Gamma Ltd. manufactures and sells two products, Ago and Bago. In July 2019 Gamma’s Budget Department gathered the following data in order to prepare the individual budgets in the master budget for 2020: 2020 Projected Sales : Product Unit Price Abba 90,000 $ 180 Baba 70,000 $ 250 2020 Inventories in Units: Target: Product January 1, 2020 December 31, 2020 Abba 21,000 25,000 Baba 10,000 11,000 To produce 1 unit of Ago and Bago, the following direct materials are used: Direct Material Unit Ago Bago A Pounds 5 6 B Pounds 3 4 C Each 0 1 Projected data for 2020 with respect to direct materials are as follows: Direct Material Purchase Price: Target Inventories January, 1, 2020 December 31, 2020 A $14 32,000 pounds 35,000 pounds B $6 27,000 pounds 30,000 pounds C $4 6,000 units 7,000 units Projected direct manufacturing labor requirements and rates for 2020 are as follows: Product Hours Per Unit Rate per Hour Ago 4 $15 Bago 5 $19 Manufacturing overhead is allocated at the rate of $20 per direct manufacturing labor-hour. 1) Prepare the following budgets for 2020: a) Revenue budget (in dollars) b) Production budget (in units) c) Direct materials purchases budget (in quantity)
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Gamma Ltd. manufactures and sells two products, Ago and Bago. In July 2019 Gamma’s Budget Department gathered the following data in order to prepare the individual budgets in
the
2020 Projected Sales :
Product Unit Price
Abba 90,000 $ 180
Baba 70,000 $ 250
2020 Inventories in Units:
Target:
Product January 1, 2020 December 31, 2020
Abba 21,000 25,000
Baba 10,000 11,000
To produce 1 unit of Ago and Bago, the following direct materials are used:
Direct Material Unit Ago Bago
A Pounds 5 6
B Pounds 3 4
C Each 0 1
Projected data for 2020 with respect to direct materials are as follows:
Direct Material Purchase Price:
Target Inventories
January, 1, 2020 December 31, 2020
A $14 32,000 pounds 35,000 pounds
B $6 27,000 pounds 30,000 pounds
C $4 6,000 units 7,000 units
Projected direct manufacturing labor requirements and rates for 2020 are as follows:
Product Hours Per Unit Rate per Hour
Ago 4 $15
Bago 5 $19
Manufacturing overhead is allocated at the rate of $20 per direct manufacturing labor-hour.
1) Prepare the following budgets for 2020:
a) Revenue budget (in dollars)
b) Production budget (in units)
c) Direct materials purchases budget (in quantity)
d) Direct materials purchases budget (in dollars)
e) Direct manufacturing labor budget (in dollars)
2) By reference to 1 above, how would management use the Master budget?
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