Question

You need to prepare the budget for Yellow tree for the quarter ending June 2018. The budget must be prepared monthly. The quarter consists of 13 weeks. The forecasted sales are as follows: April 4 weeks May 5 weeks June 4 weeks July 4 weeks Sales Units 1,250 1,500 1,750 1,800 The company’s policy changed the inventory policy to keep closing inventory of completed units at 25% of the following month’s sales. Opening inventory on the 1st of April was 475 units. The labour information is as follows: Normal working hours 8 hours per day Weekend work None, only if overtime is required. Number of employees 20 currently Additional 10 employees will be employed for the month of June Normal time rate R32.50 per hour Overtime rate 30% above normal time rate per hour Hours per unit 3 hours 10

Required: 1. Calculate the production budget for the quarter. (3) 2. Calculate the budgeted labour hours per month. Split the hours between normal time and overtime. (9) 3. Calculate the budgeted labour cost monthly. Split the cost between normal time and overtime.

Answer 1

Solution 1:

Yellow Tree
Production Budget
Quarter ended June 30
Particulars	April	May	June
Unit Sales	1250	1500	1750
Desired Ending Inventory (25% of next month sale)	375	438	450
Total Needed	1625	1938	2200
Less: Beginning Inventory	475	375	438
Budgeted production	1150	1563	1762

Solution 2:

Yellow Tree
Budgeted labor hour
Quarter ended June 30
Particulars	April	May	June
Budgeted production	1150	1563	1762
Labor houre per unit	3	3	3
Budgeted labor hours	3450	4689	5286
Normal Time (hour)	3200	4000	4800
Overtime (hour)	250	689	486

Solution 3:

Yellow Tree
Budgeted labor cost
Quarter ended June 30
Particulars	April	May	June
Normal Time (hour)	3200	4000	4800
Overtime (hour)	250	689	486
Labor rate (Normal)	32.5	32.5	32.5
Labor rate (Overtime)	42.25	42.25	42.25
Direct labor cost (Normal)	104000	130000	156000
Direct labor cost (Overtime)	10562.5	29110.25	20533.5
Budgeted Direct labor cost	114562.5	159110.25	176533.5