- 20 Marks
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)
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