Problem 2 Master Budgeting (20 marks)

Problem 2 - Master Budgeting (20 marks) Nan Fung Industries manufactures and sells a special model of watches called Prime. It expects to sell 3,200 units of Prime in 2019. The following per unit information are given for 2019: Nan Fung Industries had an inventory of 230 units of Prime at the end of 2018 . It has decided that as a measure to prevent any product shortage, it will maintain ending inventory of 370 units of Prime. Crimpson is a special type of direct material used in making the Prime watch. Each Prime watch requires two units of Crimpson which has to be imported at a cost of $11. There were 140 units of Crimpson in stock at the end of 2018 . The management also want to have maintain 188 units of Crimpson at the end of 2019. The operating cost for the year is budgeted to be $174,000. Required: a. Compute the budgeted revenues in dollars. ( 2 marks) b. Compute the number of Prime watches that Nan Fung Industries should produce for 2019. (3 marks) c. Compute the budgeted purchases of Crimpson in units and in dollars. (5 marks) d. What's the budgeted operating income for 2019? (3 marks) e. If the cost of Crimpson is increased to $15 per unit, and the selling price of Prime watch is decreased by 10%, what would be the new budgeted operating income? ( 3 marks) f. What is sensitivity analysis? How can managers use the sensitivity analysis to increase the benefits of budgeting? (4 marks) (Total 20 marks)