Question 6

Question 6
20
Points
Bake Fest (Pty) Ltd is in the business of making cakes for special celebrations such as birthdays. All the cakes they bake require 0.6kg of flour, 0.2kg of sugar and 0.5 a litre of milk. They asked you for help with their budgeting process to ensure that they do not run out of inventory during the upcoming festive season. They have provided the following information:

Festive season sales

2500 cakes

Selling price each

R250

Labour hours per cake

5

Labour cost per hour

R15

Purchase price for flour

R100 for 5kg

Purchase price for sugar

R50 for 2kg

Purchase price for milk

R20 per litre



The following information relates to inventories:



Opening inventory

Closing inventory

Complete cakes

200

250

Flour

70 kg

90kg

Sugar

6 kg

8 kg

Milk

40 litres

30 litres



Variable overheads are allocated at the rate of 20% of direct labour cost.

Fixed manufacturing overheads amount to R180 000, and they are allocated on the basis of labour hours.

You are required to prepare the following budgets:

Sales budget

Production budget

Material usage budget

Material purchases budget

Direct labour budget

Value of closing stock budget (NB: round off all your answers to the nearest whole number; NO DECIMALS



Operating budget solution

Sales budget



Units

Price

Total sales

Cakes

Blank 1

Blank 2

Blank 3





Production Budget



Cakes (units)

Expected sales

Blank 4

Closing stock

Blank 5



Blank 6

Opening stock

Blank 7

Production units

Blank 8



Material Usage Budget



Flour

Sugar

Milk

Production units

Blank 9

Blank 10

Blank 11

Material requirements

Blank 12

Blank 13

Blank 14

Material usage

Blank 15

Blank 16

Blank 17



Material Purchases Budget



Flour

Sugar

Milk

Material usage

Blank 18

Blank 19

Blank 20

Add closing stock

Blank 21

Blank 22

Blank 23



Blank 24

Blank 25

Blank 26

Less opening stock

Blank 27

Blank 28

Blank 29

Purchase units

Blank 30

Blank 31

Blank 32

Cost per unit

Blank 33

Blank 34

Blank 35

Total cost

Blank 36

Blank 37

Blank 38



Direct Labour Budget

Production units

Blank 39

Hours per unit

Blank 40

Total labour hours

Blank 41

Cost per hour

Blank 42

Total labour cost

Blank 43



Value of closing stock budget

Materials

Flour

Blank 44



Sugar

Blank 45



Milk

Blank 46

Direct labour



Blank 47

Prime cost



Blank 48

Overheads

Variable OH

Blank 49



Fixed OH

Blank 50

Total cost per unit



Blank 51

Closing stock units



Blank 52

Value of closing stock



Blank 53

1 answer

To assist you with the budgeting for Bake Fest (Pty) Ltd, I will go through each section step by step and provide the necessary calculations. Based on the data provided, let's systematically fill in the blanks.

Sales Budget

  1. Units: 2,500 cakes
  2. Price: R250
  3. Total sales: 2,500 cakes * R250 = R625,000

Sales Budget:

  • Cakes: 2,500 (Blank 1)
  • Price: R250 (Blank 2)
  • Total sales: R625,000 (Blank 3)

Production Budget

  1. Expected sales: 2,500 (Blank 4)
  2. Closing stock: 250 (Blank 5)
  3. Opening stock: 200 (Blank 7)

Calculating Production Units: \[ \text{Production units} = \text{Expected sales} + \text{Closing stock} - \text{Opening stock} \] \[ \text{Production units} = 2,500 + 250 - 200 = 2,550 \] (Blank 8)

Production Budget:

  • Cakes (units): 2,550 (Blank 6)

Material Usage Budget

  1. Production units: 2,550 (Blank 9)

Material Requirements:

  • Flour: \( \text{0.6 kg} \times \text{2,550 units} = 1,530 kg \) (Blank 12)
  • Sugar: \( \text{0.2 kg} \times \text{2,550 units} = 510 kg \) (Blank 13)
  • Milk: \( \text{0.5 liters} \times \text{2,550 units} = 1,275 liters \) (Blank 14)

Material Usage:

  • Flour: 1,530 kg (Blank 15)
  • Sugar: 510 kg (Blank 16)
  • Milk: 1,275 liters (Blank 17)

Material Purchases Budget

Material Usage:

  • Flour: 1,530 kg (Blank 18)
  • Sugar: 510 kg (Blank 19)
  • Milk: 1,275 liters (Blank 20)

Add Closing Stock:

  • Flour: 90 kg (Blank 21)
  • Sugar: 8 kg (Blank 22)
  • Milk: 30 liters (Blank 23)

Total Requirement Calculation:

  • Flour: \( 1,530 + 90 = 1,620 \) kg (Total) (Blank 24)
  • Sugar: \( 510 + 8 = 518 \) kg (Total) (Blank 25)
  • Milk: \( 1,275 + 30 = 1,305 \) liters (Total) (Blank 26)

Less Opening Stock:

  • Flour: 70 kg (Blank 27)
  • Sugar: 6 kg (Blank 28)
  • Milk: 40 liters (Blank 29)

Purchase Units:

  • Flour: \( 1,620 - 70 = 1,550 \) kg (Blank 30)
  • Sugar: \( 518 - 6 = 512 \) kg (Blank 31)
  • Milk: \( 1,305 - 40 = 1,265 \) liters (Blank 32)

Cost per Unit:

  • Flour: \( R100 / 5 kg = R20 \) per kg (Blank 33)
  • Sugar: \( R50 / 2 kg = R25 \) per kg (Blank 34)
  • Milk: \( R20 per litre \) (Blank 35)

Total Cost:

  • Flour: \( 1,550 kg \times R20 = R31,000 \) (Blank 36)
  • Sugar: \( 512 kg \times R25 = R12,800 \) (Blank 37)
  • Milk: \( 1,265 liters \times R20 = R25,300 \) (Blank 38)

Direct Labour Budget

  1. Production units: 2,550 (Blank 39)
  2. Hours per unit: 5 (Blank 40)

Total Labour Hours: \[ \text{Total labour hours} = 2,550 \times 5 = 12,750 \] (Blank 41)

Cost per Hour:

  • Cost per hour: R15 (Blank 42)

Total Labour Cost: \[ \text{Total labour cost} = 12,750 \times R15 = R191,250 \] (Blank 43)

Value of Closing Stock Budget

  1. Materials:

    • Flour:
      • Closing stock: 90 kg × R20 = R1,800 (Blank 44)
    • Sugar:
      • Closing stock: 8 kg × R25 = R200 (Blank 45)
    • Milk:
      • Closing stock: 30 liters × R20 = R600 (Blank 46)
  2. Direct Labour:

    • Closing stock units: 250 cakes (Blank 47)
    • Direct labour per cake: 5 hours × R15 = R75 (Cost per unit) (Blank 48)

Total Labour Cost for Closing Stock: \[ 250 \text{ units} \times R75 = R18,750 \] (Blank 49)

  1. Prime Cost: \[ \text{Prime cost} = (R1,800 + R200 + R600 + R18,750) = R21,350 \] (Blank 50)

  2. Overheads:

    • Variable OH:
      • Variable overheads: 20% of direct labour cost: \( R191,250 \times 0.20 = R38,250 \) (Blank 51)
    • Fixed OH: R180,000 (Blank 52)

Total Cost per Unit: \[ R21,350 + R38,250 + R180,000 = R239,600 \] (Blank 53)

Closing stock value: \[ \text{Closing stock value} = R239,600 \]

Final Summary of Budgets:

  • Sales Budget:

    • Units: 2,500 (Blank 1)
    • Price: R250 (Blank 2)
    • Total sales: R625,000 (Blank 3)
  • Production Budget:

    • Cakes (units): 2,550 (Blank 6)
  • Material Usage Budget:

    • Production units: 2,550 (Blank 9)
    • Flour: 1,530 kg (Blank 15)
    • Sugar: 510 kg (Blank 16)
    • Milk: 1,275 liters (Blank 17)
  • Material Purchases Budget:

    • Flour: 1,550 kg (Blank 30)
    • Sugar: 512 kg (Blank 31)
    • Milk: 1,265 liters (Blank 32)
  • Direct Labour Budget:

    • Total labour cost: R191,250 (Blank 43)
  • Value of Closing Stock Budget:

    • Closing stock value: R239,600 (Blank 53)

Make sure all values are filled into your corresponding blanks based on the calculations above.