There is a continuing demand for three sub-assemblies labelled as A, B, and C made and sold by BMP Limited. Sales are in the ratios of A 1, B 2, C 4 and selling prices are A 215, B 250 and C 300.

Each sub-assembly consists of a copper frame onto which are fixed the same components but in differing quantities as follows

Sub assembly	Frame	Component D	Component E	Component F
A	1	5	1	4
B	1	1	7	5
C	1	3	5	1
Buying in cost per unit	20	8	5	3

Operation times by labour for each sub-assembly are:

Sub assembly	Skilled hours	Unskilled hours
A	2	2
B	1.5	2
C	1.5	3

The skilled labour is paid 6 per hour and unskilled 4.50 per hour. The skilled labour is located in a machining department and the unskilled labour in an assembly department. A five-day week of 37 hours is worked and each accounting period is for four weeks. Variable overhead per sub-assembly is A 5, B 4 and C 3.50. At the end of the current year, stocks are expected to be as shown below but because interest rates have increased and the company utilises a bank overdraft for working capital purposes, it is planned to effect a 10% reduction in all finished sub-assemblies and bought-in stocks during Period 1 of the forthcoming year

Forecast stocks at current year end:

Sub assembly

A 300

B 700

C 1,600

Copper Frames 1,000

Component D 4,000

Component E 10,000

Component F 4,000

Work-in-progress stocks are to be ignored.

Overhead for the forthcoming year is budgeted to be: Production 728,000, Selling and Distribution 364,000 and Administration 338,000. These costs, all fixed, are expected to be incurred evenly throughout the year and are treated as period costs.

Within Period 1 it is planned to sell one thirteenth of the annual requirements which are to be the sales necessary to achieve the company profit target of 6,500,000 before tax.

Required:

a) Prepare budgets in respect of Period 1 of the forthcoming year for

a1. sales, in quantities and value;

a2. production, in quantities only

; a3. materials usage, in quantities;

a4. materials purchases, in quantities and value;

a5. manpower budget, i.e. numbers of people needed in each of the machining department and the assembly department;

b) Discuss the factors to be considered if the bought-in stocks were to be reduced to one weeks requirements - this has been proposed by the purchasing officer but resisted by the production director - and specify the amount of stock reduction needed (in units)