The Industrial Company of the Caribbean produces two products, “Chocnut spread” and” “Chocnut bar”. The following sales forecast for 2016 was decided on by the budget committee and presented to you by the management accountant.

Sales forecast

Details	Chocnut spread/units	Chocnut bar /units
December 2015	6,000	3,700
January 2016	5,500	4,000
February 2016	6,200	4,500
March 2016	5,000	5,200
April 2016	4,900	5,400
May 2016	6,400	4,800

Notes:

(i) During 2016 the company sold one unit of chocolate spread for $1,200 while one unit of chocnut bar was sold for $$1,500.

(ii) To make one unit of chocolate spread four units of raw material BZN980 are used, while two units of raw material CZN980 are used to produce one unit of chocnut bar.

(iii) Raw materials stock in units at the end of each month is to be held at a level equal to twenty percent (20%) of the forecasted sales for the next month.

(iv) It was decided by management that at the end of each month that there should be enough finished goods stock on hand to meet fifteen (15%) of the sales for the next month.

Required:

For the period, January 2016 to April 2016 prepare the following:

(a) The company’s sales budget.

(b) The production budget for both products.

(c) The direct raw materials usage budget for both products.

(d) What is meant by a principal budget factor and explain why it must be identified.

(e) Why must the information produced by the management accountant be concerned with the future as well as reflect economic reality?

Answer rating: 100% (QA)

a The companys sales budget for 2016 is as follows January 2016 Chocnut spread 5500 units Chocnut bar 4000 units Total sales 9500 units February 2016 ... View the full answer