• QUESTION 3
• Kiwi Shirts produces a one-size-fits-all shirt. The CFO, Alex Nevin, has asked you to prepare the operating budgets for 2022. You are provided with the following information in relation to the company's activities:
• The budgets are for the 2022 year and are broken into four quarters. The target sales for 2022 by each respective quarter of the year (Q) are:
• Q1: 25 000 shirts
• Q2: 27 000 shirts
• Q3: 30 000 shirts
• Q4: 30 000 shirts.
• The selling price for each shirt is $130 and will be kept constant throughout the year.
• The beginning inventory of shirts at the start of quarter 1 is 2500, which cost $260 000 to produce in the previous year, and the inventory manager wants to increase inventory to 5000 shirts at the end of each quarter.
• Each shirt requires 1.25 metres of material.
• The opening material inventory is 625 metres at $40 per metre, and the manager wants materials inventory at the end of each quarter to increase to 1250 metres at $40 per metre. The material cost is not expected to change for the next year.
• Labour hours for each shirt are expected to be 2.5 hours, while wages are $20 per hour and are not expected to increase during the period.
• Based on last year's information and reasonable forecasts, Kiwi Shirts has determined the following manufacturing overhead costs:
• indirect materials (cotton, labels) per shirt: $2.50
• electricity per shirt: $2.00
• maintenance on machinery per shirt: $0.50
• supervisor's salary per quarter: $60 000
• factory rent per quarter: $65 000
• rates and insurance per quarter: $20 000.
• Alex has also asked you to explain to the members of the senior management team why Kiwi Shirts needs to prepare these operating budgets.
• Required:

• You are required to prepare
• Sales budget. Show all your workings.
• Production budget. Show all your workings.
• Direct materials budget. Show all your workings.
• Direct labour budget. Show all your workings.
• Manufacturing overhead expenses budget. Show all your workings.

Explain why preparing operating budgets is important for planning and control at Kiwi Shirts.

(a) Kiwi Shirts Sales Budget for year ending 31 December 2022  Q1 Q2 Q3 Q4 Total Expected sales in units      Selling price      Total sales revenue      (b) Kiwi Shirts Production Budget for year ending 31 December 2022  Q1 Q2 Q3 Q4 Total Expected sales in units      Desired closing inventory      Opening inventory      Required production in units      (c) Kiwi Shirts Direct Materials Budget for year ending 31 December 2022  Q1 Q2 Q3 Q4 Total Units to be produced      Material cost per shirt      Cost of material required for production      Target ending inventory of material      Total cost of materials required      Opening inventory materials      Total cost materials to purchase      (d) Kiwi Shirts Direct Labour Budget for year ending 31 December 2022  Q1 Q2 Q3 Q4 Total Units to be produced      Labour time per shirt (hours)      Total hours required      Labour cost per hour      Total labour cost      (e) Kiwi Shirts Manufacturing Overhead Expenses Budget for year ending 31December 2022  Q1 Q2 Q3 Q4 Total Required production in units      Variable costs                        Fixed costs                        Total Manufacturing Overhead Expenses