Q.2 (Max Marks:90) Bombera Ltd operates at capacity and makes glass-topped dining tables and wooden chairs,…

Q.2 (Max Marks:90)

Bombera Ltd operates at capacity and makes glass-topped dining
tables and wooden chairs, which are then typically sold as sets of
four chairs with one table. However, some customers purchase
replacement or extra chairs, and others buy some chairs or a table
only, so the sales mix is not exactly 4:1. Bombera Ltd is planning
its annual budget for the financial year 2018. Information for 2018
follows:

Input prices Direct materials Wood $5.30 per board metre Glass
$11.5 per sheet Direct manufacturing labour $14 per direct
manufacturing labour-hour

Input quantities per unit of output

Chairs Tables Direct materials Wood 1.2 board metres 1.7 board
metres Glass — 2 sheets Direct manufacturing labour 3 hours 6 hours
Machine-hours (MH) 2 MH 5 MH

Inventory information, direct materials

Wood Glass Beginning inventory 27 200 board metres 8 700 sheets
Target ending inventory 29 360 board metres 9 500 sheets
  

ACT501 Semester 2, 2018 Page 4

Sales and inventory information, finished goods

Chairs Tables Expected sales in units 172 000 45 000 Selling price
$70 $900 Target ending inventory in units 8 400 2 050 Beginning
inventory in units 7 500 2 150 Chairs are manufactured in batches
of 500 and tables are manufactured in batches of 50. It takes three
hours to set up for a batch of chairs and two hours to set up for a
batch of tables. Bombera Ltd uses activity-based costing and has
classified all overhead costs as shown in the table below:

Cost type

Budgeted variable

Budgeted fixed Cost driver/allocation base Manufacturing: Materials
handling $342 840 $600 000 Number of board metres used Set-up 97
000 300 740 Set-up hours Processing 789 250 5 900 000 Machine-hours
Nonmanufacturing: Marketing 2 011 200 4 500 000 Sales revenue
Distribution 54 000 380 000 Number of deliveries

Delivery trucks transport units sold in delivery sizes of 500
chairs or 500 tables.

Required For the year 2018:

1. Prepare the revenues budget. (1 mark) 2. Use the revenues budget
to: a. find the budgeted allocation rate for marketing costs (1.5
marks) b. find the budgeted number of deliveries and allocation
rate for distribution costs. (3.5 marks) 3. Prepare the production
budget in units. (2 marks)

ACT501 Semester 2, 2018 Page 5

4. Use the production budget to: a. find the budgeted number of
set-ups, set-up hours and the allocation rate for set-up costs (5
marks) b. find the budgeted total machine-hours and the allocation
rate for processing costs. (2.5 marks) 5. Prepare the direct
materials usage budget and the direct materials purchases budget.
(5 marks) 6. Use the direct materials usage budget to find the
budgeted allocation rate for materials-handling costs. (2.5 marks)
7. Prepare the direct manufacturing labour cost budget. (1.5 marks)
8. Prepare the manufacturing overhead cost budget for materials
handling, set-up and processing. (1.5 marks) 9. Prepare the
budgeted unit cost of finished good (16.5 marks) and ending
inventories budget. (4.5 marks) 10. Prepare the cost of goods sold
budget. (3 marks) 11. Prepare the non-manufacturing overhead costs
budget for marketing and distribution. (1 mark) 12. Prepare a
budgeted income statement (ignore income taxes). (3 marks) 13.
Compare the budgeted unit cost of a chair to its budgeted selling
price. Why might Bombera Ltd continue to sell the chairs for only
$70?