Sandham Ltd operates at capacity and makes glass-topped dining tables and wooden chairs,
which are then typically sold as sets of four chairs with one table. However, some customers
purchase replacement or extra chairs, and others buy some chairs or a table only, so the sales
mix is not exactly 4:1. Sandham Ltd is planning its annual budget for the financial year 2024.
Information for 2024 is as follows:

Input prices

Direct materials
Wood $5.50 per board metre
Glass $11.6 per sheet
Direct manufacturing labour $18 per direct manufacturing labour-hour

Input quantities per unit of output

Chairs Tables

Direct materials
Wood 1.2 board metres 1.7 board metres
Glass — 2 sheets
Direct manufacturing
labour 3 hours 6 hours
Machine-hours (MH) 2 MH 5 MH
Inventory information, direct materials

4
Wood Glass
Beginning inventory 27 200 board metres 8 700 sheets
Target ending inventory 29 360 board metres 9 500 sheets

Sales and inventory information, finished goods

Chairs Tables
Expected sales in units 172 000 45 000
Selling price $60 $950
Target ending inventory in
units 8 400 2 050
Beginning inventory in units 7 500 2 150

Chairs are manufactured in batches of 500 and tables are manufactured in batches of 50. It
takes three hours to set up for a batch of chairs and two hours to set up for a batch of tables.
Sandham Ltd uses activity-based costing and has classified all overhead costs as shown in the
table below:

Cost type

Budgeted
variable

Budgeted
fixed Cost driver/allocation base

Manufacturing:
Materials
handling $342 840 $600 000 Number of board metres used
Set-up 97 000 300 740 Set-up hours
Processing 789 250 5 900 000 Machine-hours

Non-
manufacturing:

Marketing 2 011 200 4 500 000 Sales revenue
Distribution 54 000 380 000 Number of deliveries

Delivery trucks transport units sold in delivery sizes of 500 chairs or 500 tables.

5

Required
For the year 2024:

1. Prepare the revenues budget. (1 mark)
2. Use the revenues budget to:
a) find the budgeted allocation rate for marketing costs (1.5 marks)
b) find the budgeted number of deliveries and allocation rate for distribution
costs. (3.5 marks)
3. Prepare the production budget in units. (2 marks)

4. Use the production budget to:
a) find the budgeted number of set-ups, set-up hours and the allocation rate for
set-up costs (5 marks)
b) find the budgeted total machine-hours and the allocation rate for processing
costs. (2.5 marks)
5. Prepare the direct materials usage budget and the direct materials purchases
budget. (5 marks)
6. Use the direct materials usage budget to find the budgeted allocation rate for
materials-handling costs. (2.5 marks)
7. Prepare the direct manufacturing labour cost budget. (1.5 marks)

8. Prepare the manufacturing overhead cost budget for materials handling, set-
up and processing. (1.5 marks)

9. Prepare the budgeted unit cost of finished goods (16.5 marks) and ending
inventories budget. (4.5 marks)
10. Prepare the cost of goods sold budget. (3 marks)
11. Prepare the non-manufacturing overhead costs budget for marketing and
distribution. (1 mark)
12. Prepare a budgeted income statement (ignore income taxes). (3 marks)
13. Compare the budgeted unit cost of a chair to its budgeted selling price. Why might
Sandham Ltd continue to sell the chairs for only $60? (6 marks)