Wilson Beverages (WB) bottles tow soft drinks under licence to Cadbury Schweppes (CS) at its Manchester plant.
Question:
Wilson Beverages (WB) bottles tow soft drinks under licence to Cadbury Schweppes (CS) at its Manchester plant. All inventory is in direct materials and finished goods at the end of each working day. There is no work in process inventory.
The two soft drinks bottled by WB are lemonade and diet lemonade. The syrup for both soft drinks is purchased from CS.
WB uses a lot size of 1 000 cases as the unit of analysis in its budgeting. (Each case contains 24 bottles.) Direct materials are expressed in terms of lots, in which one lot of direct materials is the unput necessary to yield one lot (1 000 cases).
The following purchase prices are forecast for direct materials in 2021:
| Lemonade | Diet lemonade | |
| Syrup | R1 200 per lot | R1 100 per lot |
| Containers (bottles, caps, etc.) | R1 000 per lot | R1 000 per lot |
| Packaging | R800 per lot | R800 per lot |
All direct material purchases are on account.
The two soft drinks are bottled using the same equipment. The only difference in the bottling process for the two soft drinks is the syrup.
Summary data used in developing budgets for 2021 are:
| 1. | Sales: Lemonade: 1 080 lots at R9 000 selling price per lot Diet lemonade: 540 lots at R8 500 selling price per lot All sales are on account |
| 2. | Beginning inventory of direct materials: Syrup for lemonade: 80 lots at R1 100 purchase price per lot Syrup for diet lemonade: 70 lots at R1 000 purchase price per lot Containers: 200 lots at R950 purchase price per lot Packaging: 400 lots at R900 purchase price per lot |
| 3. | Beginning inventory of finished goods: Lemonade: 100 lots at R5 300 per lot Diet lemonade: 50 lots at R5 200 per lot |
| 4. | Target ending inventory of direct materials Syrup for lemonade: 30 lots Syrup for diet lemonade: 20 lots Containers: 100 lots Packaging: 200 lots |
| 5. | Target ending inventory of finished goods Lemonade: 20 lots Diet lemonade:10 lots |
| 6. | Each lot requires 20 direct manufacturing labour hours at the 2021 budgeted rate of R25 per hour. Direct manufacturing labour costs are paid at the end of each month |
| 7. | Variable manufacturing overhead is forecast to be R600 per hour of bottling time; bottling time is the time the filling equipment is in operation. It takes two hours to bottle one lot of lemonade and two hours to bottle one lot of diet lemonade. Assume all variable manufacturing overhead costs are paid during the same month when incurred. Fixed manufacturing overhead is forecast to be R1 200 000 for 2021. Included in the fixed overhead forecast is R400 000 for depreciation. All manufacturing overhead costs are paid as incurred. |
| 8. | Hours of budgeted bottling time is the sole cost allocation base for all fixed manufacturing overhead |
| 9. | Administration costs are forecast to be 10% of the cost of goods manufactured for 2021. Marketing costs are forecast to be 12% of revenues for 2021. Distribution costs are forecast to be 8% of revenues for 2021. All these costs are paid during the month when incurred. Assume there are no depreciation or amortization expenses. |
| 10. | Budgeted beginning balances on 1 January 2021: Accounts receivable (from sales): R550 000 Accounts payable (for direct materials): R300 000 Cash: R100 000 |
| 11. | Budgeted ending balances on 31 December 2021: Accounts receivable (from sales): R600 000 Accounts payable (for direct materials): R400 000 |
| 12. | Budgeted equipment purchase in May: R1 350 000 |
| 13. | Estimated income tax expenses for 2021: R625 000 |
Assume WB uses the first-in, first-out method for costing all inventories.
Required:
1. On the basis of the preceding data, prepare the following budgets for 2021:
a. Sales budget
b. Production budget
c. Direct materials purchases budget
d. Direct manufacturing labour budget
e. Manufacturing overhead budget
f. Ending finished goods inventory budget
g. Cost of goods sold budget
h. Selling and administrative budget
i. Budgeted income statement
j. Cash budget
