Reference no: EM133179458

Question - Xavier Ltd manufactures Product 2. The following information is an extract and relates to the budget for the year to 31 December 2023.

20,000 units of Product 2 are expected to be sold at £1,000 per unit. On 1 January 2023, 2,000 units are expected be in inventory and there should be no closing inventory at the end of the year.

Each unit produced requires 3,000 grams of material K purchased at £130 per kg. The target opening inventory is 25,000kg and closing inventory is 10,000kg.

Two processes are involved in production, Process A and Process B, with direct labour rate of E5 and £14 per hour respectively. Two direct labour hours are required in process A for each unit and one hour is required for each unit in process B.

The management of Xavier Ltd have heard of beyond budgeting but do not fully understand it.

Required -

a. Prepare the direct materials purchase budget for the year ended 31 December 2023.

b. Prepare the direct labour cost budget for the year ended 31 December 2023.

c. In no more than 400 words, critically discuss the limitations of traditional budgeting and suggest alternative methods to address the limitations identified.