- 20 Marks
Question
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
Answer
a)
Sales budget
| Quarter | 1 | 2 | 3 | 4 |
|---|---|---|---|---|
| Quantity | 1,200 | 1,500 | 2,000 | 1,800 |
| Selling price/unit (GH¢) | 15 | 15 | 16.5 | 16.5 |
| Revenue (GH¢) | 18,000 | 22,500 | 33,000 | 29,700 |
Total: (4 marks)
b)
Production budget
| Quarter | 1 | 2 | 3 | 4 | 5 | 6 |
|---|---|---|---|---|---|---|
| Quantity | 1,200 | 1,500 | 2,000 | 1,800 | 2,200 | 2,300 |
| Add closing stock | 150 | 200 | 180 | 220 | 230 | |
| Less opening stock | 120 | 150 | 200 | 180 | 220 | |
| Production quantity | 1,230 | 1,550 | 1,980 | 1,840 | 2,210 |
Total: (6 marks)
c)
Material purchases budget
| Quarter | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| Production quantity | 1,230 | 1,550 | 1,980 | 1,840 | 2,210 |
| Requirement /unit | 5 | 5 | 5 | 5 | 5 |
| Total requirement | 6,150 | 7,750 | 9,900 | 9,200 | 11,050 |
| Add closing stock | 1,550 | 1,980 | 1,840 | 2,210 | |
| Less opening stock | 1,230 | 1,550 | 1,980 | 1,840 | |
| Requirement | 6,470 | 8,180 | 9,760 | 9,570 | |
| Selling price/unit GH¢ | 2 | 2 | 2 | 2 | |
| Cost of materials (GH¢) | 12,940 | 16,360 | 19,520 | 19,140 |
Total: (10 marks)
- Tags: Direct Material Purchases, Functional Budgets, Production Budget, Sales Budget
- Level: Level 1
- Topic: Budgeting, Cost and Cost Behaviour
- Series: MAR 2023
- Uploader: Joseph