Dear Tutors,

Could you please assist me with my homework below?

Q.2 (Max Marks:60)

Warsaw Ltd operates at capacity and makes glass-topped dining tables and wooden chairs, which are then typically sold as sets of four chairs with one table. However, some customers purchase replacement or extra chairs, and others buy some chairs or a table only, so the sales mix is not exactly 4:1. Warsaw Ltd is planning its annual budget for the financial year 2020. Information for 2020 is as follows:

Direct materials Wood

Glass

Direct manufacturing labour

Input prices

$5.30 per board metre $11.5 per sheet

$14 per direct manufacturing labour- hour

Input quantities per unit of output

Direct materials Wood

Glass

Direct manufacturing labour Machine-hours (MH)

Chairs

1.2 board metres

3 hours 2 MH

Tables

1.7 board metres 2 sheets

6 hours 5 MH

3

Wood

Beginning inventory 27 200 board metres Target ending inventory 29 360 board metres

Sales and inventory information, finished goods

Glass

8 700 sheets 9 500 sheets

Tables

45 000 $900

2 050 2 150

Inventory information, direct materials

Expected sales in units Selling price

Target ending inventory in units

Beginning inventory in units

Chairs

172 000 $70

8 400 7 500

Chairs are manufactured in batches of 500 and tables are manufactured in batches of 50. It takes three hours to set up for a batch of chairs and two hours to set up for a batch of tables. Warsaw Ltd uses activity-based costing and has classified all overhead costs as shown in the table below:

Cost type

Manufacturing: Materials handling

Set-up

Processing Non-

manufacturing: Marketing

Distribution

Budgeted variable

$342 840 97 000 789 250

2 011 200 54 000

Budgeted fixed

$600 000 300 740 5 900 000

4 500 000 380 000

Cost driver/allocation base

Number of board metres used Set-up hours Machine-hours

Sales revenue Number of deliveries

Delivery trucks transport units sold in delivery sizes of 500 chairs or 500 tables.4

Required

For the year 2020:

1. Prepare the revenues budget. (1 mark)
2. Use the revenues budget to:
3. find the budgeted allocation rate for marketing costs (1.5 marks)
4. find the budgeted number of deliveries and allocation rate for
5. distribution costs. (3.5 marks)
6. Prepare the production budget in units. (2 marks)
7. Use the production budget to:

1. find the budgeted number of set-ups, set-up hours and the allocation rate for set-up costs (5 marks)

2. find the budgeted total machine-hours and the allocation rate for processing costs. (2.5 marks)

5. Prepare the direct materials usage budget and the direct materials purchases budget. (5 marks)

6. Use the direct materials usage budget to find the budgeted allocation rate for materials-handling costs. (2.5 marks)

1. Prepare the direct manufacturing labour cost budget. (1.5 marks)
2. Prepare the manufacturing overhead cost budget for materials handling, set-

up and processing. (1.5 marks)

9. Prepare the budgeted unit cost of finished good (16.5 marks) and ending inventories budget. (4.5 marks)

10. Prepare the cost of goods sold budget. (3 marks)

11. Prepare the non-manufacturing overhead costs budget for marketing and distribution. (1 mark)

12. Prepare the budgeted income statement (ignore income taxes). (3 marks)

13.Compare the budgeted unit cost of a chair to its budgeted selling price. Why might Warsaw Ltd continue to sell the chairs for only $70? (6 marks)