Exercise $3(20$ points$)$

Tree Ltd makes two products, the A and the B$.$ Both products use the same material and labour but in different amounts. The company divides its year into four quarters, each of twelve weeks. Each week consists of five days and each day comprises $7$ hours. You are employed as the management accountant to Tree Ltd and you originally prepared a budget for quarter $3.$ The basic data for that budget is reproduced below.

Original budgetary data: quarter $3$

Product A B

Estimated demand $1800$ units $2100$ units

Material per unit $8$ kilograms $12$ kilograms

Labour per unit $3$ hours $6$ hours

Since the budget was prepared, three developments have taken place though:

$1.$ The company has begun to use advanced methods to forecast sales demand. Because of this, the estimated demand for quarter $3$ has been revised to $2000$ As and $2400$ Bs$.$

$2.$ As a result of the revised sales forecasting, you have developed more precise estimates of sales and closing stock levels

$$ The sales volume of both A and B in quarter $4$ will be $20\%$ more than in the revised budget for quarter $3.$

$$ The closing stock of finished A$-$s at the end of quarter $3$ should represent $5$ days sales for quarter $4.$

$$ The closing stock of finished Bs at the end of quarter $3$ should represent $10$ days sales for quarter $4.$

$$ Production in quarter $4$ of both A and B is planned to be $20\%$ more than in the revised budget for quarter $3.$ The closing stock of materials at the end of quarter $3$ should be sufficient for $20$ days of production in quarter $4.$

$3.$ New equipment has been installed. The workforce is not familiar with the equipment. Because of this, for quarter $3,$ they will only be working at $80\%$ of the efficiency assumed in the original budgetary data.

Other data from your original budget which has not changed is reproduced below:

$50$ production employees work a $35$ hour week and are each paid $210$ per week; overtime is paid for at $9$ per hour;

$$ opening stocks at the beginning of quarter $3$ are as follows: finished As $500$ units; finished Bs $600$ units; material $12000$ kilograms the cost of material is $10$ per kilogram;

The production director of Tree Ltd asks you to use the revised information to prepare the following:

$($a$)$ the revised production budget for As and Bs;

$($b$)$ the material purchases budget in kilograms and the cost of purchases;

$($c$)$ the labour budget in hours $($normal hours and overtime hours$)$ and in cost$.$