Q.2 (Max Marks:60)

Perplex Ltd operates at capacity and makes glass-topped dining tables and wooden chairs, which are then typically sold as sets of four chairs with one table. However, some customers purchase replacement or extra chairs, and others buy some chairs or a table only, so the sales mix is not exactly 4:1. Perplex Ltd is planning its annual budget for the financial year 2024. Information for 2024 is as follows:

Input prices

Direct materials

Wood $5.50 per board metre

Glass $14.5 per sheet Direct manufacturing labour $18 per direct manufacturing labour- hour

Input quantities per unit of output

Chairs Tables

Direct materials

Wood 1.5 board metres 1.8 board metres

Glass 2 sheets

Direct manufacturing labour 4 hours 7 hours

Machine-hours(MH) 3 MH 7 MH

Inventory information, direct materials

Wood Glass

Beginning inventory 26 100 board metres 8 900 sheets

Target ending inventory 29 350 board metres 9 600 sheets

Sales and inventory information, finished goods

Chairs Tables

Expected sales in units 175 000 55000

Selling price $80 $950

Target ending inventory in units 8 500 2150 Beginning inventory in units 7 600 2050

Chairs are manufactured in batches of 500 and tables are manufactured in batches of 50. It takes four hours to set up for a batch of chairs and three hours to set up for a batch of tables.

Perplex Ltd uses activity-based costing and has classified all overhead costs as shown in the table below:

Cost type Budgeted variable Budgeted fixed Cost driver/allocation base

Manufacturing:

Materials handling $343 840 $650 000 Number of board metres used

Set-up 98 000 305 740 Set-up hours

Processing 789 350 5980 000 Machine-hours

Non-manufacturing:

Marketing 2 052 200 4 560 000 Sales revenue

Distribution 55 000 390 000 Number of deliveries

Delivery trucks transport units sold in delivery sizes of 500 chairs or 500 tables.

Required:

For the year 2024:

1. Prepare the revenues budget. (1 mark)

2.Use the revenues budget to:

find the budgeted allocation rate for marketing costs (1.5 marks)

find the budgeted number of deliveries and allocation rate for distribution cost.(3.5 marks)

3. Prepare the production budget in units. (2 marks)

4.Use the production budget to:

1. find the budgeted number of set-ups, set-up hours and the allocation rate for set-up costs (5 marks)

2. find the budgeted total machine-hours and the allocation rate for processing costs. (2.5 marks)

5. Prepare the direct materials usage budget and the direct materials purchases budget. (5 marks)

6. Use the direct materials usage budget to find the budgeted allocation rate for materials-handling costs. (2.5 marks)

7. Prepare the direct manufacturing labour cost budget. (1.5 marks)

8. Prepare the manufacturing overhead cost budget for materials handling, set-

up and processing. (1.5 marks)

9. Prepare the budgeted unit cost of finished good (16.5 marks) and ending inventories budget. (4.5 marks)

10. Prepare the cost of goods sold budget. (3 marks)

11. Prepare the non-manufacturing overhead costs budget for marketing and distribution. (1 mark)

12. Prepare a budgeted income statement (ignore income taxes). (3 marks)

13. Compare the budgeted unit cost of a chair to its budgeted selling price. Why might Perplex Ltd continue to sell the chairs for only $80? (6 marks)