Question 16

Big World Ltd is a manufacturing company producing and selling two products, Product A and B, both of which uses the same material type and labour input. Production and sales of these product is assumed to spread evenly over the year. The annual budget of the company is broken down into four quarters, each quarter of 13 weeks. The following data has been provided for the first quarter of year 2010.

1. Production and sales of the products are expected to be;

Product A Product B

Budgeted sales for the quarter (units) 845 1,235

Material required per unit (kg) 7 8

Labour per unit (standard hours) 8 5

2. There are 24 production employees who work 37 hour, five day week and are paid GHS8 per hour. Any hours in excess of this involve the company in paying an overtime premium of 25%. Due to technical problem, which will continue over the next 13 weeks, employees are expected to work at 95% efficiency compared to the standard.
3. Over the budget period, raw material is expected to cost GHS12 per kilogram. The stock levels at the commencement of the budget period will be as follows;

Product A 163 units

Product B 361 units

Material 2,328kg

4. At the end of the quarter, closing stock are planned to change. On the assumption that the production and sales volumes for the second budget period will be similar to those in the first period. Raw material stock should be equivalent to 13 days production. Finished stock for product A should be equivalent to 6 days sales volume and product B should be equivalent to 14 days sale volume. Assume a five day for both sales and production.

Required

Prepare the following budget for the first quarter;

1. Production budget in units
2. Purchasing budget in units and cost of purchase for the period
3. Production labour budget in hours and cost of production labour for the period