PART A: Budgets & Budgetory Controls

Mahogany & Teak Woods Co. is a desk manufacturer. It makes two products, the 'Executive desks' and the 'Chairman desks'. The budgeted information for each product for March 2017 is as follows: -

Standard material and labour costs:

RM

Oak top (per square foot)20

Red oak top (per square foot)25

Oak legs (per leg)12

Red oak legs (per leg)18

Manufacturing labour cost per hour30

The standard material and labour usage for each product is as follows:

Executive deskChairman desk

Oak top16 square feet-

Red oak top-25 square feet

Oak legs4-

Red oak legs-4

Direct manufacturing labour3 hours5 hours

Other relevant data is as follows for March 2017: -

Direct material beginning inventory:

Executive deskChairman desk

Oak top (square feet)320-

Red oak top (square feet)-150

Oak legs100-

Red oak legs-40

Direct materials ending inventory:

Executive deskChairman desk

Oak top (square feet)192-

Red oak top (square feet)-200

Oak legs80-

Red oak legs-44

Finished goods inventory:

Executive deskChairman desk

Beginning inventory in units205

Ending inventory in units3015

Manufacturing overhead (fixed and variable) is allocated to each desk on the basis of budgeted direct manufacturing labour hours. The budgeted variable manufacturing overhead rate for March 2017 is RM35 per direct manufacturing labour hour. The budgeted fixed manufacturing overhead for March 2017 is RM42,500.

Budgeted sales for March 2017 are 740 units of the Executive desks and 390 units of the Chairman desks. The budgeted selling prices per unit in March 2017 are RM1,020 for the Executive desk and RM1,600 for the Chairman desk.

Required:

Prepare the functionalbudgets for March 2017 as follows: -

(a)Sales budgets

(b)Production budget

(c)Direct materials usage budget

(d)Direct materials purchases budget

(e)Direct manufacturing labour budget

(f)Manufacturing overhead budget. Show also calculation of the fixed manufacturing overhead cost per hour and total manufacturing overhead cost per hour.

(g)Highlight and discuss the importance of having budgets in an organisation.