Question 3

NW19 Limited is a Singaporean manufacturing soft drink company based in Aljunied, a sub-urban area located in the central part of the city-state. The company is developing its budgets for the four months September to December 2021. The standard (budgeted) cost sheet showed the following information relating to a unit of the companys product.

Selling price	500
Direct material (5 litres at 7 per litre)	35
Direct labour (10 hours at 8 per hour)	80

Budgeted sales quantities in September and October are 800 units and 1,200 units respectively. Due to the arrival of a major competitor in the industry, sales in November are expected to be 10% below the October sales quantity. It is anticipated that the sales will be maintained at this level for the foreseeable future.

It is NW19s policy to hold stocks of finished goods at the end of each month to equal to 20% of the following months sales demand. It is expected that the finished goods stock at the start of the budget period will meet this policy.

The company keeps raw material stocks at the end of the month to equal 30% of the following months production requirement. It is expected that the raw materials stock at the start of the budget period will meet this policy. However, you have been informed that the company is in the process of introducing a just-in-time purchasing policy. This policy which is expected to be implemented in November 2021 will reduce the raw materials stock from the current level of 30% to 15% of the following months production requirement. The reduction will take effect from November 2021.

The company operates a minimum guaranteed wage policy whereby the direct labour workforce is guaranteed a total of 9,000 paid hours for any particular month.

Required:

	Prepare the following budgets for each month from September to December (inclusive):
(i)	Sales budget in quantity and value
	(5 Marks)
(ii)	Production budget in units
	(5 Marks)
(iii)	Raw material purchases budget in litres
	(7 Marks)
(iv)	Direct labour budget in hours and value
	(5 Marks)
	Explain the term activity-based budgeting and discuss how this is different from traditional incremental budgeting. (Max word-count: 300)
	(8 Marks)
	(Total: 30 Marks)