Bombera Ltd operates at capacity and makes glass-topped dining tables and wooden
ID: 2339771 • Letter: B
Question
Bombera 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. Bombera Ltd is planning its annual budget for the financial year 2018. Information for 2018 follows:
Questions:
1) Prepare the direct materials usage budget and the direct materials purchases budget.
2) Use the direct materials usage budget to find the budgeted allocation rate for materials-handling costs.
3) Prepare the direct manufacturing labour cost budget
4) Prepare the manufacturing overhead cost budget for materials handling, set-up and processing.
5) Prepare the budgeted unit cost of finished good (16.5 marks) and ending inventories budget
6) Prepare the cost of goods sold budget.
7) Prepare the non-manufacturing overhead costs budget for marketing and distribution.
8) Prepare a budgeted income statement (ignore income taxes).
9) Compare the budgeted unit cost of a chair to its budgeted selling price. Why might Bombera Ltd continue to sell the chairs for only $70?
Input prices Direct materials Wood Glass $5.30 per board metre $11.5 per sheet $14 per direct manufacturing labour-hour Direct manufacturing labour Input quantities per unit of output Chairs Tables Direct materials Wood 1.2 board metres 1.7 board metres 2 sheets Glass Direct manufacturing labour Machine-hours (MH) 3 hours 2 MH 6 hours 5 MH Inventory information, direct materials Beginning inventory Target ending inventory Wood 27 200 board metres 29 360 board metres Glass 8700 sheets 500 sheetsExplanation / Answer
1) Direct Material Usage Budget S No Particulars Chairs(Units) Tables (Units) a) Estimated sales 172,000 45,000 b) Beginning Inventory 7,500 2,150 c) Target Ending Inventory 8,400 2,050 d) Budgeted Production (a+c-b) 172,900 44,900 Material Requirements Input quantities per unit of output UOM Chairs Table Direct Material e) Wood board metres 1.20 1.70 f) Glass sheets 2 Total wood Requirement for chair (board metres) 207,480 ( d*e) Total wood Requirement for Table (board metres) 76,330 (d*e) Total Glass Requirement (sheets) 89,800 (d*f) Direct Material Purchase Budget Wood (board metres) Glass (sheets) g) Total Requirement (207480+76330) 283,810 89,800 h) Opening Inventory 27,200 8,700 i) Target Closing Inventory 29,360 9,500 j) Purchase (g+i-h) 285,970 90,600 Price $5 $11.50 Total Purchase Cost ($) 1,429,850 1,041,900 2) Budgeted Allocation Rate for Material Handling Budgeted Variable Budgeted Fixed Total Cost driver/allocation base Material Handling $ 342,840 600,000 942,840 Number of board metres used Estimated number of board metres to be used 283,810 Per unit Rate 1.21 3) Direct Manufacturing Labour cost Chairs Table Total k) Direct manufacturing hours required per unit 3 6 l) Budgeted Production (d) 172,900 44,900 217,800 m) No of Direct Manufacturing hours required (k*l) 518,700 269,400 788,100 n) Price per direct manufacturing labour hours $14 $14 $14 o) Budgeted Manufacturing Labour Hour Cost ($) (m*n) 7,261,800 3,771,600 11,033,400 4) Direct Manufacturing Overhead Budget Variable Fixed Total Material Handling 342,840 600,000 942,840 Number of board metres 283,810 Per unit Cost 1.21 Set up Cost 97,000 300,740 397,740 Set Up hours ( r) 2,833 Per unit cost 34 Processing Cost 789,250 5,900,000 6,689,250 Machine Hours (t) 570,300 Per unit Cost 1.38 Total Manufacturing Overheads ($) 1,229,090 6,800,740 8,029,830 Manufacturing cost per unit of production 36.83 Calculation of Set Up Hours Chairs Table Total d) Budgeted Production 172,900 44,900 217,800 p) Batches 500 50 q) Set up hours per batch 3 2 r) Total Number of Setup hours (d/p*q) 1,037 1,796 2,833 Calculation of Machine Hours Chairs Table Total d) Budgeted Production 172,900 44,900 217,800 s) Machine hours required per unit 2 5 t) Total Machine hours required (d*s) 345,800 224,500 570,300