It is now February 2021, Stephan Tang, Finance Director, says to you: "The construction of the new factory in Westland is well under way and it is planned to commence production In April 2021. We need to prepare budgets for the first quarter of operation, that is April-June 2021. Jeremy Dickson, the new Production Manager for the Westland factory, has no experience of budgeting and I would therefore like you to assist him with the production budget and explain how it links to the materials usage and purchases budget. I have sent him the sales budget for the quarter as a starting point since it is sales demand that will limit our operations. I have also prepared a list of the materials required for the king size mattress in Table 1) below. Table 1: Materials required for a king size hybrid mattress Materials Springs Pocket fabric Padding lavers Covering fabrics Other fixings Input Quantity' 1575 springs 8.75 metres 6.30 metres 8.75 metres Standard price per unit of quantity (ES) Please prepare some notes to send to Jeremy explaining: 1) Why is important to prepare budgets for the factory and how the budgets will help in the management of the factory. [32 marks] 2) How to construct the total production budget, the total material usage budget and the total material purchases budget for the quarter. Please also explain two factors that will need to be considered when determining the finished goods inventory level. [36 marks] There is also some machinery in the Eastland factory which could be transferred to the Westland factory. There are two potential options, Option A and Option B, that we are considering. Under Option A, we would transfer the existing machinery to Westland and use 0.01 1.25 4 6 it for the next 6 months. At the end of the 6 months we would lease new, more efficient machinery and sell the existing machinery. Under Option B, we would lease the new, more efficient machinery and sell the existing machinery now. I have included in Table 2 below some financial information about the two different options. Table 1: Materials required for a king size hybrid mattress Materials Springs Pocket fabric Padding lavers Covering fabrics Other fixings Total material cost *The input quantity is after allowing for material wastage Input Quantity 1575 springs 8.75 metres 6.30 metres 8.75 metres Standard price per unit of quantity (ES) 0.01 1.25 4 6 Please also include in your notes an explanation of: 3) How the figures shown in Table 2 would be used to make a decision on whether to choose Option A or Option B, giving reasons why each item is relevant or irrelevant to the decision." [32 marks] It is now February 2021, Stephan Tang, Finance Director, says to you: "The construction of the new factory in Westland is well under way and it is planned to commence production In April 2021. We need to prepare budgets for the first quarter of operation, that is April-June 2021. Jeremy Dickson, the new Production Manager for the Westland factory, has no experience of budgeting and I would therefore like you to assist him with the production budget and explain how it links to the materials usage and purchases budget. I have sent him the sales budget for the quarter as a starting point since it is sales demand that will limit our operations. I have also prepared a list of the materials required for the king size mattress in Table 1) below. Table 1: Materials required for a king size hybrid mattress Materials Springs Pocket fabric Padding lavers Covering fabrics Other fixings Input Quantity' 1575 springs 8.75 metres 6.30 metres 8.75 metres Standard price per unit of quantity (ES) Please prepare some notes to send to Jeremy explaining: 1) Why is important to prepare budgets for the factory and how the budgets will help in the management of the factory. [32 marks] 2) How to construct the total production budget, the total material usage budget and the total material purchases budget for the quarter. Please also explain two factors that will need to be considered when determining the finished goods inventory level. [36 marks] There is also some machinery in the Eastland factory which could be transferred to the Westland factory. There are two potential options, Option A and Option B, that we are considering. Under Option A, we would transfer the existing machinery to Westland and use 0.01 1.25 4 6 it for the next 6 months. At the end of the 6 months we would lease new, more efficient machinery and sell the existing machinery. Under Option B, we would lease the new, more efficient machinery and sell the existing machinery now. I have included in Table 2 below some financial information about the two different options. Table 1: Materials required for a king size hybrid mattress Materials Springs Pocket fabric Padding lavers Covering fabrics Other fixings Total material cost *The input quantity is after allowing for material wastage Input Quantity 1575 springs 8.75 metres 6.30 metres 8.75 metres Standard price per unit of quantity (ES) 0.01 1.25 4 6 Please also include in your notes an explanation of: 3) How the figures shown in Table 2 would be used to make a decision on whether to choose Option A or Option B, giving reasons why each item is relevant or irrelevant to the decision." [32 marks]
