Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Clean Houses Ltd specializes in the production of safe and sustainable building materials. They provide a wide range of services and products made of timber,

Clean Houses Ltd specializes in the production of safe and sustainable building materials. They provide a wide range of services and products made of timber, bamboo, as well as recycled steel and other building materials. The company can supply as much as they would like of the listed products and other environmentally clean building products and services, however often one product or service is enhanced to the detriment of others.

Because of increased exports and demand of processed bamboo that is made into flooring, support beams, ceilings, plywood, etc., Clean Houses Ltd opened a Bamboo Division, for the production and distribution of bamboo building products in Rundu. One of their first products, The Solid Fancy Tile, is made of using two different types of processed bamboo materials, as well as two types of direct labour, according to the employees’ level of skills.

The company operates a standard absorption costing system and is now in the process of preparing their 2021 budget. Because of rapid growth over the previous year, the company requires your services as a Management Trainee of the Bamboo Division. In this position, you have been given direct responsibility by the CEO to plan and prepare the division’s budgets, starting with some parts of the master budget.

The information below is available for Bamboo Division’s product: The Solid Fancy Tile.

Demand Period

Sales Demand (number of units)

Quarter 1 of 2021

2,500

Quarter 2 of 2021

2,000

Quarter 3 of 2021

1,600

Quarter 4 of 2021

2,200

Quarter 1 of 2022

1,500

Product Cost and Sales Information:

Amount Details

Amount per unit in N$

Selling price

2,500.00

Materials:

Grade 1 (N$105 per metre)

315.00

Grade 2 (N$55 per metre)

82.50

Labour:

Skilled labour (5 hours)

900.00

Semi-skilled labour (N$135 per hour)

810.00

1. Total annual overheads related to The Solid Fancy Tile amount to N$ 550,000. 20% of these overheads are fixed, which are incurred evenly throughout the year. The remainder of overheads varies with total labour hours. Fixed overheads are absorbed on a unit basis.

2. The company has a policy to keep the closing inventories of finished goods equal to 30% of the following quarter’s sales demand, while the closing inventories of materials are kept at 40% of the following quarter’s sales demand.

3. All direct materials are purchased on credit. Purchases are paid for as follows: 50% in the quarter of purchases and the remaining 50% in the following quarter.

4. All sales are made on credit, with no discount, and payable within 15 days. However, previous analyses shows that only 25% of a month’s sales are collected by month end. An additional 50% is collected in the month following the sales, and the remaining 25% is collected in the second month following the sale. Assume equal monthly sales in each quarter.

6. All other payments are made as the expenses occur. Bad debts have been insignificant over the years.

7. According to the company’s financial position as at the financial year ended 31 December 2020, the division had a carried down cash balance of N$250 000.

8. The following information represent the Bamboo Division’s operating expenses:

Expense

Amount in N$

Variable:

Sales Commission

N$ 5.5 per unit

Fixed:

Wages and salaries

N$55,000 per month

Depreciation

N$ 80,000 per quarter

Miscellaneous

N$ 60,000 per annum

Additional information:

i) Prices, costs, as well as the manufacturing process remain unchanged.

ii) Depreciation is included in the fixed manufacturing overheads.

iii) The value of the work in progress remains unchanged during the year.

iv) Variances in production costs are written off against the cost of sales.

v) Inventories are always valued at standard costs.

Required: Calculate the number of units in opening inventory of Grade 1 materials in quarter 3.

Step by Step Solution

3.45 Rating (155 Votes )

There are 3 Steps involved in it

Step: 1

Given ending inventory for materials 40 x materials used for following quarte... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting

Authors: Donald E. Kieso, Jerry J. Weygandt, And Terry D. Warfield

13th Edition

9780470374948, 470423684, 470374942, 978-0470423684

More Books

Students also viewed these Accounting questions

Question

Write a short essay on marketing communication as a conversation.

Answered: 1 week ago