Sales Budget

Product Units sold Selling price Total revenue

£ £ £
Alpha 8500 400 3400000
Sigma 1600 560 896000
4296000
 Sales budget for the year
Product Units sold Selling price Total revenue
£ £ £
Alpha 8500 400 3400000
Sigma 1600 560 896000
4296000
 Dept 1 Dept 2
Alpha Sigma
Units to be sold (forecast) 8500 1600
Add: Ending inventory/Closing stock 1870 90
Total units needed for sales and inventory 10370 1690
Less: Opening inventory 170 85
Units to be produced 10200 1605

Question: Why do we remove opening inventory from our budgeted units of production?
 Annual production budget
Dept 1 Dept 2
Alpha Sigma
Units to be sold 8500 1600
Add: Ending inventory 1870 90
Total units needed for sales and inventory 10370 1690
Less: Opening inventory 170 85
Units to be produced 10200 1605
 Department 1 (Alpha) Department 2 (Sigma)
Units Unit price Total Units Unit price Total
£ £ £ £ £ £
Material X 102000 7.2 734400 12840 7.2 92448
Material Y 51000 16 816000 14445 16 231120
1550400 323568 1873968
 Annual direct materials usage budget
Department 1 Alpha Department 2 Sigma
Units Unit price Total Units Unit price Total
£ £ £ £
Material X 102000 7.2 734400 12840 7.2 92448
Material Y 51000 16 816000 14445 16 231120
1550400 323568
Total units Total unit price Total
£ £
114840 7.2 826848
65445 16 1047120
1873968
 Materials X (units) Materials Y (units)
Quantity necessary to meet production requirements 114840 65445
Add: Planned closing inventory 10200 1700
125040 67145
Less: Planned opening inventory 8500 8000
Total units to be purchased 116540 59145
Unit price (£) 7.2 16
Total purchases 839088 946320
1785408
 Direct materials purchase budget
Materials X (units) Materials Y (units) Total
Quantity necessary to meet production requirements 114840 65445
Add: Planned closing inventory 10200 1700
125040 67145
Less: Planned opening inventory 8500 8000
Total units to be purchased 116540 59145
Unit price (£) 7.2 16
Total purchases 839088 946320 1785408
 Dept 1 Dept 2 Total
Alpha Sigma
Budgeted production (units) 10200 1605
Hours per unit (direct labour) 10 15
Total budgeted hours 102000 24075
Cost per labour hour 12 12
Total 1224000 288900 1512900
 Annual direct labour budget
Dept 1 Dept 2 Total
Budgeted production (units) 10200 1605
Direcl labour Hours per unit 10 15
Total budgeted hours 102000 24075
Budgeted wage rate per hour (£) 12 12
Total wages 1224000 288900 1512900
 Alpha Sigma
Dept 1 Dept 2
Variable overhead (£) Overhead rate Overhead rate
Indirect materials 1.2 0.8
Indirect labour 1.2 1.2
Power (variable portion) 0.6 0.4
Maintenance (variable portion) 0.2 0.4
Total variable overhead
Fixed overhead (£)
Depreciation
Supervision
Power (fixed portion)
Maintenace (fixed portion)
Total fixed overhead
Total overhead (£)

Budgeted departmental OH rate

Alpha Sigma
Dept 1 Dept 2 Total

122400 19260
122400 28890
61200 9630
20400 9630
326400 67410

100000 80000
100000 40000
40000 2000
45600 3196
285600 125196
612000 192606 804606

6 8.0002492211838
6 pounds per direct labout hour worked 8 pounds per direct labour hour worked
 Production OH budget
Dept 1 (Alpha) Dept 2 (Sigma)
Budgeted Variable Overheads:
Indirect materials 122400
Indirect labour 122400
Power (variable portion) 61200
Maintenance (variable portion) 20400
326400
Budgeted fixed overheads:
Depreciation 100000
Supervision 100000
Power (fixed) 40000
Maintenance (fixed) 45600
Total fixed OH 285600
Total OH 612000

Departmental OH rate 6
 Annual production overhead budget
Dept 1 Dept 2 Total
Variable overhead (£)
Indirect materials 122400 19260
Indirect labour 122400 28890
Power (variable portion) 61200 9630
Maintenance (variable portion) 20400 9630
326400 67410 393810
Fixed overhead (£)
Depreciation 100000 80000
Supervision 100000 40000
Power (fixed portion) 40000 2000
Maintenace (fixed portion) 45600 3196
285600 125196 410796
Total overhead (£) 612000 192606 804606

Budgeted departmental OH rate 6 8.0002492

 Annual selling and administration budget
(£) (£)
Selling:
Salaries (sales) 74000
Commission 60000
Car expenses 22000
Advertising 80000 236000
Administration:
Stationery 4000
Salaries (office) 28000
Miscellaneous 8000 40000
276000
 Annual departmental budget (Dept 1)
Budget
(£) (£)
Direct labour (from direct labour budget) 1224000
Direct materials usage
X 734400
Y 816000 1550400
Variable overheads (from production OH budget):
Indirect materials
Indirect labour
Power (variable portion)
Maintenance
Fixed overheads (from production OH budget):
Depreciation 100000
Supervision 100000
Power (fixed portion) 40000
Maintenance 45600 285600
Total budget for Dept 1

When computing the departmental budget, why do we consider materials usage and not purchase?
s
 Annual departmental budget (Dept 1)
Budget
(£) (£)
Direct labour (from direct labour budget) 1224000
Direct materials usage
X 734400
Y 816000 1550400
Variable overheads (from production OH budget):
Indirect materials 122400
Indirect labour 122400
Power (variable portion) 61200
Maintenance 20400 326400
Fixed overheads (from production OH budget):
Depreciation 100000
Supervision 100000
Power (fixed portion) 40000
Maintenance 45600 285600
Total budget for Dept 1 3386400
s
 Budget
(£) (£)
Direct labour (from direct labour budget) 288,900
Direct materials usage:
X 92448
Y 231120 323568
Variable overheads (from production OH budget):
Indirect materials 19260
Indirect labour 28890
Power (variable portion) 9630
Maintenance 9630 67410
Fixed overheads (from production OH budget):
Depreciation 80000
Supervision 40000
Power (fixed portion) 2000
Maintenance 3196
Total budget for Dept 2 805,074
 Budgeted profit statement for the year
(£) (£) (£)
Sales 4296000
Opening inventory of raw materials 189200
Purchases of raw materials 1785408
1974608
Less: Closing inventory of raw materials 100640
Cost of raw materials consumed
Direct labour 1512900
Production overhead 804606
Total manufacturing cost
Add: Opening inventory of finished goods 99076
Less: Closing inventory of finished goods 665984 566908
Cost of sales
Gross profit
Selling and administrative costs 276000
Budgeted operating profit
Closing inventory of raw materials: Units Pounds Total
Material X 10200 7.2 73440
Material Y 1700 16 27200
100640

Opening inventory for raw materials Units Pounds Total

Material X 8500 7.2 61200
Material Y 8000 16 128000
189200

Computation of closing inventory of finished goods

Alpha: Units/Hours Pounds
Direct materials:
X 10 7.2 72
Y 5 16 80
Direct labour 10 12 120
Production overhead 10 6 60
Total 332

Sigma:
Direct materials:
X 8 7.2 57.6
Y 9 16 144
Direct labour 15 12 180
Production overhead 15 8 120
Total 501.6
Units for FG Closing inventory total

1870 620840

90 45144
665984
 Master Budget

Sales 4296000

Opening inventory (raw materials) 189200

Purchases 1785408
1974608
Less: Closing inventory (raw materials) 100640
1873968
Direct labour 1512900
Production overhead 804606
Total manufacturing overhead 4191474
Opening inventory (finished goods) 99076
Less: Closing inventory (finished goods) 665984 -566908
Cost of Goods Sold/Cost of Sales 3624566
Gross profit 671434
Selling and Administrative costs 276000
Budgeted Net profit 395434
 Budgeted statement of financial position as at year end
(£) (£)
Fixed Assets
Land 170000
Building and equipment 1292000
Less: Depreciation 435000 857000
Total fixed assets 1027000

Current assets
Raw materials inventory 100640
Finished goods inventory 665984
Debtors 280000
Cash 199170
1245794
Current liabilities
Creditors 307884 937910
Net Assets 1964910

Represented by shareholders' interest 1200000

Reserves 369476
Profit and loss account 395434
Capital 1964910