Intermediate : Calculation of sales to achieve target profit and prepa ration of functional budgets There is
Question:
Intermediate : Calculation of sales to achieve target profit and prepa ration of functional budgets There is a continuing demand for three sub-assemblies- A. B. and C - made and sold by MW limited Sales are in the ratios of f.. 1.
B 2, C 4 and selling prices are A £215. B £250, C £300.
Each sub-assembly consists of a copper frame onto which are fixed the same components but in differing quantities as follows:
Operation times by labour for each sub·assembly are:
The skilled labour is paid £6 per hour and unskilled £4.50 per hour.
The skilled labour is located in a machining department and the unskilled labour in an assembly department. A five-day week of 371 hours is worked and each accounting period is for four weeks. 2 Variable overhead per sub·assembly is A £5, B £4 and C £3.50.
At tne end of the current year, stocks are expected to be as shown below but because interest rates have increased and the company utilises a bank overdraft for working capital purposes, ~ is planned to effect a 10% reduction in all finished sub·assemblies and bought·in stocks during Period 1 of the forthcoming year.
Forecast stocks at current year end:
Work·in·progress stocks are to be ignored.
Overhead for the forthcoming year is budgeted to be Production £728 000, Selling and Distribution £364 000 and Administration £338000. These costs, all fixed, are expected to be incurred evenly throughout the year and are treated as period costs.
Within Period 1 it is planned to sell one thirteenth of the annual requirements which are to be the sales necessary to achieve the company profit target of £6.5 million before tax.
You are required:
(a) to prepare budgets in respect of Period 1 of the forthcoming year for (i) sales, in quantities and value;
(ii) production, in quantities only;
(iii) materials usage, in quantities;
(iv) materials purchases, in quantities and value;
(v) manpower budget, i.e. numbers of people needed in each of the machining department and the assembly department; (20 marks)
(b) to discuss the factors to be considered if the bought·in stocks were to be reduced to one week's requirementsthis has been proposed by the purchasing officer but resisted by the production director
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