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Winston Ltd recently completed its annual sales forecast to the end of 2020 - Leaving Cert Accounting - Question 9 - 2019
Question 9
Winston Ltd recently completed its annual sales forecast to the end of 2020. It expects to sell two products – Dark at €250 and Light at €300. All stocks are to be ... show full transcript
Worked Solution & Example Answer:Winston Ltd recently completed its annual sales forecast to the end of 2020 - Leaving Cert Accounting - Question 9 - 2019
Step 1
Prepare a production budget (in units)
Answer
To prepare the production budget for Dark and Light:
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Calculate the total required production:
- For Dark: Expected Sales + Increase in Finished Goods = 12,600 + (650 x 10%) = 12,600 + 65 = 12,665 units.
- For Light: Expected Sales + Increase in Finished Goods = 7,500 + (420 x 10%) = 7,500 + 42 = 7,542 units.
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Summary of the Production Budget:
- Dark: 12,665 units.
- Light: 7,542 units.
Step 2
Prepare a raw materials purchases budget (in units and €)
Answer
For the raw materials purchases budget:
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Determine the raw materials required based on production needs:
- Dark requires:
- Material 1: 12,665 units x 5 kgs = 63,325 kgs.
- Material 2: 12,665 units x 6 kgs = 75,990 kgs.
- Light requires:
- Material 1: 7,542 units x 7 kgs = 52,794 kgs.
- Material 2: 7,542 units x 4 kgs = 30,168 kgs.
- Dark requires:
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Calculate total material requirements:
- Material 1 = 63,325 + 52,794 = 116,119 kgs.
- Material 2 = 75,990 + 30,168 = 106,158 kgs.
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Calculate purchases considering the closing stock needs (to ensure stock levels are maintained). Assuming required closing stock is adjusted accordingly, analyze the purchase needs and calculate total costs based on prices provided.
Step 3
Prepare a production cost/manufacturing budget
Answer
To prepare the manufacturing budget:
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Direct Materials Cost:
- For each material, multiply quantity needed by respective prices.
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Labour Costs:
- Calculate labour costs based on skilled hours required and rate.
- Dark: 12,665 units x 6 hours/unit x €16/hour.
- Light: 7,542 units x 8 hours/unit x €16/hour.
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Variable Overhead Costs:
- Need to multiply total skilled hours by variable rate.
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Fixed Overhead Costs:
- Include the fixed overhead from the budget provided.
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Calculate Total Cost of Manufacturing:
- Sum up direct materials, labour, variable overhead and fixed overhead.
Step 4
Prepare a budgeted closing stock per unit
Answer
For the budgeted closing stock per unit:
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Calculate closing stock for each material based on the number of units needed and their respective prices:
- Material 1 (Dark): 5 kgs x €3.00
- Material 1 (Light): 7 kgs x €3.00
- Continue this for all relevant materials.
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Sum total closing stock costs to reflect in the budget.
Step 5
Explain three reasons for product costing
Answer
Product costing serves several vital purposes:
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Establishes Selling Price: Helps in determining the selling price for products, ensuring all costs are covered with desired profit margins.
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Controls Costs: By comparing budgeted costs with actual costs, businesses can control spending and identify areas for improvement.
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Aid in Planning and Decision-Making: Costing provides valuable insights that facilitate financial planning, budgeting, and strategic decision-making.