Question

Sloppydrinks Ltd bottles two types of soft drinks at its Auckland plant. Bottling at this plant is a highly repetitive automated process.

When required, empty bottles are removed from their storage pallets by an automated bottle unloading machine. They are then placed on a conveyor, washed, rinsed, dried by hot air, filled with drink, capped, heated to reduce condensation and packed.

Due to the type and speed of the process there is no work in process at the end of each day.

The two types of soft drinks bottled by Sloppydrinks are ALCHI and Diet ALCHI. The sugar content required by each drink is different - syrup for ALCHI contains a higher sugar content than that required for Diet ALCHI. The two types of syrup are imported from a Dutch supplier.

Sloppydrinks uses a lot size of 1,000 cases as the unit analysis in its budgeting. Each case contains 24 bottles. The selling price of one lot of ALCHI is $9,000, while one lot of Diet ALCHI sells at $8,500. This selling price difference reflects the cost prices of the syrup required for each soft drink.

Direct materials are also expressed in terms of lots, where one (1) lot of direct materials is the input necessary to yield one lot (1,000 cases) of soft drink.

The following purchase prices are forecast for direct materials in 2011:

ALCHI Diet ALCHI

Syrup $1,200 per lot $1,100 per lot

Containers (bottles, caps etc.) $1,000 per lot $1,000 per lot

Packaging $ 800 per lot $ 800 per lot

The two soft drinks are bottled using the same equipment. This equipment is sanitised daily, but rinsed only when a switch (change) is made during the day in processing the diet ALCHI and ALCHI.

Diet ALCHI is always bottled first each day to reduce the risk of sugar contamination. The bottling time for one lot of ALCHI or one lot of Diet ALCHI is two hours. Hence, the only difference in the bottling process for the two soft drinks is the syrup.

Sloppydrinks uses the first-in, first-out method for the costing of all inventories

Data used for developing the budgets for 2011 are as follows.

Sales

ALCHI - 1,080 lots ; Diet ALCHI - 540 lots

Closing Inventory (31 December 2010)

Direct Materials

Syrup for ALCHI : 80 lots at a total cost of $88,000

Syrup for Diet ALCHI : 70 lots at a total cost of $70,000

Containers :200 lots at $950 per lot

Packaging : 400 lots at $900 per lot

Finished Goods

ALCHI : 100 lots at $5,300 per lot

Diet ALCHI : 50 lots at $5,200 per lot

Targeted Ending Inventory (31 December 2011)

Direct Materials

Syrup for ALCHI : 30 lots

Syrup for Diet ALCHI : 20 lots

Containers :100 lots

Packaging : 200 lots

Finished Goods

ALCHI : 20 lots

Diet ALCHI : 10 lots

Each lot of production requires 20 direct manufacturing labour hours. The budgeted labour rate for 2011 is $25.00 per hour. Indirect manufacturing labour costs are included in the manufacturing overhead forecast.

Variable manufacturing overhead is forecast to be $600 per hour of bottling time. The bottling time is the time the filling equipment is in operation.

Fixed manufacturing overhead costs are forecast to be $1,200,000 for 2011. The hours of budgeted bottling time is the allocation base for all fixed manufacturing overhead.

Administration, marketing and distribution cost for 2011 are forecast to be:

Administration 10% of the cost of goods manufactured for 2011

Marketing 12% of dollar sales

Distribution 8% of dollar sales

The reporting year for Sloppydrinks is from 1 January to 31 December.

Required:

On the basis of the above data, prepare the following budgets for 2011:

A Sales budget (in dollars)

B Production budget (in units)

C Direct material usage budget (in units and dollars)

D Direct materials purchase budget (in units and dollars).

E Direct manufacturing labour budget (labour hours and dollars).