The following information about Fishplates X has been made available from the accounting records of payment of Precision Tools Ltd. for the last six months of 2019 (and of only sales for January 2020).
(i) The units to be sold in different months are:
- July: 2,200
- August: 2,200
- September: 3,400
- October: 3,800
- November: 5,000
- December: 4,600
- January 2020: 4,000
(ii) There will be no work-in-progress at the end of any month
(iii) Finished units equal to half the sales for the next month will be in stock at the end of every month (including June 2019)
(iv) Budgeted production and production costs for the year ending December 2019 are as thus:
- Production units: 44,000
- Direct materials per unit: $10.00
- Direct Wages per unit: $4.00
- Total factory overheads apportioned to the product: $88,000
(a) Production budget for the last six months of 2019
(b) Production cost budget for the same period
(July to December 2019)
|Add: Stock at the End||1,100||1,700||1,900||2,500||2,300||2,000||11,500|
|Less: Stock at the Beginning||1,110||1,110||1,700||1,900||2,500||2,300||10,600|
Production Cost Budget
|Production Cost Budget
(July to December 2019)
|Direct Material $10||22,000||28,000||36,000||44,000||48,000||43,000||221,000|
|Factory O/H $2||4,400||5,600||7,200||8,800||9,600||8,600||44,200|
Factory overhead per unit = $88,000 / 44,000 units = $2 per unit
The following information regards the budgeted and actual production for the six months ending 31 December 2019.
|Units 40,000 (Budgeted)||Units 50,000 (Actual)|
|Material Consumed 45,000 units||135,000||55000 units = 190,000|
|Wages at 3 hrs. per unit @ $1.5 per hr.||180,000||245,000|
|Variable Overhead @ $2 PU||80,000||125,000|
During the budgeted period:
- Production is expected to increase to 60,000 units
- The prices of materials are expected to increase further in the same manner as they had increased over the budgeted price
- Labor charges are expected to increase by 50 pairs per hour above the actual rate shown above
- Efficiency is expected to decline by 20%
- Fixed overheads are expected to increase by 10%
Prepare a production budget for the six months ending 30 June 2019.
|Budget 6 Months, Ending December 2019||Actual 6 Months, Ending December 2019||Budget 6 Months, Ending June 2020|
|Per unit||Total||Per unit||Total||Per unit||Total|
|Material||45,000 x 3||135,000||55,000 x 3||190,000||65,000 x 3.978||258,750|
|Wages||3 hrs. x 1.50||180,000||3 hrs. x 1.633||245,000||3 hrs. 36 mnts x 2.133||460,728|
|Variable Overheads||2 x 4,000 (0)||80,000||2.5 x 500||125,000||2.75 x 60,000||165,000|
1. Material cost increase is 15% over budget figures. For the six months ending June 2020, an increase of 15 over $3,455 is assumed.
2. Efficiency decrease by 20% leads to 20% more time, i.e., 36 minutes. The total time required is 216,000 hrs. Per hr. rate increases by $0.50 to $2.133.
Do you want to further test your knowledge about budgeting? We have prepared more quizzes for you.