X plc manufactures Product X using three different raw materials. The product details are as follows:

It is company policy to hold stocks of finished goods at the end of each month equal to 50 per cent of the following month's sales demand, and it is expected that the stock at the start of the budget period will meet this policy. At the end of the production process the products are tested: it is usual for 10 per cent of those tested to be faulty. It is not possible to rectify these faulty units.
Raw material stocks are expected to be as follows on 1 July:
Material A 1000 kgs
Material B 400 kgs
Material C 600 kgs
Stocks are to be increased by 20 per cent in July, and then remain at their new level for the foreseeable future. Labour is paid on an hourly rate based on attendance. In addition to the unit direct labour hours shown above, 20 per cent of attendance time is spent on tasks which support production activity.
(a) Prepare the following budgets for the quarter from July to September inclusive:
(i) Sales budget in quantity and value;
(ii) Production budget in units;
(iii) Raw material usage budget in kgs;
(iv) Raw material purchases budget in kgs and value;
(v) Labour requirements budget in hours and value.
(b) Explain the term 'principal budget factor' and why its identification is an important part of the budget preparation process.
(c) Explain clearly, using data from part (a) above, how you would construct a spreadsheet to produce the labour requirements budget for August. Include a specimen cell layout diagram
containing formulae which would illustrate the basis for the spreadsheet.

Selling price per unit 250 Material A Material B Material C Direct labour 3 kgs 2 kgs 4 kgs 8 hours material price 3.50 per kg material price 5.00 per kg material price 4.50 per kg labour rate E8.00 per hour