Question Tag: Production Budget

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  • 15 Marks

PM – May 2022 – L2 – SA – Q7 – Budgeting and Budgetary Control

Preparation of operational budgets and calculation of Economic Order Quantity for Eko Limited.

Eko Limited is a small manufacturing company producing two high-quality products called ‘Kay’ and ‘Lay’. Both products use a raw material Tee (costing ₦30 per kg) in their manufacture. The Directors are reviewing the company’s stock management policies for the forthcoming year as part of the annual budget preparation cycle.

Due to the product specification, quality is an important factor and a quality control inspection takes place immediately after the production cycle has ended. At this point, any inferior products are rejected and only good production becomes available for sale. In addition to these losses, a certain quantity of waste is unavoidable from material Tee due to the cutting process for both products.

The following forecast information has been extracted from departmental estimates for the year ending 31st December 2020 (the budget period).

Product Kay Product Lay
Sales (quality approved units) 23,000 10,000
Finished goods stock increase by year-end 275 185
Post-production rejection rate (%) 2 3
Material Tee usage (per completed unit, net of wastage) 2kg 3kg
Material Tee wastage (%) 5 10

Additional Information:

  • Usage of raw material Tee is expected to be at a constant rate over the period.
  • Annual cost of holding one unit of raw material in stock is 17% of the material cost.
  • The cost of placing orders is ₦30 per order.
  • Eko Limited maintains a constant 1,000 kg of safety/buffer stock of material Tee regardless of the quantity ordered each time.

Required:
a. Prepare operational budgets for the year ending 31st December 2020 under the following headings: (Show your workings clearly)
i. Production budget for Products Kay and Lay (in units). (5 Marks)
ii. Purchases budget for Material Tee (in kgs and value). (5 Marks)

b. Calculate the Economic Order Quantity for Material Tee (in kgs). (5 Marks)

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  • 20 Marks

MI – Nov 2015 – L1 – SB – Q2 – Budgeting

Compiles functional budgets for sales, production, and material purchases for six months.

ABC Limited is engaged in the production of AiBiCi product and the following data were extracted from the Budget Committee’s Report:

i. Sales is expected to be 20,000 units each in months 1 and 2, this will increase by 10% each in months 3 and 4, and 5% each in months 5 and 6.

ii. Unit selling price is currently estimated at N250, and due to increased awareness, the price will move up to N300 in the fourth month.

iii. To produce one unit of AiBiCi, the following materials are required:

  • 2kgs of A @ N20/kg
  • 5kgs of B @ N5/kg
  • 2kgs of C @ N10/kg

iv. The company keeps 10% of estimated sales as closing inventory for the month. Assume no opening inventory for month 1.

You are required to compile, in tabular form, the following functional budgets for the next 6 months:

a. Sales in quantity and value. (6 Marks)

b. Production in quantity. (6 Marks)

c. Material purchase in quantity and the total cost. (8 Marks)

(Total 20 Marks)

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  • 1 Marks

MI – May 2016 – L1 – SA – Q7 – Budgeting

Identify the budget that is not a functional budget from the given options.

The following are functional budgets EXCEPT:
A. Sales budget
B. Production budget
C. Distribution budget
D. Cash budget
E. Selling cost budget

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  • 15 Marks

MA – Mar 2024 – L2 – Q2a – Budgetary Control

This question involves preparing sales budgets for gasoline and diesel and a production budget based on crude oil requirements for the first three months.

Squash Refinery has planned the following monthly sales for the first four months in the year:

Months 1 2 3 4
Gasoline (litres) 140,000 200,000 220,000 250,000
Diesel (litres) 100,000 130,000 180,000 210,000

The proposed ex-refinery prices are GH¢12.5 and GH¢10.8 per litre for gasoline and diesel respectively.

One metric tonne of crude oil when processed can yield 2,000 litres of gasoline and 2,500 litres of diesel. The inventory policy of the company is as follows:

  • Closing inventory at the end of each month: Twice the monthly sales for gasoline and 150% of the monthly sales for diesel.
  • Opening inventory: Gasoline – 200,000 litres, Diesel – 180,000 litres, and Crude – 140 metric tonnes.

Note: The purchase of crude is based on the production requirement for gasoline.

Required:
i) Prepare the sales budget for gasoline and diesel for the first three months. (3 marks)
ii) Calculate the quantity of crude oil to be purchased for the first three months. (12 marks)

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  • 15 Marks

MA – Nov 2020 – L2 – Q2b – Budgetary Control, Cash Budgets and Master Budgets

Prepare various budgets and an income statement for October 2019 for Mercury Company’s TomaCan product.

Mercury Company’s management wants to prepare budgets for one of its products, TomaCan, for October 2019.

The firm sells the product for GH¢75 per unit and has the following expected sales (in units) for these months in 2019:

July August September October November December
6,000 7,000 8,000 9,000 10,000 11,000

The production process requires 5 kilos of Atadwe and 3 kilos of Ginger. The firm’s policy is to maintain an ending finished goods inventory each month equal to 15% of the following month’s budgeted sales, but in no case less than 1,300 units. All materials inventories are to be maintained at 10% of the production needs for the next month, but not to exceed 3,000 kilos. The firm expects all inventories at the end of September to be within the guidelines. The purchase department expects the materials to cost GH¢1.75 per kilo for Ginger and GH¢5.00 per kilo for Atadwe respectively.

The production process requires direct labor at two Skill Levels (SL). The rate for labor at SL1 is GH¢45 per hour, and for SL2 is GH¢25 per hour. SL1 can process one batch of TomaCan per hour, while SL2 uses double the time of SL1 for the same output. Each batch consists of 10 units.

Variable manufacturing overhead is GH¢100 per batch plus GH¢75 per direct labor-hour. Fixed production overhead is GH¢51,240. It is the plan of Mercury Company to spend a third of variable and fixed production overhead costs on selling and administration expenses. The company is in the 25% tax bracket but enjoys a rebate of 50% because of its location. The company uses an actual cost system. The unit cost of production in October is the same as that of September.

Required: On the basis of the preceding data and projections, prepare the following budgets:

i) Production budget for October (in units).
ii) Direct materials purchases budget for October (in kilos).
iii) Direct materials purchases budget for October (in Cedis).
iv) Direct manufacturing labor budget for October (in Cedis).
v) Income statement for the month of October 2019.

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  • 15 Marks

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.

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)

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  • 9 Marks

MA – May 2017 – L2 – Q2b – Budgetary control, Cash budgets and master budgets

Prepare the production and labour budgets for a manufacturing company for the first quarter of 2016.

Diminutive Limited is a manufacturing company situated at the Jubilee field that produces chemicals for oil production. The company is preparing its budget for the coming year. It expects to be able to sell 10,000 tonnes of its only product, the “Sparkle Oil,” in January 2016. Sales are then expected to rise to 11,000 tonnes in February and 14,000 tonnes in March and then remain stable for the rest of the year.

Diminutive Limited aims to carry a finished goods inventory at the end of each month equal to 10% of the following month’s sales. Each “Sparkle Oil” takes 2 hours of labour to make. Diminutive Limited’s 132 production workers are employed on contracts that require them to work a minimum of 160 hours per month and are each paid GH¢1,280 per month. Production workers are highly skilled and require a minimum of one year’s training. In the short term, it is not possible to recruit any more production workers. Any labour hours required in excess of 160 hours per worker are made up by overtime that is paid at the basic rate plus an overtime premium of 48% of the basic rate.

Required:

i) Prepare the production budget on a monthly basis for the first quarter of 2016. (3 marks)

ii) Prepare the labour budget for the first quarter of 2016 showing both hours and labour cost (assume that all production workers work at least 160 hours per month). (6 marks)

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  • 20 Marks

IMAC – MAR 2023 – L1 – Q5 – Budgeting | Cost Segregation and Estimation

Explain cost estimation in budgeting, prepare sales and production budgets, and calculate variable and fixed overheads using the high-low method.

a) Cost estimation techniques play an important role in budget preparation.

Required:
Explain the statement above. (3 marks)

b) Obsaw Ltd is in the process of preparing budgets for the year 2021. Based on past experience, the following trend equation has been developed in the year 2019 for the estimation of quarterly sales:

S = 21,900 + 900Q
Where, S = quarterly sales in units
Q = time period (Quarter I of year 2019 is time period 1)

The following set of seasonal variation index values has been derived using a multiplicative model, based on year 2019 actual sales:

Quarter of the calendar year Q1 Q2 Q3 Q4
Seasonality -30% -10% +30% +10%

The management expects that the above trend and seasonal effect will continue until year 2023.
The company’s policy is to maintain a finished goods inventory of 20% of the demand for the following month. Monthly sales in each quarter are evenly distributed.

Required:
i) Prepare the quarterly sales budget (in units) for the calendar year 2021. (4 marks)
ii) Prepare the quarterly production budget (in units) for the calendar year 2021. (3 marks)

c) Obsaw Ltd recorded the highest and the lowest production overheads (POHs) during the year 2020 as follows:

Production (units) POHs (GH¢ million)
Highest 37,000
Lowest 18,000

POHs are expected to increase by 10% per year and fixed production overheads are absorbed to products based on the budgeted production.

Required:
i) Using the high-low method, prepare the quarterly variable production overheads budget for the year 2021. (Use the production budget in b) ii) above.) (3 marks)
ii) Calculate the fixed production overheads absorption rate per unit for the year 2021. (2 marks)

d) Explain how standard costs for material and labour might be compiled. (5 marks)

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  • 20 Marks

IMAC – Mar 2023 – L1 – Q2 – Budgeting | Cost and Cost Behaviour

Prepare functional budgets for sales, production, and direct material purchases for Naa Sei enterprise.

Naa Sei enterprise wishes to prepare his functional budgets for the year 2023. The following information has been provided.

Sales

Year Quarter Units
2023 1 1,200
2023 2 1,500
2023 3 2,000
2023 4 1,800

2024

Year Quarter Units
2024 1 2,200
2024 2 2,300

The projected selling price is GH¢15 for the first two quarters, and this will increase by 10% in the third quarter. There will be no further price increase.

Inventory policy
i) Finished Goods: The company plans to keep 10% of the following quarter’s sales quantity. The opening inventory of finished goods is 120 units.
ii) Direct Materials: Only one material is used in production. 5 kilograms of the material are required for the production of a unit of a product. Closing inventory is expected to be 20% of the following quarter’s requirement. The cost of material is expected to be GH¢2 per kilogram.

Required:
Prepare the following functional budgets for each of the four quarters in 2023.
a) Sales
b) Production
c) Direct material purchases in value

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  • 20 Marks

IMAC – April 2022 – L1 – Q2 – Budgeting

Preparation of functional budgets for Dampare Ltd and explanation of principal budget factor.

a) Dampare Ltd manufactures three products namely A, B, and C. The information given below relates to the month of November 2020.

Product Quantity (Units) Price/Unit (GH¢)
Sales:
A 1,200 80
B 2,400 96
C 1,800 112

Materials used in company’s Products:

Material MA MB MC
Unit cost GH¢3 GH¢5 GH¢8
Quantity used in: MA (Units) MB (Units) MC (Units)
Product A 5 3 1
Product B 4 4 3
Product C 3 2 2

Finished Stock:

Product A (Units) Product B (Units) Product C (Units)
Opening stock 1,200 1,800
Closing stock 1,320 1,980

Material Stock:

Material MA (Units) MB (Units) MC (Units)
Opening stock 31,200 24,000 14,400
Closing stock 37,440 28,800 17,280

Required: Prepare the following functional budget for the month of November 2020 for: i) Sales in quantity and value, including total value ii) Production quantities iii) Material usage in quantities iv) Material purchases in quantities and value, including total value. (15 marks)

b) Principal budget factor is such an important factor in the budgetary control process. It is essential to identify the principal budget factor before the preparation of budgets.

Required: i) Explain the term “Principal budget factor” as used in budgetary control. (2 marks) ii) Identify THREE (3) examples of Principal budget factor from financial institution. (3 marks)

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  • 15 Marks

PM – May 2022 – L2 – SA – Q7 – Budgeting and Budgetary Control

Preparation of operational budgets and calculation of Economic Order Quantity for Eko Limited.

Eko Limited is a small manufacturing company producing two high-quality products called ‘Kay’ and ‘Lay’. Both products use a raw material Tee (costing ₦30 per kg) in their manufacture. The Directors are reviewing the company’s stock management policies for the forthcoming year as part of the annual budget preparation cycle.

Due to the product specification, quality is an important factor and a quality control inspection takes place immediately after the production cycle has ended. At this point, any inferior products are rejected and only good production becomes available for sale. In addition to these losses, a certain quantity of waste is unavoidable from material Tee due to the cutting process for both products.

The following forecast information has been extracted from departmental estimates for the year ending 31st December 2020 (the budget period).

Product Kay Product Lay
Sales (quality approved units) 23,000 10,000
Finished goods stock increase by year-end 275 185
Post-production rejection rate (%) 2 3
Material Tee usage (per completed unit, net of wastage) 2kg 3kg
Material Tee wastage (%) 5 10

Additional Information:

  • Usage of raw material Tee is expected to be at a constant rate over the period.
  • Annual cost of holding one unit of raw material in stock is 17% of the material cost.
  • The cost of placing orders is ₦30 per order.
  • Eko Limited maintains a constant 1,000 kg of safety/buffer stock of material Tee regardless of the quantity ordered each time.

Required:
a. Prepare operational budgets for the year ending 31st December 2020 under the following headings: (Show your workings clearly)
i. Production budget for Products Kay and Lay (in units). (5 Marks)
ii. Purchases budget for Material Tee (in kgs and value). (5 Marks)

b. Calculate the Economic Order Quantity for Material Tee (in kgs). (5 Marks)

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  • 20 Marks

MI – Nov 2015 – L1 – SB – Q2 – Budgeting

Compiles functional budgets for sales, production, and material purchases for six months.

ABC Limited is engaged in the production of AiBiCi product and the following data were extracted from the Budget Committee’s Report:

i. Sales is expected to be 20,000 units each in months 1 and 2, this will increase by 10% each in months 3 and 4, and 5% each in months 5 and 6.

ii. Unit selling price is currently estimated at N250, and due to increased awareness, the price will move up to N300 in the fourth month.

iii. To produce one unit of AiBiCi, the following materials are required:

  • 2kgs of A @ N20/kg
  • 5kgs of B @ N5/kg
  • 2kgs of C @ N10/kg

iv. The company keeps 10% of estimated sales as closing inventory for the month. Assume no opening inventory for month 1.

You are required to compile, in tabular form, the following functional budgets for the next 6 months:

a. Sales in quantity and value. (6 Marks)

b. Production in quantity. (6 Marks)

c. Material purchase in quantity and the total cost. (8 Marks)

(Total 20 Marks)

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  • 1 Marks

MI – May 2016 – L1 – SA – Q7 – Budgeting

Identify the budget that is not a functional budget from the given options.

The following are functional budgets EXCEPT:
A. Sales budget
B. Production budget
C. Distribution budget
D. Cash budget
E. Selling cost budget

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  • 15 Marks

MA – Mar 2024 – L2 – Q2a – Budgetary Control

This question involves preparing sales budgets for gasoline and diesel and a production budget based on crude oil requirements for the first three months.

Squash Refinery has planned the following monthly sales for the first four months in the year:

Months 1 2 3 4
Gasoline (litres) 140,000 200,000 220,000 250,000
Diesel (litres) 100,000 130,000 180,000 210,000

The proposed ex-refinery prices are GH¢12.5 and GH¢10.8 per litre for gasoline and diesel respectively.

One metric tonne of crude oil when processed can yield 2,000 litres of gasoline and 2,500 litres of diesel. The inventory policy of the company is as follows:

  • Closing inventory at the end of each month: Twice the monthly sales for gasoline and 150% of the monthly sales for diesel.
  • Opening inventory: Gasoline – 200,000 litres, Diesel – 180,000 litres, and Crude – 140 metric tonnes.

Note: The purchase of crude is based on the production requirement for gasoline.

Required:
i) Prepare the sales budget for gasoline and diesel for the first three months. (3 marks)
ii) Calculate the quantity of crude oil to be purchased for the first three months. (12 marks)

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  • 15 Marks

MA – Nov 2020 – L2 – Q2b – Budgetary Control, Cash Budgets and Master Budgets

Prepare various budgets and an income statement for October 2019 for Mercury Company’s TomaCan product.

Mercury Company’s management wants to prepare budgets for one of its products, TomaCan, for October 2019.

The firm sells the product for GH¢75 per unit and has the following expected sales (in units) for these months in 2019:

July August September October November December
6,000 7,000 8,000 9,000 10,000 11,000

The production process requires 5 kilos of Atadwe and 3 kilos of Ginger. The firm’s policy is to maintain an ending finished goods inventory each month equal to 15% of the following month’s budgeted sales, but in no case less than 1,300 units. All materials inventories are to be maintained at 10% of the production needs for the next month, but not to exceed 3,000 kilos. The firm expects all inventories at the end of September to be within the guidelines. The purchase department expects the materials to cost GH¢1.75 per kilo for Ginger and GH¢5.00 per kilo for Atadwe respectively.

The production process requires direct labor at two Skill Levels (SL). The rate for labor at SL1 is GH¢45 per hour, and for SL2 is GH¢25 per hour. SL1 can process one batch of TomaCan per hour, while SL2 uses double the time of SL1 for the same output. Each batch consists of 10 units.

Variable manufacturing overhead is GH¢100 per batch plus GH¢75 per direct labor-hour. Fixed production overhead is GH¢51,240. It is the plan of Mercury Company to spend a third of variable and fixed production overhead costs on selling and administration expenses. The company is in the 25% tax bracket but enjoys a rebate of 50% because of its location. The company uses an actual cost system. The unit cost of production in October is the same as that of September.

Required: On the basis of the preceding data and projections, prepare the following budgets:

i) Production budget for October (in units).
ii) Direct materials purchases budget for October (in kilos).
iii) Direct materials purchases budget for October (in Cedis).
iv) Direct manufacturing labor budget for October (in Cedis).
v) Income statement for the month of October 2019.

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  • 15 Marks

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.

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)

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  • 9 Marks

MA – May 2017 – L2 – Q2b – Budgetary control, Cash budgets and master budgets

Prepare the production and labour budgets for a manufacturing company for the first quarter of 2016.

Diminutive Limited is a manufacturing company situated at the Jubilee field that produces chemicals for oil production. The company is preparing its budget for the coming year. It expects to be able to sell 10,000 tonnes of its only product, the “Sparkle Oil,” in January 2016. Sales are then expected to rise to 11,000 tonnes in February and 14,000 tonnes in March and then remain stable for the rest of the year.

Diminutive Limited aims to carry a finished goods inventory at the end of each month equal to 10% of the following month’s sales. Each “Sparkle Oil” takes 2 hours of labour to make. Diminutive Limited’s 132 production workers are employed on contracts that require them to work a minimum of 160 hours per month and are each paid GH¢1,280 per month. Production workers are highly skilled and require a minimum of one year’s training. In the short term, it is not possible to recruit any more production workers. Any labour hours required in excess of 160 hours per worker are made up by overtime that is paid at the basic rate plus an overtime premium of 48% of the basic rate.

Required:

i) Prepare the production budget on a monthly basis for the first quarter of 2016. (3 marks)

ii) Prepare the labour budget for the first quarter of 2016 showing both hours and labour cost (assume that all production workers work at least 160 hours per month). (6 marks)

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  • 20 Marks

IMAC – MAR 2023 – L1 – Q5 – Budgeting | Cost Segregation and Estimation

Explain cost estimation in budgeting, prepare sales and production budgets, and calculate variable and fixed overheads using the high-low method.

a) Cost estimation techniques play an important role in budget preparation.

Required:
Explain the statement above. (3 marks)

b) Obsaw Ltd is in the process of preparing budgets for the year 2021. Based on past experience, the following trend equation has been developed in the year 2019 for the estimation of quarterly sales:

S = 21,900 + 900Q
Where, S = quarterly sales in units
Q = time period (Quarter I of year 2019 is time period 1)

The following set of seasonal variation index values has been derived using a multiplicative model, based on year 2019 actual sales:

Quarter of the calendar year Q1 Q2 Q3 Q4
Seasonality -30% -10% +30% +10%

The management expects that the above trend and seasonal effect will continue until year 2023.
The company’s policy is to maintain a finished goods inventory of 20% of the demand for the following month. Monthly sales in each quarter are evenly distributed.

Required:
i) Prepare the quarterly sales budget (in units) for the calendar year 2021. (4 marks)
ii) Prepare the quarterly production budget (in units) for the calendar year 2021. (3 marks)

c) Obsaw Ltd recorded the highest and the lowest production overheads (POHs) during the year 2020 as follows:

Production (units) POHs (GH¢ million)
Highest 37,000
Lowest 18,000

POHs are expected to increase by 10% per year and fixed production overheads are absorbed to products based on the budgeted production.

Required:
i) Using the high-low method, prepare the quarterly variable production overheads budget for the year 2021. (Use the production budget in b) ii) above.) (3 marks)
ii) Calculate the fixed production overheads absorption rate per unit for the year 2021. (2 marks)

d) Explain how standard costs for material and labour might be compiled. (5 marks)

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You're reporting an error for "IMAC – MAR 2023 – L1 – Q5 – Budgeting | Cost Segregation and Estimation"

  • 20 Marks

IMAC – Mar 2023 – L1 – Q2 – Budgeting | Cost and Cost Behaviour

Prepare functional budgets for sales, production, and direct material purchases for Naa Sei enterprise.

Naa Sei enterprise wishes to prepare his functional budgets for the year 2023. The following information has been provided.

Sales

Year Quarter Units
2023 1 1,200
2023 2 1,500
2023 3 2,000
2023 4 1,800

2024

Year Quarter Units
2024 1 2,200
2024 2 2,300

The projected selling price is GH¢15 for the first two quarters, and this will increase by 10% in the third quarter. There will be no further price increase.

Inventory policy
i) Finished Goods: The company plans to keep 10% of the following quarter’s sales quantity. The opening inventory of finished goods is 120 units.
ii) Direct Materials: Only one material is used in production. 5 kilograms of the material are required for the production of a unit of a product. Closing inventory is expected to be 20% of the following quarter’s requirement. The cost of material is expected to be GH¢2 per kilogram.

Required:
Prepare the following functional budgets for each of the four quarters in 2023.
a) Sales
b) Production
c) Direct material purchases in value

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  • 20 Marks

IMAC – April 2022 – L1 – Q2 – Budgeting

Preparation of functional budgets for Dampare Ltd and explanation of principal budget factor.

a) Dampare Ltd manufactures three products namely A, B, and C. The information given below relates to the month of November 2020.

Product Quantity (Units) Price/Unit (GH¢)
Sales:
A 1,200 80
B 2,400 96
C 1,800 112

Materials used in company’s Products:

Material MA MB MC
Unit cost GH¢3 GH¢5 GH¢8
Quantity used in: MA (Units) MB (Units) MC (Units)
Product A 5 3 1
Product B 4 4 3
Product C 3 2 2

Finished Stock:

Product A (Units) Product B (Units) Product C (Units)
Opening stock 1,200 1,800
Closing stock 1,320 1,980

Material Stock:

Material MA (Units) MB (Units) MC (Units)
Opening stock 31,200 24,000 14,400
Closing stock 37,440 28,800 17,280

Required: Prepare the following functional budget for the month of November 2020 for: i) Sales in quantity and value, including total value ii) Production quantities iii) Material usage in quantities iv) Material purchases in quantities and value, including total value. (15 marks)

b) Principal budget factor is such an important factor in the budgetary control process. It is essential to identify the principal budget factor before the preparation of budgets.

Required: i) Explain the term “Principal budget factor” as used in budgetary control. (2 marks) ii) Identify THREE (3) examples of Principal budget factor from financial institution. (3 marks)

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