Management Accounting:

Perfect Leather is a large genuine leather furniture manufacturer with a 31 March financial yearend. Its head office and manufacturing factory are located in Johannesburg.

On Perfect Leather's website, a customer may select Products for example genuine leather furniture items which the customer is interested in purchasing.

Perfect Leather currently has the following genuine leather furniture items that can be purchased:

A one-seater chair (hereafter referred to as a "single-seater)

A two-seater semi-couch (hereafter referred to as a double-seater)

A three-seater couch (hereafter referred to as a triple-seater)

Perfect Leathers' management wishes to draft various financial budgets projecting the 2023- financial years third quarter figures, to enable them to evaluate and manage the upcoming financial figures and resulting decisions.

The 2023-financial years second quarter delivered the following actual results:

11 meters of genuine leather were required per single-seater, 24 meters for a double-seater and 32 meters for a triple-seater. The geniune leather is purchased by Perfect Leather for R360 per meter from the supplier, Smile Ltd.

18 meters of wood is required for the frame and other structural support per single-seater, 34 meters of wood for a double-seater and 42 meters of wood for a triple-seater. Wood is purchased at the supplier for R150 per 100 meters.

Difficulty is experienced in assigning the precise quantity of glue and nails used per furniture item manufactured. It is however known that more or less 2 bottles of 1 litre glue were used in the second quarters production and 4 packets of 670 nails per packet. The supporting receipts indicated that the glue was purchased for R45 per bottle while the nails were purchased for R70 per packet.

In the second quarter, 330 single-seaters were manufactured, 210 double-seaters and 160 triple-seaters.

The various inventory counts conducted, revealed the following various results:

• Inventory count on 30 June 2022 (end quarter 1):

Genuine leather on hand 175 meters

Wood on hand 180 meters

Nails on hand 1 packet of 670 nails

Glue on hand 4 bottles of 1 litre each

Finished single-seater 4 500

Finished double-seater 4 700

Finished triple-seater 6 200

• Inventory count on 30 September 2022 (end quarter 2):

Genuine leather on hand 160 meters

Wood on hand 210 meters

Nails on hand 2 packets of 670 nails each

Glue on hand 3 bottles of 1 litre each

Finished Single-seater ?

Finished Double-seater ?

Finished triple-seater ?

To breakeven, the following sales must be made per quarter: 3 000 single-seaters; 3 200 double-seaters and 3 600 triple-seaters.

According to the financial reports single-seaters were sold for R8 500 per unit; double-seaters for R23 000 per unit and triple-seaters for R37 000 per unit. This caused a total safety margin of R14 450 000 for single-seaters, R36 800 000 for double-seaters and R81 400 000 for triple-seaters to be achieved during the second quarter of the 2023-financial year.

The estimated sales for the third quarter of the 2023-financial year are expected to grow by 5% from the second quarter.

Management wishes to keep safety stock of 1 200 units per product type on hand going into the fourth quarter, as well as 162 meters of synthetic leather; 195 meters of wood; 1 packet of 670 nails; 2 bottles of 1 litre glue.

There was no work-in-progress at the end of any applicable quarter.

The second quarters actual results will be used as part of the third quarters budgeted figures.

Draft the production budget for Perfect Leathers third quarter of the 2023 financial year.