PRODUCTION BUDGET
1. A company manufactures and sells one product. Budgeted sales units for the next period are 5,500. Opening
inventory is expected to be 400 units and planned to increase by 50% by the end of the period.
What is the production budget?
2. A company is currently preparing its production budget for product U for the forthcoming year. Budgeted sales of
product U are 140,000 units. Opening inventory is estimated to be 11,500 units and the company wishes to
reduce inventory at the end of the year by 20%. The budgeted number of units of product U to be produced is?
3. A company plans to sell 1,800 units of product F next year. Opening inventory of F is budgeted to be 150 units
and company plans to increase inventory by 10% by the end of the year. How many units of product F should be
produced next year?
4. A company plans to sell 24,000 units of product R next year. Opening inventory of R is expected to be
2,000 units and PQ Co plans to increase inventory by 25 per cent by the end of the year. How many
units of product R should be produced next year?
5. A business buys a product, ALFA and then sells it to the customer. At the beginning of June, the store manager
realizes that only 35 units of the material are in inventory and wants to know how many he will need to order in
each of the next three months. He ascertains that planned sales for the next three months and planned closing
inventory of the product in units are as follows:
JUNE
JULY
AUGUST
Planned sales
120
150
130
Closing inventories
60
70
50
How many units of material ALFA must he order in each month?
6. Budgeted sales of X for December are 18,000 units. At the end of the production process for X, 10% of production
units are scrapped as defective. Opening inventories of X for December are budgeted to be 15,000 units and
closing inventories will be 11,400 units. All inventories of finished goods must have successfully passed the
quality control check. What is the production budget for X for December?
MATERIAL BUDGET
7. A company manufactures and sells one product. The production budget for the next period is 2,800 units. Each
unit requires 3 kg of material AYE. Opening inventory of material AYE is expected to be 200 units and is planned
to be reduced to 170 units at the end of the period. What is the materials usage budget?
8. A company is currently preparing a material usage budget for the forthcoming year for material Z that will be
used in product XX. The production director has confirmed that the production budget for product XX will be
10,000 units.
Each unit of product XX requires 4 kgs of material Z which cost $2 per kg. Opening inventory of material Z is
budgeted to be 3,000 kgs and the company wishes to reduce inventory at the end of the year by 25%. What is the
usage budget and material purchase budget for material Z for the forthcoming year?
9. Next month's production budget for product Alpha is as follows.
Opening inventories:
Raw materials
15,000kg
Finished units of Alpha
2,000 units
Budgeted sales of Alpha
60,000 units
Material per unit of Alpha
2 kg
Planned closing inventories:
Raw materials
7,000 kg
Finished units of Alpha
3,000 units
The number of kilograms of raw materials that should be purchased next month is?
Data for Q-10 to Q-13
A company has forecast sales for 6,000 units of product P and 1,000 units of product T for the coming year. The
following data is also available.
P
T
Kg of raw material X per unit
12
12
Kg of raw material Y per unit
6
8
Consider the following data for the raw material.
X
Desired closing inventory (kg)
6,000
Opening inventory (kg)
5,000
Standard rate per kg
$2
10. What is the material usage budget for material X?
11. What is the material usage budget for material Y?
12. What is the purchased budget for material X?
13. What is the purchased budget for material Y?
Y
1,000
5,000
$1.5
LABOR BUDGET
14. A company manufactures a single product, M. Budgeted production output of product M during August
is 200 units. Each unit of product M requires 6 labor hours for completion and PR Co anticipates 20
per cent idle time. Labor is paid at a rate of $7 per hour. What is the direct labor cost budget for
August?
15. Each unit of product Echo takes five direct labor hours to make. Quality standards are high, and 8% of
units are rejected after completion as sub-standard. Next month's budgets are as follows.
Opening inventories of finished goods
3,000 units
Planned closing inventories of finished goods
7,600 units
Budgeted sales of Echo
36,800 units
All inventories of finished goods must have successfully passed the quality control check.
What is the direct labor hours budget for the month?
16. Budgeted production in a factory for next period is 4,800 units. Each unit requires five labor hours to
make. Labor is paid $10 per hour. Idle time represents 20% of the total labor time.
What is the budgeted total labor cost for the next period?
BUDGETARY CONTROL
Exp-1
ABC has a bottling plant for its wine and has prepared flexible budgets
Bottles:
10,000
12,000
14,000
Production costs:
Materials
Labour
Overhead
$
30,000
27,000
20,000
77,000
$
36,000
31,000
20,000
87,000
$
42,000
35,000
20,000
97,000
Required:
If actual production was 12,500 what is the flexed budget production cost?
Exp-2
A company has prepared the following fixed budget for the coming year.
FIXED BUDGET
ACTUAL RESULTS
Production and Sales 10,000 units
$
Actual production of 12,000 units.
$
Direct material
50,000
Direct material
60,000
Direct labour
25,000
Direct labour
28,500
Variable overheads
12,500
Variable overheads
15,000
Fixed overheads
10,000
Fixed overheads
11,000
97,500
114,500
Budgeted selling price $10 per unit.
The actual sales were 12000 units for $122,000.
At the end of the year, the following costs had been incurred for the
Required:
a) Prepare a flexed budget for the actual activity for the year.
b) Calculate the variances.