Cumulative Average Time Per Unit (Hours) 79.51 71.56 67.28 64.40 Labour is paid at a rate of F4 per hour and is recruited as needed (iii) Variable overhead is estimated at 200 per cent of direct labour (iv) Direct material is used at the rate of 300 kgs per unit for the first 20 units. Thereafter, material usage per unit will fall by 4 per cent of the original level for each 20 units produced as the learning curve effect improves the efficiency with which the material is used. All material can be bought for 1 per kg. Requirement Prepare a budget for each of the first three months of the year, showing the contribution earned from the product. 18 marks (b) Explain how the learning curve may impact on the preparation of the cash budget. Use the example in part (a) of the question to illustrate your discussion. 7 marks Total 25 marks