Question 2

Channa Ltd manufactures and sells shoes. It has the following information for its 2022 budget.

(1) Sales price of a pair of shoes is $100.

(2) Product costs per pair of shoes:

Direct materials (2 metres @ $15)	$30.00
Direct labour (1 hour @ 15.00)	$15.00
Overheads	$5.00

(3) Budgeted sales for the second six month period are:

Month	Number of pairs
July	6,000
August	5,500
September	6,500
October	7,000
November	7,000
December	9,000

(4) Inventory policy on desired ending inventory balances:

Type	Quantities
Finished goods	20 % of the pairs required for the next months sales. Expected balance on 1 July 2022 is 800 pairs.
Direct materials	40% of the materials required for the next months sales. Balance on 1 July 2022 is 3,000 metres.

Required:

a) Prepare production budgets in units for July, August and September 2022.
b) Prepare a purchases budget in metres for July and August 2022, providing total purchases in both metres and dollars for each month.
c) Calculate the amount budgeted for cost of goods sold in July 2022.