Question 28 (15 points) B&Q in a major DIY retailer in the UK. The company produces laminated flooring tiles. For the period ended December 2019, you have been provided with budgeted sales and production as follows: Selling Price and Costs per unit Selling price 40 Material FX: 1.5kg @ 6 per kg 9 Conversion costs (variable) 8 Fixed production overheads 15 The fixed production overhead absorption rate is based on annual production overheads of 720,000 and budgeted annual output of 48,000 units. The fixed overheads will be incurred evenly throughout the year. The company also incurs fixed costs for administration of 200,000 per year. Budgeted Sales Quarter Units 1 10,000 Budgeted Sales Quarter Units 1 10,000 N 12,000 3 14,000 4 12,000 Inventory It has been decided that inventory levels are to be reduced. Details are as follows: Finished goods: 5,500 units are currently held but it has been decided that the closing inventories for Quarters 1, 2 and 3 will be 45%, 40% and 35% of the following quarter's sales respectively. Raw materials: 4,500 kg are currently held but it has been decided that the closing inventories for Quarters 1 and 2 will be 25% and 20% of the following quarter's production requirements respectively. In Quarter 3 the opening and closing inventories of finished goods will be 5,600 units and 4,200 units respectively. B&Q adjusts for any under- or over-absorption of overheads at the end of each quarter. Assume that production and sales volumes were as budgeted and that inventory levels Finished goods: 5,500 units are currently held but it has been decided that the closing inventories for Quarters 1, 2 and 3 will be 45%, 40% and 35% of the following quarter's sales respectively. Raw materials: 4,500 kg are currently held but it has been decided that the closing inventories for Quarters 1 and 2 will be 25% and 20% of the following quarter's production requirements respectively. In Quarter 3 the opening and closing inventories of finished goods will be 5,600 units and 4,200 units respectively. B&Q adjusts for any under- or over-absorption of overheads at the end of each quarter. Assume that production and sales volumes were as budgeted and that inventory levels were as planned. Also assume that all costs and revenues were as budgeted. Required: (5 (4 a. Prepare a materials purchase budget for Quarter 1. marks) b. Calculate using marginal costing the profit for Quarter 3. marks) c. Calculate using absorption costing the profit for Quarter 3. marks) d. Reconcile the profits (for b and c) you have calculated. marks) (4 (2 Question 28 (15 points) B&Q in a major DIY retailer in the UK. The company produces laminated flooring tiles. For the period ended December 2019, you have been provided with budgeted sales and production as follows: Selling Price and Costs per unit Selling price 40 Material FX: 1.5kg @ 6 per kg 9 Conversion costs (variable) 8 Fixed production overheads 15 The fixed production overhead absorption rate is based on annual production overheads of 720,000 and budgeted annual output of 48,000 units. The fixed overheads will be incurred evenly throughout the year. The company also incurs fixed costs for administration of 200,000 per year. Budgeted Sales Quarter Units 1 10,000 Budgeted Sales Quarter Units 1 10,000 N 12,000 3 14,000 4 12,000 Inventory It has been decided that inventory levels are to be reduced. Details are as follows: Finished goods: 5,500 units are currently held but it has been decided that the closing inventories for Quarters 1, 2 and 3 will be 45%, 40% and 35% of the following quarter's sales respectively. Raw materials: 4,500 kg are currently held but it has been decided that the closing inventories for Quarters 1 and 2 will be 25% and 20% of the following quarter's production requirements respectively. In Quarter 3 the opening and closing inventories of finished goods will be 5,600 units and 4,200 units respectively. B&Q adjusts for any under- or over-absorption of overheads at the end of each quarter. Assume that production and sales volumes were as budgeted and that inventory levels Finished goods: 5,500 units are currently held but it has been decided that the closing inventories for Quarters 1, 2 and 3 will be 45%, 40% and 35% of the following quarter's sales respectively. Raw materials: 4,500 kg are currently held but it has been decided that the closing inventories for Quarters 1 and 2 will be 25% and 20% of the following quarter's production requirements respectively. In Quarter 3 the opening and closing inventories of finished goods will be 5,600 units and 4,200 units respectively. B&Q adjusts for any under- or over-absorption of overheads at the end of each quarter. Assume that production and sales volumes were as budgeted and that inventory levels were as planned. Also assume that all costs and revenues were as budgeted. Required: (5 (4 a. Prepare a materials purchase budget for Quarter 1. marks) b. Calculate using marginal costing the profit for Quarter 3. marks) c. Calculate using absorption costing the profit for Quarter 3. marks) d. Reconcile the profits (for b and c) you have calculated. marks) (4 (2
