Question two

Sales and finished goods inventory budget for the year 2020 are as follows:

Detox		Antox
Budgeted Sales	8,000 units	Budgeted Sales	6,000 units
Opening Inventory	1,500 units	Opening Inventory	300 units
Closing Inventory	600 units	Closing Inventory	600 units
Selling Price	$200	Selling Price	$300

Inventories of raw material are 6,000 litres of BX and 2,800 kilograms of DG at 1 January, 2020 and the company plans to hold 5,000 litres and 3,500 kilograms, respectively, at 31, December 2020.

The warehouse and stores managers have suggested that a provision should be made for damages and deterioration of items held in store, as follows.

Product
Detox	Loss of 50 units
Antox	Loss of 100 units
Raw Materials
BG	Loss of 500 litres
DG	Loss of 200 kilograms

The standard direct labour content of product Detox is three hours and two hours for Antox. The budgeted productivity ratio of direct labour is only 80% for both products (which means that labour is only working at 80% efficiency).

The company employs 18 direct operatives to work on both products at a rate of $20 per hour and are expected to average 2,000 working hours each for the year.

Required:

a. Prepare the following budgets for the year 2020:

b. Sales

c. Production budget

d. Raw material usage budget

e. Raw Materials purchases

f. Direct labour budget.