QUESTION 3 (37 marks) (Modules 7-8) Woody Paints (WP) produces two paint types the Silky and the Smooth. Projected sales (in units) for the 2 products in litres for 2019 - 2021:

2019 2020 2021 2022

Silky 120,000 130,000 135,000 135,000

Smooth 70,000 80,000 85,000 85,000

Current sales prices in 2018 Silky $8 per litre & Smooth $10 per litre (expected to increase by 2% in 2019 and then remain stable for 3 years)

? Inventories are planned for each product so that projected ending finished goods inventory is 10% of the following years projected sales in units.

? The per unit raw material requirements for one litre of the products are as follows:

Silky Smooth Cost per litre/kg

Base paint litres 0.8 0.7 $0.50

Additives kilograms 0.1 0.2 $2.00

Container (1 per unit) $0.20

The desired materials ending inventory is 50% of that required for the next years production.

Opening materials inventories:

Base paint litres 72,500

Additives kilograms 9,500

Containers units 65,000

Direct Labour required per unit/litre (at $15 per hour no increase expected)

Silky Smooth

Labour hours 0.1 0.2

Opening finished goods inventories (in units):

Silky 60,000

Smooth 35,000

The desired ending finished goods inventory is equal to the 10% of following years sales in units

Required:

For the two years 2019 and 2020:

(note: use the excel templates provided)

a) Prepare a sales budget in units and dollars (5 marks)

b) Prepare a production budget in units for the Silky and the Smooth paint products. (9 marks)

c) Prepare direct materials usage budgets in units for each of the materials (separate budgets) and calculate the dollar purchases for each, showing the 2 years, for the Silky and the Smooth paint products. Note that as both products use the same materials, these materials budgets should be for the combined usage of the Silky and the Smooth paint e.g. total Base paint needed for both each year. (16 marks)

d) Calculate the total value of materials purchases each year. (1 mark)

e) Prepare a direct labour budget. (2 marks)

f) Actual production of Silky paints in 2019 turned out to be 75,000 units (litres), using 9,375 kg of additives at a cost of $16,875. Calculate the materials price and volume variance for the additives for Silky paints in 2019. (4 Marks