lagued Engineering Limited produces two products, Niks and Args. The budget for the forthcoming year to 31 March 19X8 is to be prepared. Expectations for the forthcoming year include the following. Finished products Niks Args The sales director has estimated the following: demand for the company’s products will be 4,500 units 4,000 units they will market at a selling price per unit of $32 $44 the closing stock of finished products at 31 March 19X8 is required to be 400 units 1,200 units the opening stock of finished products at 1 April 19X7 is 900 units 200 units the unit cost of this opening stock will be $20 $28 the amount of plant capacity required for each unit of product is: machining 15 min 24 min assembling 12 min 18 min the raw material content per unit of each product is: material A 1.5 kilos 0.5 kilos material B 2.0 kilos 4.0 kilos direct labour hour required per unit of each product are 6 hours 9 hours Finished goods are valued on a FIFO basis at full production cost. Raw materials Material A Material B Closing stock requirement in kilos at 31 March 19X7 600 1,000 Opening stock at 1 April 19X7 in kilos 1,100 6,000 Budgeted cost of raw materials per kilo $1.50 $1.00 Actual costs per kilo of opening stocks are as budgeted costs for the coming year. Direct labour The standard wage rate of direct labour is $1.60 per hour Production overhead Production overhead is absorbed on the basis of machining hours, with separate absorption rates for each department. The following overheads are anticipated in the production cost centre budgets. Machinery Assembly department department $ $ Supervisor’s salaries 10,000 9,150 Power 4,400 2,000 Maintenance and running costs 2,100 2,000 Consumables 3,400 500 General expenses 19,600 5,000 39,500 18,650 Depreciation is taken at 5% straight line on plant and equipment. A machine costing the company $20,000 is due to be installed on 1 October 19X7 in the machining department, which already has machinery installed to the value of $100,000 (at cost). Selling and distribution expenses $ Sales commissions and salaries 14,300 Travelling and distribution 3,500 Office salaries 10,100 General administration expenses 2,500 30,400 There is no opening or closing work-in-progress and inflation should be ignored. Required: Prepare the following budgets for the year ended 31 March 19X8 for Plagued Engineering Ltd: sales budget production budget (in quantities) plant utilization budget
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.
Question 1
Plagued Engineering Limited produces two products, Niks and Args. The budget for the forthcoming year to 31 March 19X8 is to be prepared. Expectations for the forthcoming year include the following.
- Finished products Niks Args
The sales director has estimated the following:
- demand for the company’s products will be 4,500 units 4,000 units
- they will market at a selling price per unit of $32 $44
- the closing stock of finished products at
31 March 19X8 is required to be 400 units 1,200 units
- the opening stock of finished products at
1 April 19X7 is 900 units 200 units
- the unit cost of this opening stock will be $20 $28
- the amount of plant capacity required for each
unit of product is:
machining 15 min 24 min
assembling 12 min 18 min
- the raw material content per unit of each product is:
material A 1.5 kilos 0.5 kilos
material B 2.0 kilos 4.0 kilos
- direct labour hour required per unit of each
product are 6 hours 9 hours
Finished goods are valued on a FIFO basis at full production cost.
- Raw materials
Material A Material B
- Closing stock requirement in kilos at
31 March 19X7 600 1,000
- Opening stock at 1 April 19X7 in kilos 1,100 6,000
- Budgeted cost of raw materials per kilo $1.50 $1.00
Actual costs per kilo of opening stocks are as budgeted costs for the coming year.
- Direct labour
The standard wage rate of direct labour is $1.60 per hour
- Production overhead
Production overhead is absorbed on the basis of machining hours, with separate absorption rates for each department.
The following overheads are anticipated in the production cost centre budgets.
Machinery Assembly
department department
$ $
Supervisor’s salaries 10,000 9,150
Power 4,400 2,000
Maintenance and running costs 2,100 2,000
Consumables 3,400 500
General expenses 19,600 5,000
39,500 18,650
- Selling and distribution expenses
$
Sales commissions and salaries 14,300
Travelling and distribution 3,500
Office salaries 10,100
General administration expenses 2,500
30,400
- There is no opening or closing work-in-progress and inflation should be ignored.
Required:
Prepare the following budgets for the year ended 31 March 19X8 for Plagued Engineering Ltd:
- sales budget
- production budget (in quantities)
- plant utilization budget
- direct materials usage budget
- direct labour budget
- production overhead budget
- cost of finished goods
- direct materials purchases budget
Step by step
Solved in 2 steps with 2 images
