Reference no: EM132323828

Question

Four Star Ltd manufactures and sells a single product. They operate a budgetary control system with budgets prepare every 3 months. They are preparing their budget for the first quarter of 2011 and have collected the following data:

Forecast sales   units

January           24,000

February         28,000

March             30,000

April               32,000

May                32,000

They plant to hold stocks of finished goods at the end of each month equal to 25% of next month's sales. Anticipated stocks at the end of 2010 will be 6,000 units.

They plan to hold raw material stock at the end of each month equal to 10% of next month's production requirements. The anticipated stocks at the end of 2010 will be:

Material X 7,500kilos

Material Y 5,000kilos

The budgeted costs for the period are:

Unit cost

Direct material - X 3 kilos at $5 per kilo

- Y 2 kilos at $4 per kilo

Direct labour. - 4 hours at $8 perhour

Overheads - Variable production $6 per direct labour hour

- Fixed production $546,000 for the first quarter

- Fixed selling and distribution $364,000 for the first quarter

- Fixed administration $91,000 for the first quarter

The product selling price is estimated to be $100 perunit.

Required:

(a) Calculate production budget in units for each month and for the first quarter of 2011.

(b) Compute purchasing budget in kilos and in $ for material X only for each month and for the first quarter of 2011.

(c) Prepare production cost budget,by element of cost for the first quarter.