Question

Case Study

Budgeting

XY Ltd plans to sell the following:

Months	Product A (units)
June	1200
July	1800
August	2800
September	3200
October	3200

Stock of finished goods at 1 June was 240 units and the company’s stockholding policy for the finished goods stock at the end of each month to represent 20% of the following month’s sales requirement. Each unit of product A uses two units of a component X1. On 1 June there were expected to be 264 units of X1 in stock. The desired closing stock of X1 is 10% of the next month’s production.

Each unit of component X1 costs $5.

Each unit of product A requires $6 of labor.

Fixed administration overheads in each month are budgeted to be $5000 (and include a charge of $1000 depreciation). Product A can be sold for $26 each.

Labor and fixed overheads are paid in the same month. Trade receivables (trade debtors) take two months to pay and the company pays its trade payables (trade creditors) after one month. The opening cash balance is $10000.

Required:

" with step by step calculation please "

1. The production budget in units for June July and August
2. The production cost budget for June July and August
3. The raw material purchase budget (in units and $) for June, July and august.

Answer 1

Production budget (in units)
	June	July	August
Sales	1,200	1,800	2,800
Less: Opening stock	(240)	(360)	(560)
Add: Closing stock	360	560	640
Production budget (in units)	1,320	2,000	2,880

Working-

Production budget (in units)
	June	July	August
Sales	1200	1800	2800
Less: Opening stock	-240	=-B196	=-C196
Add: Closing stock	=1800*20%	=2800*20%	=3200*20%
Production budget (in units)	=SUM(B194:B196)	=SUM(C194:C196)	=SUM(D194:D196)

Production budget (in amount)
	June	July	August
Component X1	$13,200	$20,000	$28,800
Labor	$7,920	$12,000	$17,280
Fixed administration overheads	$5,000	$5,000	$5,000
	$26,120	$37,000	$51,080

Working-

Production budget (in amount)
	June	July	August
Component X1	=1320*10	=2000*10	=2880*10
Labor	=1320*6	=2000*6	=2880*6
Fixed administration overheads	5000	5000	5000
	=SUM(B205:B207)	=SUM(C205:C207)	=SUM(D205:D207)

Raw material purchase budget(units)
	June	July	August
Production	2,640	4,000	5,760	(production units * 2 units of component X1)
Less: Opening stock	(264)	(400)	(576)
Add: Closing stock	400	576	640	(Raw material for production for next month *10%)
Raw material purchase (in units)	2,776	4,176	5,824

Working-

Raw material purchase budget(units)
	June	July	August
Raw material for Production	=1320*2	=2000*2	=2880*2	(production units * 2 units of component X1)
Less: Opening stock	-264	=-B214	=-C214
Add: Closing stock	=4000*10%	=5760*10%	=(3200*2)*10%	(Raw material for production for next month *10%)
Raw material purchase (in units)	=SUM(B212:B214)	=SUM(C212:C214)	=SUM(D212:D214)

Raw material purchase budget(amount)
	June	July	August
Raw material purchase (in units)	2,776	4,176	5,824	(a)
Per unit cost	$5	$5	$5	(b)
Raw material purchase budget(amount)	$13,880	$20,880	$29,120	(a*b)