Budgeting O’Connor Ltd has recently completed its annual sales forecast to December 2012 - Leaving Cert Accounting - Question 9 - 2011

We calculate the required quantities for each material based on production needs, opening stock, and closing stock.

Material A Requirements:

• Required for Light (producing 12,550 units):

  • 12,550 units * 6 kgs/unit = 75,300 kgs

• Required for Extra Light (producing 3,350 units):

  • 3,350 units * 7 kgs/unit = 23,450 kgs

• Total Required Material A: 75,300 + 23,450 = 98,750 kgs

• Closing Stock: (10% of opening stock for smoothing)

  • 6000 kgs * 10% = 600 kgs
  • Opening Stock: 6000 kgs

• Purchases Calculation:

  • Required 98,750 - (6000 - 600) = 95,350 kgs

For Material B:

• Required for Light: 12,550 * 9 = 112,950 kgs.
• Required for Extra Light: 3,350 * 6 = 20,100 kgs.
• Total Required Material B: 112,950 + 20,100 = 133,050 kgs.
• Purchases Calculation for Material B:
  • 133,050 - (4000 - 600) = 129,050 kgs.

Cost:

• Material A: 98,750 kgs * €4 = €395,000
• Material B: 133,050 kgs * €5.50 = €731,775

Total Purchases: €395,000 + €731,775

The Manufacturing Budget includes all costs associated with production.

• Opening Stock of Raw Materials:

  • Material A: €15,000
  • Material B: €20,000

• Purchases of Raw Materials:

  • Material A: €395,000
  • Material B: €731,775

• Closing Stock of Raw Materials:

  • Material A: 600 kgs * €4 = €2,400
  • Material B: 19,800 kgs * €5.50 = €108,900

• Labour Costs Calculation:

  • Light: 12,550 units * 8 hours/unit * €12/hour = €1,197,600
  • Extra Light: 3,350 units * 9 hours/unit * €12/hour = €363,600

• Variable Overhead:

  • Light: 12,550 units * €4.50 = €56,475
  • Extra Light: 3,350 units * €4.50 = €15,075

After calculating the all components, the total cost of manufacture and indirect costs will be aggregated.

For calculating the unit cost, we sum total costs and divide by the total units:

• Light Product:

  • Cost per unit = (Total Manufacturing Cost + Variable + Fixed)

• Extra Light Product:

  • Similarly calculated based on all operational costs, ensuring preciseness in the derived methodology.

Sum and divide by unit outputs to ascertain the exact unit cost.

• Final Unit Cost of Closing Stock:
  • Light: €X per unit
  • Extra Light: €Y per unit.

A Master Budget is a comprehensive financial planning document that consolidates all the budgets for various departments within an organization for a specific period, typically covering a year.

Components:

1. Operating Budgets
2. Financial Statements
3. Capital Expenditure Budget
4. Cash Flow Budget
5. Flexible Budget

This budget acts as a benchmark for measuring financial performance and aids in resource allocation.

The key components of a Master Budget for a manufacturing firm include:

1. Sales Budget
2. Production Budget
3. Direct Materials Budget
4. Direct Labour Budget
5. Overhead Budget
6. Cost of Goods Sold Budget
7. Budgeted Income Statement
8. Cash Budget
9. Capital Expenditures Budget

Each component plays a crucial role in ensuring that the firm’s resources are properly allocated to maximize efficiency and profitability.