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Francis Mawukoh Adenyoh
http://mymawukoh.wordpress.com
The management of UBS has asked you to prepare its budget for next year using the following
information:
1.
2.
3.
4.
5.
6.
Goods produced are HND and GAT
Material usage for HND: x- 24kg; y- 10kg; and z-5kg
Material usage for GAT; x- 30kg; y- 8kg and z- 10kg
Direct wages for HND; Skilled- 6hrs; Unskilled- 10hrs.
Direct wages for GAT; skilled- 5hrs; and unskilled 5hrs.
Budgeted for the year
a) Stock of materials @ standard price
x
y
z
¢’000
¢’000
¢’000
January 2005
60
125
72
December 2005
70
135
75
b) Production overhead and labour hrs. Are ¢ 900,000 and 75000hrs. Respectively.
7. Finished goods cost at production cost
1/1/2005
31/12/2005
¢’000
¢’000
HND
152
160
GAT
256
352
8. Sales @ standard sales price: HND -¢ 1,368,000; GAT- ¢ 1536000
9. The production overhead is absorbed on the basis of direct labour hours; while other
overheads are recovered on the basis of 20% production cost.
10. Profit is calculated @ 20% of sales price. Standard price per kg. of Material: X- 2.00; y¢5.00 and z- ¢6.00. Rate per direct labour hours are : Skilled labour- ¢500; Unskilled
labour ¢3.00
Required:
i.
ii.
iii.
iv.
v.
Produce a standard cost card for each product
Prepare a production budget
Purchases budget
Production cost budget
Show the budget total cost and sales revenue for the year on a statement form
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Copyrights©2011
Francis Mawukoh Adenyoh
http://mymawukoh.wordpress.com
Suggested Answer
W1 Production Overhead Absorption Rate =¢ 900,000/75,000 hours = ¢ 12.00/hr.
i.
W21 Standard Cost and Standard Selling Price (Required)
Direct Material:
X:24kg@¢2.00
Y:10kg@¢2.00
Z: 5kg @ ¢6.00
HND
¢
48.00
50.00
30.00
Direct wages:
SL 6hrs@5.00
USL 10hrs@3.00
30.00
30.00
Production O/H
16hrs@12.00/hr
Production cost
Other cost(20%*380)
Total cost
Profit (25%*456)
Selling price/ unit
192.00
30kg@2.00
8kgkg@5.00
128.00 10kg@6.00
GAT
¢
60.00
40.00
60.00
160.00
5hrs@5.00
60.00 5hrs@3.00
25.00
15.00
40.00
¢
192.00 10hrs@12.00/hr
380.00
76.00 (20%*320)
456.00
114.00 (25%*384)
570.00
W3 Sales Volume in (unit) per product
HND= ¢ 1,368,000/ ¢ 570 = 2400units
W4
GAT= ¢ 1,536,000/ ¢ 480= 3200units
i) Closing Stock in unit of each product:
HND = ¢190,000/¢380 = 500units
GAT = ¢352,000/ ¢320 = 1100units
ii) Opening Stock in unit of each product:
HND = ¢ 152,000/ 380 = 400units
1
GAT = ¢ 256,000/ ¢ 320units
The W2 answers the requirement (i) of the question
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¢
120.00
320.00
64.00
384.00
96.00
480.00
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Francis Mawukoh Adenyoh
http://mymawukoh.wordpress.com
ii.
Production Budget (Required)
Sales in Units2
Add budgeted closing stock3
Budgeted opening stock4
Production capacity required (PCR)
iii.
HND
GAT
2400
500
2900
(400)
2500
3200
1100
4300
(800)
3500
Material Usage Budget (Unit)† = PCR x per unit direct material purchase price
x
y
z
Total5
60,000
25,000
12,500
97,500
105,000
28,000
35,000
168,000
165,000
53,000
Kg. of direct material to be used for HND:
(24kg@25006), (10kg@2500)& (5kg@2500)
Kg of direct material to be used for GAT:
(30kg@35007), (8kg@3500) & (10kg@3500)
Total8
47,000
265,500
† Note
that we need prepare the above budget in order to get material usage values
for our material purchase budget
See W3 for computation of value
See W4(i) for computation of value
4 See W4(ii) for value
5 The values under this column represent individual material usage as well as aggregate usage on
individual product.
6 See production capacity requirement under production budget
7 Ibid.
8 The values in this row represent individual material usage as well as aggregate usage in producing
the two product
2
3
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Copyrights©2011
Francis Mawukoh Adenyoh
http://mymawukoh.wordpress.com
iv.
Material Purchase Budget (Required)
Usage (kg): HND
GAT
Closing stock9
Opening stock10
Purchase (Kg)
Cost per Kg
Purchase Cost
v.
Production cost budget (Required)
Unit budgeted
Direct Material11
X
Y
Z
Direct Wages13
Skilled Labour
Unskilled labour
Production Overhead14
Total Production Cost
i.
Operating Statement (Required)
x
60,000
105,000
165,000
35,000
200,000
(30,000)
170,000
¢2.00
340000
y
z
25,000
28,000
53, 000
27,000
80,000
(25,000)
55,000
¢5.00
275000
12,500
35,000
47,000
12,500
60,000
(12,000)
48,000
¢6.00
288000
HND
GAT
Total
2500
¢
3500
¢
6000
¢
120,000
125,000
75,000
320,000
210,000
140,000
210,000
560000
330,000
265,000
285,000
880,00012
75000
75000
480,000
950,000
52,000
87,500
420,000
1,120,000
HND
Production Cost as per Production cost budget 950,000
Other cost (20% of production cost)
190,000
Total Cost
1,140,000
Profit (25% of Total Cost)
285,000
15
Sales income
1,425,000
GAT
1,120,000
224,000
1,344,000
336,000
1,680,000
127,500
162,500
900,000
2,070,000
Total
2,070,000
414,000
2,484,000
621,000
3,105,000
See information (6a) and (9b) e.g. for material x = 70,000units/ ¢2.00. Note that December figures
were used here
10 See information (6a) and (9b) e.g. for material x = 60,000units/ ¢2.00. this time January figures
were used
11 Amount = material usage multiplied by cost per kg
12 Total material cost could be computed as production cost x Total budgeted production unit i.e. (¢
380.00 x 2500units) for material X and (¢320.00 x 3500units) See values from answers to
requirement (i) and (ii)
13
Amount = Hours usage multiplied by cost per hour
14
Amount = Total labour hours @production capacity x Absorption rate
15
Amount = Budgeted sales price multiplied by Budgeted sales volume
9
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