Messi Ltd manufactures wardrobes. You work in the accounting department and have been tasked with preparing the Budget for the next month.

Messi makes two products:

Premium wardrobes - large wardrobes with mirrors

De Luxe wardrobes - medium sized wardrobes with an innovative shelving solution and mirrors

Direct manufacturing labour is 3 hours for the Premium wardrobe and 5 hours for the De Luxe. The budgeted direct material usage for each product in 2021 is:

Square metres Mirrors Softwood

Premium De Luxe 2 3 1 5

Opening direct materials inventory for January 2021 is:

Square metres Mirrors Softwood

Premium De Luxe 40 15

10 30

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Kaplan Business School Assessment Outline

Target ending direct materials inventory (January 31) is:

Square metres Mirrors Softwood

Premium De Luxe 24 20

6 40

Unit cost data is expected to be the same for January as it was in December 2020 for labour and all materials as below:

Mirrors per square metre Softwood per square metre Manufacturing labour cost per hour

December 2020 (actual) January 2021 (budgeted) $$

160 160

125 125

30 30

Manufacturing overhead (both variable and fixed) is allocated to each wardrobe on the basis of budgeted direct manufacturing labour hours.

The budgeted variable manufacturing overhead rate for January 2021 is $35 per direct manufacturing labour-hour.

The budgeted fixed manufacturing overhead for the month is $42,500. Both variable and fixed manufacturing overhead costs are allocated to each unit of finished goods on the basis of direct manufacturing labour-hours.

Data relating to finished goods inventory for January 2021 are:

Opening Inventory (units) Opening Inventory (dollars) Target Ending Inventory

Premium De Luxe 20 5

$10,840 $4,850 30 15

Budgeted sales for January 2021 are 740 units of the premium and 390 units of the De Luxe. The budgeted selling prices per unit in January 2021 are $1,020 for the Premium and $1,600 for the De Luxe.

For the purposes of calculating COGS and Closing Inventory of finished goods, cost per unit for January 2021 is $670 for the Premium wardrobe and $1,480 for the De Luxe wardrobe.

Assume the following in your answer:

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Kaplan Business School Assessment Outline

Work-in-process inventories are negligible and ignored.

Direct materials inventory and finished goods inventory are costed using the FIFO method. Unit costs of direct materials purchased and finished goods are constant in January 2021.

REQUIRED:

Prepare the following budgets for January 2021:

a) Revenues budget (2 Marks)

b) Production budget in units (2 Marks)

c) Direct materials usage budget and direct materials purchases budget (both budgets in units and $)

d) Direct manufacturing labour budget

e) Manufacturing overhead budget

f) Ending inventories budget (direct materials and finished goods)

g) Cost of goods sold budget

For each budget, prepare by product (Premium and De Luxe) and in total.

(4 Marks) (2 Marks) (2 Marks) (2 Marks) (2 Marks)

Format of the spreadsheet makes it easy to read and distinguishes clearly between the input and output cells (2 Marks)

Excel spreadsheets designed in a way that enables different input data to be entered and automatically change the output data (2 Marks)