Question 6.40 6-40 Operating budget and absorption of overhead. Akanson Crafts Lid. is an arts gallery that produces Finished goods Quantity Unit cost (() three different arts products namely: Akra, Omra, and Okore. The budgeted sales of the products for 2020 Akra 1,000 39 were as follow: Omra 3,000 51 Product Quantity Price (E) Okore 2,000 51 Akra 4,000 60 Omra 8,000 70 Okore 7,000 80 Components Red 40,000 Materials used in the production of the products are: Blue 20,000 UA W N Components Red Blue Black Ox Blood Black 10,000 Component Unit cost (E) 2 3 4 5 Ox Blood 30,000 Quantities used: Akra Ending inventories at the end of the period are estimated to increase by 10% and the beginning inven- Omra - N- tories as well as finished goods and component parts are estimated to reduce by 20%, respectively. Okore Prepare the following budgets: Two types of labor are used, Assemblers and Crafters, and the standard unit hours for each product are: 1. a. Revenues budget Product Assemblers Crafters b. Production budget in units Hourly rate @ 60.50 Hourly rate E0.60 c. Direct material usage budget Akra 3 hrs 1.5 hrs d. Material purchase budget Omra 4 hrs 2 hrs e. Direct labor usage budget Okore 5 hrs 2.5 hrs 2. Prepare the statement showing the valuation of finished inventory at the end of the period. Production overhead which is absorbed into product costs on direct labor hour basis is budgeted as: 3. Prepare a budget showing operating income for the period showing the amount of profit contributed by each product. Rent E30,050 4. Comment on the usefulness of the above operating budgets to management. Utility bills (16,100 Salaries and wages (12,150 Material handling E 9,310 Production planning and control E 9,790 E77,400 Selling and Distribution costs budgeted for the period: Agent fees (101,300 Sales and marketing E 30,100 Advertising and publicity E 29,100 E160,500 These are charged to the products in proportion to sales income of the period. Inventories at the be- ginning of the period are estimated as