Material Purchase Budget – NBC Institute

MA – May 2021 – L2 – Q2b – Budgetary control

Prepare various budgets (sales, production, material usage, material purchase, and labour usage) for Jatokrom Manufacturing for the first three months.

Question

b) Jatokrom Manufacturing Company Ltd (Jatokrom) produces shea butter body lotion, christened Zimbi, for both local and the West African market under the One-District-One-Factory government initiative. A unit of Zimbi is sold for GH¢10. Conventionally, the selling price for the product changes every other month by 10% due to the erratic nature of the environment in which Jatokrom operates. The last time the selling price was increased was the immediate month preceding the first month of this planning period.
The demand for the product for the planning period averages every 30 days (equivalent to a month) as follows:

Month	1	2	3	4
Demand (Units)	17,700	18,120	19,500	18,600

It is the policy of Jatokrom to keep closing inventory of finished goods to be equivalent to the sales level of 10 working days of next month’s sales. However, experience shows that 3% of each production goes defective and has to be scrapped with no scrap value.
Product Zimbi requires 2kg of material X. However, it is expected that a normal loss of 20% of material X will occur in the production process.
It is the policy of Jatokrom to keep material inventory to cover 10 days of the following period’s production. Material usage in month 5 is estimated to be 65,207.5kg. The price of material X is budgeted to be GH¢3.50/kg.
A unit of Zimbi requires 1.5 hours to produce with a 75% productivity level because of regular maintenance. The Labour rate per hour is GH¢6, but only 39,500 hours can be worked within regular working hours. Overtime hours are paid at time and a half.

Required: Prepare the following budgets for the first three months for Jatokrom Company Ltd.
i) Sales (3 marks)
ii) Production (3 marks)
iii) Material Usage (3 marks)
iv) Material Purchase (3 marks)
v) Labour usage and cost (3 marks)

Answer

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Tags: Labour usage and cost budget, Material Purchase Budget, Material Usage Budget, Production Budget, Sales Budget
Level: Level 2

Topic: Budgetary control
Series: MAY 2021

IMAC – AUG 2022 – L1 – Q2 – Budgeting

Preparation of production forecast and material purchase budget for Kikaw Ltd, and identification of benefits of budgeting.

Question

Kikaw Ltd engages in the manufacturing and trading of two products namely: Product A and Product B. Kikaw Ltd is presently in the process of preparing budgets for the year ending 31 March 2023, and the following information was estimated.

Purchases: Material cost per unit:

Product A
Material X (GH¢200 per Kg)	GH¢550

Sales: The following quarterly sales have been forecasted. Monthly sales are evenly distributed within each quarter.

	Apr-Jun 2022	Jul-Sep 2022	Oct-Dec 2022	Jan-Mar 2023	Apr-Jun 2023
Product A (Units)	84,000	88,200	93,000	96,000	100,800
Product B (Units)	63,000	66,000	67,800	69,000	72,000

Additional information:

Kikaw Ltd operates FIFO method in issuing inventory and maintains a material inventory of 20% of the following quarter’s production requirement.
The policy of the company is to maintain month-end inventory of finished goods equal to 50% of sales of the following month.

Required: a) Prepare a production forecast in units for Products A and B separately on quarterly basis, for the year ending 31 March 2023. (9 marks)

b) Prepare Material Purchase budget for material X in quantity for the first three quarters for product A only. (7 marks)

c) Identify FOUR (4) benefits Kikaw Ltd will gain from preparing budgets. (4 marks)

Answer

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Tags: Benefits of Budgeting, Material Purchase Budget, Production Forecast
Level: Level 1

Topic: Budgeting
Series: AUG 2022

IMAC – AUG 2022 – L1 – Q1 – Budgeting

Differences in operating profit under marginal and absorption costing, preparation of profit statements, production forecast, and material purchase budget.

Question

a) Marginal costing and Absorption costing are cost management techniques used to allocate cost to the products produced for their valuation. There are differences in the operating profit when either marginal costing or absorption costing is deployed.

Required: State TWO (2) reasons that account for the differences in the operating profit under Marginal costing and Absorption costing systems. (4 marks)

b) Adam Ltd is a producer of product Wale. In a period, it produced 20,000 units and sold 18,000 units of product Wale. The selling price per unit of the output is GH¢5. In the planned production period, relevant cost and revenue data were stated as:

	GH¢
Sales	100,000
Production cost:
Variable	35,000
Fixed	15,000
Administration and selling overhead:
Fixed	25,000

Required: Prepare a profit or loss statement based on the following costing systems: i) Marginal costing systems. (8 marks) ii) Absorption costing systems. (8 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Closing Stock, Fixed Overhead, Marginal Cost, Material Purchase Budget, Production Forecast
Level: Level 1

Topic: Budgeting
Series: AUG 2022

MA – May 2021 – L2 – Q2b – Budgetary control

Prepare various budgets (sales, production, material usage, material purchase, and labour usage) for Jatokrom Manufacturing for the first three months.

Question

Month	1	2	3	4
Demand (Units)	17,700	18,120	19,500	18,600

It is the policy of Jatokrom to keep closing inventory of finished goods to be equivalent to the sales level of 10 working days of next month’s sales. However, experience shows that 3% of each production goes defective and has to be scrapped with no scrap value.
Product Zimbi requires 2kg of material X. However, it is expected that a normal loss of 20% of material X will occur in the production process.
It is the policy of Jatokrom to keep material inventory to cover 10 days of the following period’s production. Material usage in month 5 is estimated to be 65,207.5kg. The price of material X is budgeted to be GH¢3.50/kg.
A unit of Zimbi requires 1.5 hours to produce with a 75% productivity level because of regular maintenance. The Labour rate per hour is GH¢6, but only 39,500 hours can be worked within regular working hours. Overtime hours are paid at time and a half.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Labour usage and cost budget, Material Purchase Budget, Material Usage Budget, Production Budget, Sales Budget
Level: Level 2

Topic: Budgetary control
Series: MAY 2021

IMAC – AUG 2022 – L1 – Q2 – Budgeting

Preparation of production forecast and material purchase budget for Kikaw Ltd, and identification of benefits of budgeting.

Question

Purchases: Material cost per unit:

Product A
Material X (GH¢200 per Kg)	GH¢550

Sales: The following quarterly sales have been forecasted. Monthly sales are evenly distributed within each quarter.

	Apr-Jun 2022	Jul-Sep 2022	Oct-Dec 2022	Jan-Mar 2023	Apr-Jun 2023
Product A (Units)	84,000	88,200	93,000	96,000	100,800
Product B (Units)	63,000	66,000	67,800	69,000	72,000

Additional information:

Kikaw Ltd operates FIFO method in issuing inventory and maintains a material inventory of 20% of the following quarter’s production requirement.
The policy of the company is to maintain month-end inventory of finished goods equal to 50% of sales of the following month.

Required: a) Prepare a production forecast in units for Products A and B separately on quarterly basis, for the year ending 31 March 2023. (9 marks)

b) Prepare Material Purchase budget for material X in quantity for the first three quarters for product A only. (7 marks)

c) Identify FOUR (4) benefits Kikaw Ltd will gain from preparing budgets. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Benefits of Budgeting, Material Purchase Budget, Production Forecast
Level: Level 1

Topic: Budgeting
Series: AUG 2022

IMAC – AUG 2022 – L1 – Q1 – Budgeting

Differences in operating profit under marginal and absorption costing, preparation of profit statements, production forecast, and material purchase budget.

Question

Required: State TWO (2) reasons that account for the differences in the operating profit under Marginal costing and Absorption costing systems. (4 marks)

	GH¢
Sales	100,000
Production cost:
Variable	35,000
Fixed	15,000
Administration and selling overhead:
Fixed	25,000

Required: Prepare a profit or loss statement based on the following costing systems: i) Marginal costing systems. (8 marks) ii) Absorption costing systems. (8 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Closing Stock, Fixed Overhead, Marginal Cost, Material Purchase Budget, Production Forecast
Level: Level 1

Topic: Budgeting
Series: AUG 2022

Question Tag: Material Purchase Budget

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MA – May 2021 – L2 – Q2b – Budgetary control

Prepare various budgets (sales, production, material usage, material purchase, and labour usage) for Jatokrom Manufacturing for the first three months.

IMAC – AUG 2022 – L1 – Q2 – Budgeting

Preparation of production forecast and material purchase budget for Kikaw Ltd, and identification of benefits of budgeting.

IMAC – AUG 2022 – L1 – Q1 – Budgeting

Differences in operating profit under marginal and absorption costing, preparation of profit statements, production forecast, and material purchase budget.

MA – May 2021 – L2 – Q2b – Budgetary control

Prepare various budgets (sales, production, material usage, material purchase, and labour usage) for Jatokrom Manufacturing for the first three months.

IMAC – AUG 2022 – L1 – Q2 – Budgeting

Preparation of production forecast and material purchase budget for Kikaw Ltd, and identification of benefits of budgeting.

IMAC – AUG 2022 – L1 – Q1 – Budgeting

Differences in operating profit under marginal and absorption costing, preparation of profit statements, production forecast, and material purchase budget.

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MA – May 2021 – L2 – Q2b – Budgetary control

Prepare various budgets (sales, production, material usage, material purchase, and labour usage) for Jatokrom Manufacturing for the first three months.

You're reporting an error for "MA – May 2021 – L2 – Q2b – Budgetary control"

IMAC – AUG 2022 – L1 – Q2 – Budgeting

Preparation of production forecast and material purchase budget for Kikaw Ltd, and identification of benefits of budgeting.

You're reporting an error for "IMAC – AUG 2022 – L1 – Q2 – Budgeting"

IMAC – AUG 2022 – L1 – Q1 – Budgeting

Differences in operating profit under marginal and absorption costing, preparation of profit statements, production forecast, and material purchase budget.

You're reporting an error for "IMAC – AUG 2022 – L1 – Q1 – Budgeting"

MA – May 2021 – L2 – Q2b – Budgetary control

Prepare various budgets (sales, production, material usage, material purchase, and labour usage) for Jatokrom Manufacturing for the first three months.

You're reporting an error for "MA – May 2021 – L2 – Q2b – Budgetary control"

IMAC – AUG 2022 – L1 – Q2 – Budgeting

Preparation of production forecast and material purchase budget for Kikaw Ltd, and identification of benefits of budgeting.

You're reporting an error for "IMAC – AUG 2022 – L1 – Q2 – Budgeting"

IMAC – AUG 2022 – L1 – Q1 – Budgeting

Differences in operating profit under marginal and absorption costing, preparation of profit statements, production forecast, and material purchase budget.

You're reporting an error for "IMAC – AUG 2022 – L1 – Q1 – Budgeting"

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