Question

1. Forecast market demand for the product of BA Ltd is 40,000 units. BA will be able to satisfy 50% of the demand. The selling price per unit is K 100.
2. The cost of producing a unit of the product is as follows:

              Direct material             2 kgs @ K2.50 per kg

              Direct labour                 4 hours @K 5 per hour

             Variable overhead         2 machine hours @ K 5 per machine hour

              Fixed overhead              6 machine hours @ K5 per machine hour

Machine hours for variable and fixed overhead show the utilization of machinery per unit.

3. Details about stocks/ inventories are as follows:

            Finished goods

                          Opening                         750 units

                          Closing                           1,750 units

             Raw materials

                          Opening                           5,000 kgs

                          Closing                              7,500 kgs

4. Selling and distribution expenses and general and administrative expenses will be as follows:

              Selling and distribution expenses              K 50,000

              General and administrative expenses       K 100,000

5. The tax rate will be 35%.

Required

Prepare the following the budgeted statement of income

  

Answer 1

Budgeted Statement of Income
Particular	Amount ( K)	Amount ( K)	Particular	Amount ( K)	Amount ( K)
To Opening Stock		3,26,488.10	By Sales	20000X100	20,00,000.00
( Working Note 6)
To Direct Material		1,11,250.00	By Closing Stock		4,89,732.14
( Working Note 2)			( Working Note 6)
To Direct Labour		4,20,000.00
( Working Note 3)
To Variable Overhead		2,10,000.00
( Working Note 4)
To Fixed Overhead		6,30,000.00
( Working Note 5)
To Gross Profit		7,91,994.05
		24,89,732.14			24,89,732.14
To Selling and distribution expenses		50,000.00	By Gross Profit		7,91,994.05
To General and administrative expenses		1,00,000.00
To Income Tax @35%		2,24,697.02
( Working Note 7)
To Budgeted Net Profit		4,17,297.03
		7,91,994.05			7,91,994.05
Note
I have assumed cost of material included in the Opening finished goods is same as cost of production.
I have assumed Fixed Overhead is directly related for cost of production hance it is part of gross profit.
Suppose you incur Factory Rent, Machinery repairs or Electricity expenses in factory these costs are called factory cost
therefore theses costs are to be treated as cost of production.

Working Note
1..	Budgted Production	Qty
	Sales	20000
Add:	Closing Stock	1750
Less:	Opening Stock	750
	Production Units	21000
2..	Budgeted Consumption of Material
	Production Units	21000X2	42000
Add:	Closing Stock		7500
Less:	Opening Stock		5000
	Units to be Consumed		44500
	Cost of Material Consumed	44500X2.50	111250
3..	Budgeted Labour Hours
	Total Labour Hours	21000X4	84000
	Cost of Direct Labour	84000X5	420000
4..	Direct Overhead	21000X2X5	210000
5..	Fixed Overhead
	Total Labour Hours	21000X6	126000
	Fixed Overhead	126000X5	630000
6..	Cost of Units Produced
	Direct Material		111250
	Direct Labour		420000
	Direct Overhead		210000
	Fixed Overhead		630000
			1371250
	No of Units produced
	hence, Cost of One Unit of Production	1371250/21000	65.30
	Value of Closing Stock	7500X62.30	4,89,732.14
	Value of Opening Stock	5000X65.30	3,26,488.10
7..	Income Tax @35%
	Profit Before Tax		6,41,994.05
	therefore, Income Tax @35%		2,24,697.92