Question Tag: Labour usage and cost budget

b) Jatokrom Manufacturing Company Ltd (Jatokrom) produces shea butter body lotion, christened Zimbi, for both local and the West African market under the One-District-One-Factory government initiative. A unit of Zimbi is sold for GH¢10. Conventionally, the selling price for the product changes every other month by 10% due to the erratic nature of the environment in which Jatokrom operates. The last time the selling price was increased was the immediate month preceding the first month of this planning period.
The demand for the product for the planning period averages every 30 days (equivalent to a month) as follows:

• It is the policy of Jatokrom to keep closing inventory of finished goods to be equivalent to the sales level of 10 working days of next month’s sales. However, experience shows that 3% of each production goes defective and has to be scrapped with no scrap value.
• Product Zimbi requires 2kg of material X. However, it is expected that a normal loss of 20% of material X will occur in the production process.
• It is the policy of Jatokrom to keep material inventory to cover 10 days of the following period’s production. Material usage in month 5 is estimated to be 65,207.5kg. The price of material X is budgeted to be GH¢3.50/kg.
• A unit of Zimbi requires 1.5 hours to produce with a 75% productivity level because of regular maintenance. The Labour rate per hour is GH¢6, but only 39,500 hours can be worked within regular working hours. Overtime hours are paid at time and a half.

Required: Prepare the following budgets for the first three months for Jatokrom Company Ltd.
i) Sales (3 marks)
ii) Production (3 marks)
iii) Material Usage (3 marks)
iv) Material Purchase (3 marks)
v) Labour usage and cost (3 marks)