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- 20 Marks
Question
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)
Answer
a) i) Sales quantity and value budget:
| Product | Quantity (Units) | Price/Unit (GH¢) | Sales Value (GH¢) |
|---|---|---|---|
| A | 1,200 | 80 | 96,000 |
| B | 2,400 | 96 | 230,400 |
| C | 1,800 | 112 | 201,600 |
| Total | 528,000 |
ii) Production quantity budget:
| Product | Sales Quantity (Units) | Add Closing Stock (Units) | Total (Units) | Less Opening Stock (Units) | Units to be Produced |
|---|---|---|---|---|---|
| A | 1,200 | 1,320 | 2,520 | 1,200 | 1,320 |
| B | 2,400 | 1,980 | 4,380 | 1,800 | 2,580 |
| C | 1,800 | 660 | 2,460 | 600 | 1,860 |
iii) Material Usage Budget (quantities):
| Product | Production Quantity | MA (Units) | MB (Units) | MC (Units) |
|---|---|---|---|---|
| A | 1,320 | 6,600 | 3,960 | 1,320 |
| B | 2,580 | 10,320 | 10,320 | 7,740 |
| C | 1,860 | 5,580 | 3,720 | 3,720 |
| Total | 22,500 | 18,000 | 12,780 |
iv) Material Purchases Budget (quantities and value):
| Material | MA (Units) | MB (Units) | MC (Units) | Total (Units) |
|---|---|---|---|---|
| Usage | 22,500 | 18,000 | 12,780 | |
| Add Closing Stock | 37,440 | 28,800 | 17,280 | |
| Total | 59,940 | 46,800 | 30,060 | |
| Less Opening Stock | 31,200 | 24,000 | 14,400 | |
| Purchases | 28,740 | 22,800 | 15,660 | |
| Price/Unit | GH¢3 | GH¢5 | GH¢8 | |
| Value (GH¢) | 86,220 | 114,000 | 125,280 | 325,500 |
(15 marks evenly spread)
b) i) The principal budget factor is also known as the limiting factor or key factor. It is defined as the factor which at a particular time, or over a period, will limit the activities of an undertaking. The limiting factor is usually the level of demand for the products or services of the undertaking but it could be a shortage of one of the productive resources. (2 marks)
ii) Examples of Principal budget factor from financial institution include:
- Skilled labour
- Level of ICT
- High interest rate
- Reserve ratios. (Any 3 points @ 1 mark each = 3 marks)
- Uploader: Joseph