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

Prepare the following the budgeted statement of income

Answer 1

BA LTD.

INCOME STATEMENT

Particular	Amount (K)	Amount (K)
Sales revenue (K100*20,000 units)		2,000,000
Less: Cost of goods sold (K65*20,000 units)		1,300,000
Gross profit		700,000
Less: Operating Expenses
selling and distribution expenses	50,000
General and administrative expenses	100,000
Total Operating expenses		150,000
Income before tax		550,000
Tax @ 35%		192,500
Net income		357,500

Working note:

(1) Number of units sold = 50% of forecasted demand i.e 50% of 40,000 = 20,000 units

(2) Computation of cost of goods manufactured per unit:

Particular	Amount (K)
Direct material (2 kg *K2.50)	5.00
Direct labor b (4 hours * K5)	20.00
Variable overhead ( 2 machine hours *K5)	10.00
Fixed overhead (6 machine hours * K5)	30.00
Total cost of goods manufactured per unit	65.00

(3)

In this case we know exact number of units sold, therefore there is no requirement of opening stock of finished goods and closing stock of finished goods.

Likewise direct material required to produce the goods per unit is given thereby no requirement of opening and closing stock of raw material.

When in the question given raw material Purchase then we have to calculate actual amount of direct material is used for Production.

When in the question number of units produced is given then we add opening stock of finished goods in number of goods manufactured and less ending stock of finished goods to calculate number of units sold.

But here exact number of units sold is given which is 50% of forecasted demand.

Thank you :)