Question 4 Budgeting/Profit Analyses

1. Africa Plc has prepared a forecast for the next month for one of its products in Table 1 below. The forecast is based on producing and selling 4,000 units. The senior management team would like to expand the business and are interested to know the profits that could be made at 6,000.

Table 1

Output in units	4,000
Sales revenue	140,000
Variable Costs:
Materials	22,000
Labour	50,000
Overheads	14,000
Fixed Costs	28,000

Required

Prepare a profit analysis using a suitable table layout. Your analysis should include both the estimated cost per unit and profit per unit at the two levels of estimated output.

[9 marks]

2. Explain the cost classification which is key to forecasting costs. Your answer should include why the classification is important, a definition of the two types of cost within the classification and a minimum of two examples for each type of cost.

[6 marks]

3. Asia Plc manufactures two products, the China and the India. The expected sales, opening and closing inventories for each product for the next month are shown in Table 2 below:

Table 2

	China	India
Sales	3,000	4,500
Opening inventory	500	700
Closing inventory	200	300

Required

Prepare the Production Budget for both products.

[5 marks]

[Total 20 marks]