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Varney Company makes rolling suitcases. Selling price per suitcase is $30 per unit. Its sales budget for three months is: Varney's policy is that ending
Varney Company makes rolling suitcases. Selling price per suitcase is $30 per unit. Its sales budget for three months is: Varney's policy is that ending inventory of finished suitcases should equal 30 percent of the next month's sales. Beginning inventory (March 1) is 5,300 suitcases. Each suitcase required 1.5 meters of nylon which cost the company $7 per metre. The ending inventory policy for nylon is that 20 percent of the following month's production needs must be on hand. On March 1, Varney had 10,450 meters of nylon in inventory. The production needs in raw material for May is 40,000 meters. It takes 2.5 hours of direct labour to produce one unit of suitcase. The average wage cost is $8 per hour. Required: (i) Prepare a sales budget for March, April and May 20X5. (3 marks) (ii) Prepare a production budget for the month March 20X5 and April 20X5. (4 marks) (iii) Prepare the nylon direct material purchase budget in units and in dollars for March and April 20X5. (4 marks) (iv) What are TWO (2) advantages of budgeting? (4 marks)
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