A company manufactures two products A and B by making use of two types of materials, namely, X and Y. Product A requires 10 units of X and 3 units of Y. Product B requires 5 units of X and 2 units of Y. The price of X is Rs. 2 per unit and that of Y is Rs. 3 per unit. Standard hours allowed per product are 4 and 3, respectively. Budgeted wage rate is Rs. 8 per hour. Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week. There are 150 workers.
The Sales Manager has estimated the sales of product A to be 5,000 units and product B 10,000 units. The target productivity ratio (or efficiency ratio) for the productive hours worked by the direct worker in actually manufacturing the product is 80%; in addition, the non-productive downtime is Budgeted at 20% of the productive hours worked. In the Budget period, 5-day weeks are 12; and it is anticipated that sales and production will occur evenly throughout the whole period.
It is anticipated that the stock at the beginning of the period will be: Product A—800 units and Product B—1,680 units.
The targeted Closing Stock expressed in terms of anticipated activity during the Budget period are: Product A—12-day sales and Product B—18-day sales. The opening and Closing Stock of Raw Material of X and Y will be maintained according to the requirement of stock position for Product A and B.
You are required to prepare the following for the next period:
- Material Usage and Material Purchase Budget in terms of quantities and values.
- Production Budget.
- Wages Budget for the direct workers.