Question

Financial Information:

	TV tables	dining Tables	Chairs
Selling Price per unit	SAR 1,000	SAR 5,000	SAR 700
Direct Materials cost per 1 Kg of wood timber	SAR 50	SAR 50	SAR 50
Kg of wood timber required per unit	10	35	5
Direct Labour hour cost	SAR 30	SAR 30	SAR 30
Sales commission per item sold	SAR 10	SAR 15	SAR 5
Variable manufacturing overhead per unit	SAR 20	SAR 24	SAR 18
Number of labour hours per unit	3	4	2
Budgeted sales in units	300	200	450

Additional Information:

Other costs:

Production manager annual salary SAR 60,000

Annual marketing costs SAR 10,000- related to TV tables

General Expenses SAR 5,000

Annual Fixed manufacturing overhead (excluding depreciation) SAR10,000 (20% relates to TV tables)

Annual equipment depreciation SAR 10,000

The company had 8 TV tables and 100 kg of wood timber in stock at the end of September.

Company policy is to maintain 20% of the following months sales level as closing inventory for finished goods.

Company policy to maintain 25% of next months’ production needs as closing inventory for direct materials.

Budgeted sales of TV tables for the next six months are as follows:

October	November	December	January	February
40	35	20	20	20

Cash collections on sales are as follows:

30% in the month of sale

70% in the month following sale

Receivables at the end of September were SAR 22,000

Cash payments on purchases are as follows:

60% in the month of purchase

40% in the following month

Payables at the end of September were SAR 6,000

The closing cash balance in September 2018 was SAR 40,000 and it is company policy to maintain cash at this level at the end of each month.

The company have access to a 4% bank loan of SAR 70,000

The company paid a dividend of SAR 40,000 in November

Cash of SAR 50,000 was invested in the company by a private investor in December.

Using the information above, prepare the master budget for TV tables only for the quarter ending 31^th December 2018.

You are required to prepare the master budget for TV tables only, hence any costs that are shared with the other products should be ignored.

Answer 1

Answer: - From the given information, master budget for TV tables only for the quarter ending 31^st December 2018 is as follows: If sales commission is removed, contribution will be increased as 3000 + 3000 + 2250 = 8250. Breakeven point (BEP) = Fixed cost + 40,000 (Increase in salaries) / combined p/v ratio = 24545. BEP will reduce and so overall profit will increase. (2) Contribution per unit = 8,97,350 / 960 = 944.50. Breakeven point = Fixed cost / contribution percent = 60,000 + 10,000 + 500 + 10,000 + 10,000 / 944.50 = 95000 / 944.50 = 100.58 units.