Reference no: EM133066821
Question - A new set of financial managers are hired to Holland Company, a manufacturing-concern entity that produces Product A. The financial managers are now planning the operations for 2022. They are currently doing the sales and production budget of the entity. Upon inspecting the financial records of the entity, they found at that each unit of Product A utilizes three kinds of materials - Material X, Material Y, and Material Z. To produce each unit of Product A, three units of Material X, 2 units of Material Y, and 4 units of Material Z are needed. It also needs 2.5 direct labor hours to manufacture each unit. Factory overhead is applied at 50% of direct labor costs.
As the usual practice, the entity is preparing the budget on a quarterly basis. For the 4th quarter of 2021, the entity was able to sell 120000 units of Product A at an average price of P400 per unit. Because the new set of financial managers are confident that the company can do more, they are targeting to increase units sold by 10000 for the first quarter of 2022, and additional 15000 units for the succeeding quarters. They are also planning to increase selling price by 5 percent every quarter. Upon inspecting the December 31, 2021 records, they found out the level of inventories of the raw materials are as follows: 20,500 units of Material X, 14,600 of Material Y, and 16,700 of Material Z. They are planning to always maintain raw materials inventory equivalent to 30% of the next quarter's material requirements. The financial managers also want to maintain finished goods inventory level equivalent to 20% of the next quarter's planned units sold.
Looking at the market price of the resources to produce Product A, the following prices are observed:
Material X P25.50
Material Y P67.20
Material Z P88
Direct Labor Hour P99.50
Required -
1. Compute the required level of production for each quarter of 2022.
2. Compute the required units of each material to be purchased for each quarter of 2022.
3. Compute the amount to be spent for purchasing each kind of material for each quarter of 2022.
4. Compute the estimated amount to be spent on direct labor each quarter.