The following information has been made available from the accounting records of payment of Precision Tools Ltd. for the last six months of 2019 ( and of only sales for January 2020. In respect of Fishplates X produced by it.
(i) The units to be sold in different months are:
January 2020: 4,000
(ii) There will be no work-in-progress at the end of any month.
(iii) Finished units equal to half the sales for the next month will be in stock at the end of every month ( including June 2019)
(iv) Budgeted Production and production costs for the year ending Dec. 2019 are as thus:
Production units: 44,000
Direct materials per unit: $10.00
Direct Wages per unit: $4.00
Total Factory Overheads apportioned to product: $88,000
It is required to prepare:
(For July to Dec. 2019)
|Add: Stock at the end||1,100||1,700||1,900||2,500||2,300||2,000||11,500|
|Less: Stock at the beginning||1,110||1,110||1,700||1,900||2,500||2,300||10,600|
(b) Production Cost Budget
|Production Cost Budget
(July to Dec. 2019)
|Direct Material $10||22,000||28,000||36,000||44,000||48,000||43,000||2,21,000|
|Factory O/H $2||4,400||5,600||7,200||8,800||9,600||8,600||44,200|
Factory Overhead per unit = $88,000 / 44,000 units = $2 per unit
The following are the datas regarding the budgeted and actual production for six months ending 31 Dec. 2019.
|Units 40,000 (Budgeted)||Units 50,000 (Actual)|
|Material Consumed 45,000 units||1,35,000||55000 units = 190,000|
|Wages at 3 hrs. per unit @ $1.5 per hr.||1,80,000||2,45,000|
|Variable overhead @ $2 PU||80,000||1,25,000|
During the budgeted period:
(i). Production is expected to go up to 60,000 units
(ii). The prices of materials are expected to increase further in the same manner as they had increased over the budgeted price.
(iii). Labor charges are expected to increase by 50 pairs per hour above the actual rate shown above through efficiency is expected to decline by 20%
(iv). Fixed overheads are expected to increase by 10%.
Prepare a production budget for the six months ending 30th June 2019.
|Budget 6 Months, Ending Dec. 2019||Actual 6 Months, Ending Dec. 2019||Budget 6 Months, Ending June 2020|
|Per unit||Total||Per unit||Total||Per unit||Total|
|Material||45,000 x 3||1,35,000||55,000 x 3||1,90,000||65,000 x 3.978||2,58,750|
|Wages||3 hrs. x 1.50||1,80,000||3 hrs. x 1.633||2,45,000||3 hrs. 36 mnts x 2.133||4,60,728|
|Variable Overheads||2 x 4,000 (0)||80,000||2.5 x 500||1,25,000||2.75 x 60,000||1,65,000|
1. Material cost increase is 15% over Budget figures. For six month ending June 2020, an increase of 15 over $3,455 is assumed.
2. Efficiency decrease by 20% leads to 20% more time i.e. 36 minutes. Total time required is 2,16,000 hrs. Per hr. rate increases by $0.50 to $2.133.