Question

Welco Ltd specialises in the manufacture of dry cider. The 1-litre bottle sells for £3.00 each. The budget forecast shows the following sales volumes: Month Litres August 400,000 September 340,000 October 300,000 November 260,000 December 320,000 January 250,000 Company policy is for closing stock levels of cider to be 20% of next month’s sales. Stock of cider on 1 September was 80,000 litres. For raw materials, stocks of apples, the policy is for closing stock to be 50% of next month’s usage. On 1 September, the stock of apples was 2,200 tonnes. On average, 15 kilograms (kgs) of apples are needed to produce 1 litre of cider. Note: 1 tonne = 1,000 kg Required: (a) For the period September to November, prepare i) the sales budget in units and £; ii) the production budget in litres; iii) the material usage and purchase budget in tonnes.

Answer 1

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Welco Ltd
Answer a i	September	October	November	Total	December	January	Note
Budgeted Sales units	340,000.00	300,000.00	260,000.00				A
Sell price per unit	3.00	3.00	3.00				B
Budgeted Sales Revenue	1,020,000.00	900,000.00	780,000.00	2,700,000.00			C=A*B
Answer a ii
Production Budget	September	October	November	Total	December	January
Budgeted Sales units	340,000.00	300,000.00	260,000.00		320,000.00	250,000.00	See A
Add: Closing	60,000.00	52,000.00	64,000.00		50,000.00		I= 20% of A of next month.
Less: Opening	80,000.00	60,000.00	52,000.00		64,000.00		J= 20% of A of same month. Opening stock of September is given in question.
Production Budget- liters	320,000.00	292,000.00	272,000.00		306,000.00
Answer a iii
Material usage and purchase Budget	September	October	November	Total	December
Production Budget	320,000.00	292,000.00	272,000.00		306,000.00		See J
Apples required per liter	15.00	15.00	15.00		15.00		K
Material usage budget (tones)	4,800.00	4,380.00	4,080.00		4,590.00		L=K*J/1000
Add: Closing	2,190.00	2,040.00	2,295.00				M= 50% of L of next month.
Less: Opening	2,200.00	2,190.00	2,040.00				N= 50% of L of same month. Opening stock of September is given in question.
Material Purchase Budget (tones)	4,790.00	4,230.00	4,335.00