Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Brown and Jeffreys, a West Midlands business, makes one standard product for use in the motor trade. The product, known as the Fuel Miser, for

Brown and Jeffreys, a West Midlands business, makes one standard product for use in the

motor trade. The product, known as the Fuel Miser, for which the business holds the patent,

when fifitted to the fuel system of production model cars has the effect of reducing petrol

consumption.

Part of the production is sold direct to a local car manufacturer, which fifits the Fuel Miser as

an optional extra to several of its models and the rest of the production is sold through various

retail outlets, garages, and so on.

Brown and Jeffreys assemble the Fuel Miser, but all three components are manufactured

by local engineering businesses. The three components are codenamed A, B and C. One Fuel

Miser consists of one of each component.

The planned sales for the fifirst seven months of the forthcoming accounting period, by

channels of distribution and in terms of Fuel Miser units, are as follows:

Jan Feb Mar Apr May June July

Manufacturers 4,000 4,000 4,500 4,500 4,500 4,500 4,500

Retail, and so on 2,000 2,700 3,200 3,000 2,700 2,500 2,400

6,000 6,700 7,700 7,500 7,200 7,000 6,900

The following further information is available:

(i) There will be inventories of fifinished units at 1 January of 7,000 Fuel Misers.

(ii) The inventories of raw materials at 1 January will be:

A 10,000 units

B 16,500 units

C 7,200 units

(iii) The selling price of Fuel Misers is to be 10 each to the motor manufacturer and 12 each

to retail outlets.

(iv) The maximum production capacity of the business is 7,000 units a month. There is no

possibility of increasing this output.

(v) Assembly of each Fuel Miser will take 10 minutes of direct labour. Direct labour is paid at

the rate of 7.20 an hour during the month of production.

(vi) The components are each expected to cost the following:

A 2.50

B 1.30

C 0.80

(vii) Indirect costs are to be paid at a regular rate of 32,000 each month.

(viii) The cash at the bank at 1 January will be 2,620.

The planned sales volumes must be met and the business intends to pursue the following

policies for as many months as possible, consistent with meeting the sales targets:

l Finished inventories at the end of each month are to equal the following months total

sales to retail outlets, and half the total of the following month's sales to the motor

manufacturer.

l Raw materials at the end of each month are to be suffificient to cover production requirements

for the following month. The production for July will be 6,800 units.

l Suppliers of raw materials are to be paid during the month following purchase. The payment

for January will be 21,250.

l Customers will pay in the month of sale, in the case of sales to the motor manufacturer, and

the month after sale, in the case of retail sales. Retail sales during December were 2,000 units

at 12 each.

Required:

1.Prepare the following budgets in monthly columnar form, both in terms of money and units

(where relevant), for the six months of January to June inclusive:

(a) Sales budget.*

(b) Finished inventories budget (valued at direct cost).

(c) Raw materials inventories budget (one budget for each component).

(d) Production budget (direct costs only).*

(e) Trade receivables budget.

(f ) Trade payables budget.

(g) Cash budget.

The sales and production budgets should merely state each month's sales or production in units and in

money terms.

The other budgets should all seek to reconcile the opening balance of inventories, receivables, payables

or cash with the closing balance through movements of the relevant factors over the month.

2.Calculate and evaluate some budgeted performance indicators relate to cost centres and profits centres:

a)Cost centres:

-Productivity (with hours served as an input)

b)Profit centres

-Gross profit margin

-Production costs of sales/sales

c)Explain the meaning of each ratios mentioned above

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Financial Accounting An IFRS Standards Approach

Authors: Pearl Tan, Chu Yeong Lim, Ee Wen Kuah

4th Edition

9789814821278, 9814821276

More Books

Students also viewed these Accounting questions

Question

What is self-awareness? (p. 44)

Answered: 1 week ago

Question

A greater tendency to create winwin situations.

Answered: 1 week ago

Question

Improving creative problem-solving ability.

Answered: 1 week ago