# Production Budget Practical problems and solutions

## Problem 1

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:

July: 2,200
August: 2,200
September: 3,400
October: 3,800
November: 5,000
December: 4,600
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

### Required

It is required to prepare:

(a) Production budget for the last six months of 2019;
(b) Production cost budget for the same period.

### Solution

 Production Budget (For July to Dec. 2019) July Aug. Sep. Oct. Nov. Dec. Total Estimated Sales 2,200 2,200 3,400 3,800 5,000 4,600 21,200 Add: Stock at the end 1,100 1,700 1,900 2,500 2,300 2,000 11,500 3,300 3,900 5,300 6,300 7,300 6,600 32,700 Less: Stock at the beginning 1,110 1,110 1,700 1,900 2,500 2,300 10,600 Production Required 2,220 2,800 3,600 4,400 4,800 4,300 22,100
Also Check:  Q. 3. Explain in brief the various factors for budgetary control.

(b) Production Cost Budget

 Production Cost Budget (July to Dec. 2019) July Aug. Sep. Oct. Nov. Dec. Total Direct Material \$10 22,000 28,000 36,000 44,000 48,000 43,000 2,21,000 Wages \$4 8,800 11,200 14,400 17,600 19,200 17,200 88,400 Factory O/H \$2 4,400 5,600 7,200 8,800 9,600 8,600 44,200 Total Cost 35,200 44,800 57,600 70,400 76,800 68,800 3,53,600

Factory Overhead per unit = \$88,000 / 44,000 units = \$2 per unit

## Problem 2

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 Fixed overheads 75,000 1,00,000 Total 4,70,000 6,60,000

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%.

Required:

Prepare a production budget for the six months ending 30th June 2019.

Also Check:  Q. 4. What are functional budgets? Which functional budgets are commonly used by the Management?

### Solution

 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 Production Level 40,000 50,000 60,000 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 Fix Overheads 75,000 1,00,000 1,20,000 4,70,000 6,60,000 10,04,298

Hint:

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.

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