Task A (LO 3: 3.

1)
Printing Rite Ltd manufactures a product known as PR. To prepare budget for the year to 31 December
2017, the following information is used:

1. Expected sales details:

Price/unit: 100.

Number of units sold: 10,000.

All sales are on credit terms.

2. For each unit of PR, 5 units of raw material P and 10 units of raw material R are needed. P is
expected to cost 3 per unit, and R 4 per unit. All goods are purchased on credit terms.

3. Two departments are involved in producing PR: machining and assembly.

The following information is relevant:

Direct Labour per Direct Labour rate

Unit of Product per hour
(hours)
Machining 1.00 6
Assembling 0.50 8

4. The factory overhead costs are expected to amount to 100,000.

5. At 1 January 2017, 800 units of PR are in stock at a value of 52,000, 4500 units of raw
material P at a value of 13,500, and 12,000 units of raw materials R at a value of 48,000.
Closing balance for both finished goods and raw materials are planned to be 10% above the
opening stock levels as at 1 January 2017.

6. Administration, selling and distribution overhead is expected to amount to 150,000.

7. Other relevant information at 1 January 2017

Fixed assets at cost 250 000

Less: Accumulated depreciation 100 000

Carrying amount 150 000

Fixed assets are depreciated on a straight-line basis at a rate of 20% per annum on cost.

Required:
1. Explain how budget can be a decision-making tool for businesses.

2. Prepare a budgeted income statement for Printer Rite Ltd.

Note: You MUST present the following budgets before showing the budgeted income statement:

Sales Budget

Production Budget

Direct Material Budget

Direct Labour Budget

Task B (LO 3: 3.2)

Super Bike Manufacturing Company presents the following data for 2014:

Opening inventory 0 Units

Sales 8,000 Units
Production 10,000 Units
Closing inventory 2,000 Units

Direct materials 24
Direct labour 28
Variable manufacturing overhead expenses 10
Fixed manufacturing overhead expenses 120,000
Fixed selling and administrative expenses 800,000

Required:
1. Explain break-even analysis and its importance for a business
2. What is the break-even sale price if the compulsory trade discount is 10%?
3. What sales price is required to earn 50,000 profit?