Question 1:

Acacia Beverages (AB) bottles two soft drinks under license to Cadbury Schweppes at its Rehoboth plant. All inventory is in direct materials and finished goods at the end of each working day. There is no work-in-process inventory.

The two soft drinks bottled by AB are lemonade and diet lemonade. The syrup for both soft drinks is purchased from Cadbury Schweppes.

AB uses a batch size of 1 000 cases as the unit of analysis in its budgeting. (Each case contains 24 bottles.) Direct materials are expressed in terms of batches, in which one batch of direct materials is the input necessary to yield one batch (1 000 cases) of beverage. The following purchase prices are forecast for direct materials in 2015:

All direct material purchases are on account. The soft drinks are bottled using the same equipment. The only difference in the bottling process for the two soft drinks is the syrup.

Summary data used in developing budgets for 2015 are:

1. Sales

a. Lemonade, 1 080 batches @ N$9 000 selling price per batch

b. Diet Lemonade, 540 batches @ N$8 500 selling price per batch

c. All sales are on account

2. Beginning inventory of direct materials (1 Jan 2015)

a. Syrup for lemonade: 80 batches at N$1 100 purchase price per batch

b. Syrup for diet lemonade: 70 batches at N$1 000 purchase price per batch

c. Containers: 200 batches at N$950 purchase price per batch

d. Packaging: 400 batches at N$900 purchase price per batch

3. Beginning inventory of finished goods (1 Jan 2015)

a. Lemonade: 100 batches at N$5 300 per batch

b. Diet Lemonade: 50 batches at N$5 200 per batch

4. Target ending inventory of direct materials (31 Dec 2015)

a. Syrup for lemonade: 30 batches

b. Syrup for diet lemonade: 20 batches

c. Containers: 100 batches

d. Packaging: 200 batches

5. Target ending inventory of finished goods

a. Lemonade: 20 batches

b. Diet Lemonade: 10 Batches

6. Each batch requires 20 direct manufacturing labour hours at the 2015 budgeted rate of N$25 per hour. Direct manufacturing labour costs are paid at the end of each month.

7. Variable manufacturing overhead is forecast to be N$600 per hour of bottling time; bottling time is the time the filling equipment is in operation. It takes two hours to bottle one batch of lemonade and two hours to bottle one batch of diet lemonade. Assume all variable manufacturing costs are paid during the same month when incurred. Fixed manufacturing overhead is forecast to be N$1 200 000 for 2015. Included in the fixed manufacturing overhead forecast is N$400 000 for depreciation. All manufacturing costs are paid as incurred.

8. Hours of budgeted bottling time is the sole cost-allocation base for all fixed manufacturing overhead.

9. Administration costs are forecast to be 10% of the cost of goods manufactured for 2015. Marketing costs are forecast to be 12% of revenues for 2015. Distribution costs are forecast to be 8% of revenues for 2015. All these costs are paid during the month when incurred. Assume that there is no depreciation costs included in these estimates.

10. Budgeted beginning balances on 1 January 2015:

a. Accounts receivables N$550 000

b. Accounts payables N$300 000

c. Cash N$100 000

11. Budgeted ending balances on 31 December 2015:

a. Accounts receivables (from sales) N$600 000

b. Accounts payables (for direct materials) N$400 000

12. Budgeted equipment purchase in May 2015: N$1 350 000

13. Estimated income tax expense for 2015 payable on 31 December 2015 amounts to N$625 000.

Assume AB uses the first-in-first-out method for costing all inventories. On the basis of the preceding data, prepare the following budgets for the budget meeting in October 2014: