Question

Q2. Define the master budget and use your own figures to prepare the following quarter budgets:(2.5 marks) 1- Sales budget 2- Production budget with ending inventory. 3- Raw material budget with ending inventory. 4- Direct labor budget 5- Manufacturing overhead budget

Answer 1

MASTER BUDGET:

The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, and also includes budgeted financial statements, a cash forecast, and a financing plan.

1.SALES BUDGET:

For the Year Ended December 31, 20XX

	Quarter 1
Forecasted unit sales	10,000
x Price per unit	$10
Total gross sales	$100,000
- Sales discounts & allowances	$10,00
= Total net sales	$99,000

2.PRODUCTION BUDGET:

For the Year Ended December 31, 20XX

	Quarter 1
Forecasted unit sales	10,000
+ Planned ending inv. units	1,000
= Total production required	11,000
- Beginning F/G inventory	1,000
= Units to be manufactured	10,000

3.RAW MATERIAL BUDGET:

For the Year Ended December 31, 20XX

	Quarter 1
Product A (units)	5,000
x Resin/unit (lbs)	2
Total resin needed (lbs)	10,000
+ Planned ending inventory	2,000
= Total resin required	12,000
- Beginning inventory	1,600
= Resin to be purchased	10,400
Resin cost per pound	$0.50
Total resin cost to purchase	$5,200

4. DIRECT LABOUR BUDGET:

For the Year Ended December 31, 20XX

	Quarter 1
Product A (units)	5,000
x Machine operator hrs (0.1)	0.1
=Total machine operator hrs	500
x Other labor hours (0.05)	0.05
= Total other labor hours	250
Machine operator cost/hr	$25
Other labor cost/hr	$15
Total machine operator cost	$12,500
Total other labor cost	$3,750
Grand total direct labor cost	$16,250

5.MANUFACTURING OVERHEAD BUDGET:

For the Year Ended December 31, 20XX

	Quarter 1
Administrative salaries	$142,000
Administrative payroll taxes	10,000
Depreciation	27,000
Freight in and out	8,000
Rent	32,000
Supplies	6,000
Travel and entertainment	3,000
Utilities	10,000
Total manufacturing overhead	$238,000