Question 10

Sheds Ahead Ltd produces outdoor sheds for domestic use. The manager in charge of production has been asked to prepare a production budget, a direct materials budget and a direct labour budget for part of 2020 based on the company's sales forecast. The materials and labour requirements per shed are:

		Quantity			Cost
Sheet metal		27	square metres		$22	per square metre
Enamel paint		9	litre		11	per litre
Cutting and welding labour		2	hours		16	per hour
Assembly		1	hour		19	per hour

The business requires a finished goods ending inventory for each quarter that equals 30% of expected sales for the next quarter. Also, the ending inventory balance of direct materials should equal 27% of the next quarter's production requirements. The inventory balances on 1 January 2020 are forecast as:

Sheet metal		5,600	square metres
Enamel paint		1,100	litres
Sheds		220	units

The forecast quarterly sales in units are:

First quarter 2020		7,600
Second quarter 2020		5,600
Third quarter 2020		7,900
Fourth quarter 2020		12,800

A.

Prepare a quarterly production budget, in units only, for the first three quarters of 2020.

Sheds Ahead Production budget for the first three quarters of the year ending 31 December 2020
		First quarter		Second quarter		Third quarter		Total
Forecast sales unitDesired ending finished goodsTotal units neededBeginning finished goodsProduction units required
Forecast sales unitTotal units neededProduction units requiredDesired ending finished goodsBeginning finished goods
Total units neededProduction units requiredBeginning finished goodsForecast sales unitDesired ending finished goods
AddLess : Total units neededBeginning finished goodsProduction units requiredForecast sales unitDesired ending finished goods
Total units neededForecast sales unitDesired ending finished goodsProduction units requiredBeginning finished goods