Glory Sports Ltd is a local company that manufactures sportswear. Its finance manager is considering setting up a budgeting system, and is preparing a production budget for the three months in the next quarter from July to September 2020.

In the current quarter from April to June 2020, production will be constrained by a lack of direct labour and no inventories will be carried. As from July 2019 onwards, direct labour will no longer be a constraint due to recruitment of more workers. Building work will also be completed and the firm will once again be able to carry inventories.

After detailed analysis on the market environment, the company expects to be able to sell 15,000 shirts and 20,000 shorts each month from 1 July 2020. Sales volumes are then expected to grow at 2% per month cumulatively thereafter throughout the next 12 months up to 30 June 2021. The estimated costs and revenues per garment are as follows:

Shirts

Shorts

$

$

Sales price

300

220

Raw materials

Fabric at $120 per square metre

(120)

(60)

Dyes and cotton

(30)

(20)

Direct labour at $80 per hour

(40)

(20)

Fixed overheads at $40 per hour

(20)

(10)

Profit

$90

$110

The following additional information is also available:

The company intends to carry inventory of finished garments sufficient to meet 40% of the next month's sales.

The company intends to carry sufficient raw material inventory to meet the following month's production.

The estimated variable costs and selling prices per unit for shirts and shorts remain the same as detailed above.

Required:

Prepare the following budgets on a monthly basis with a quarter total for each of the three months from July to September 2020:

(a) Sales budget showing sales units and sales revenue for each product.(3 marks)

(b) Production budget (in units) for each product separately.(8 marks)

(c)Raw material (fabric) purchases budget (in square metres) combining

both products together assuming they use the same raw material