Furniture Land Limited was established in Newry in 2020 and currently manufactures two types of display cabinet
Question:
Furniture Land Limited was established in Newry in 2020 and currently manufactures two types of display cabinet (medium and large) for international markets. The company operates a variable costing system to value production and inventory, and prepares its budgets in advance for each quarter. The accountant has provided a range of information for the next quarter to 31st December 2021 as follows:
Projected sales for the next four months:
October | November | December | January | |
£ | £ | £ | £ | |
Medium display cabinet | 247,500 | 184,500 | 270,000 | 216,000 |
Large display cabinet | 262,500 | 181,250 | 262,500 | 218,750 |
Medium display cabinets sell for £180 each and large display cabinets sell for £250 each.
The standard cost card for each of the display cabinet is shown below:
á
Medium display cabinet | Large display cabinet | |
£ | £ | |
Direct materials: | ||
Plywood sheets (@ £48 per sheet) | 72.00 | 96.00 |
Screws (@ £0.20 each) | 5.60 | 7.20 |
Direct labour (@ £32.80 per hour) | 41.00 | 57.40 |
Variable overheads (@ £12 per direct labour hour) | 15.00 | 21.00 |
133.60 | 181.60 |
The company estimates that at 1st October 2021 inventory levels will be:
Medium display cabinets | 750 |
Large display cabinets | 550 |
Plywood sheets | 1,000 |
Screws | 2,500 |
To ensure that it maintains sufficient inventory of each type of display cabinet, it is company policy to hold 20% of the next month’s unit sales in closing inventory.
For the plywood sheets and screws, the company intends to double inventory held at 1st October 2021 and maintain this level of closing inventory each month for the foreseeable future.
Requirement
Prepare a total production budget in units for the quarter ending 31st December 2021.
Prepare a total materials purchase budget (in units and £) for each material for the quarter ending 31st December 2021.
Prepare a total labour cost budget (in hours and £) for the quarter ending 31st December 2021.
Prepare a total variable overhead cost budget for the quarter ending 31st December 2021.
Expert Answer:
To prepare the required budgets well follow the given information and guidelines Lets start by calculating the production budget in units for the quarter ending 31st December 2021 1 Production Budget ... View the full answer
