Box&Box Ltd is a manufacturing company producing and selling one product only: small metal

container box for shipping by sea. In September, the company's Production & purchase manager ispreparing the budget for its Department for the last quarter of the current year (starting on October 1"and ending on December 31") according to the Company rolling budet that adds a quarter once theprevious is completed.

The Sales Department provided the following information regarding the sales volume (Table 1) andthe ending inventory policy for the finished goods that requires each month (including September) tohave on hand an inventory equal to the sales units for the following month.

Table 1 October November December January

Sales volume (units) 3,000 8,000 6,000 5,000

In addition, the Production & purchase manager gathered the following information:

the container production process requires a single raw material to be used (steel) that the managerplans to buy at a price of 4 S/Kg. In order to produce a single container, 20 Kg of steel are needed.

To produce the containers, some direct labor is used in the finishing phase only. The workers thattake care of this phase are required to finish 10 containers in 1 hour. The budgeted cost of directlabor is 20 $/hour. The production manager estimated to have 2.000 labor hours available in thequarter.

The budgeted fixed overhead costs per unit of output amount to 480 $ and the budgeted variableoverhead costs per unit of output amount to 35 $.

In order to avoid shortage of steel, the Company's yearly policy for the raw material endinginventory requires having on hand each month an inventory of 110% of the units (kg) needed tomeet the production schedule in the following month. The ending inventory in December 31st isplanned to be equal to 100.000 Kg of steel.

Required:

1-Prepare the production budget in units, detailed by month and including the quarter recap.

2-Prepare the direct material usage and purchase budgets (both in units and in dollar), detailed by month and including the quarter recap.

3-Prepare the direct labor usage budget, detailed by month and including the quarter recap. Furthermore, verify if the direct labor hours needed to complete the finishing phase exceed the capacity of 2.000 hours available in the quarter.

4-Prepare the Cost of goods sold budget detailed by month only and if the cost of goods sold is computed using the variable manufacturing costs only.

5-In the month of December, the Production & purchase manager is analyzing the actual results of November to highlight possible variances in the cost of the raw material. He figures the situation as follows:

the actual quantity of raw material used is equal to 168.000 Kg;

the actual volumes of production are equal to 8.000 container;

the actual price of steel is 3.9 $/Kg;

Compute the activity level variance and the flexible budget variance for the raw material. In the flexible budget variance, compute both the quantity and the price variances. Use F or U to indicate whether the variances are favorable or unfavorable.