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


It is required to prepare:

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


Production Budget
(For July to Dec. 2019)
Estimated Sales2,2002,2003,4003,8005,0004,60021,200
Add: Stock at the end1,1001,7001,9002,5002,3002,00011,500
Less: Stock at the beginning1,1101,1101,7001,9002,5002,30010,600
Production Required2,2202,8003,6004,4004,8004,30022,100

(b) Production Cost Budget

Production Cost Budget
(July to Dec. 2019)
Direct Material $1022,00028,00036,00044,00048,00043,0002,21,000
Wages $48,80011,20014,40017,60019,20017,20088,400
Factory O/H $24,4005,6007,2008,8009,6008,60044,200
Total Cost35,20044,80057,60070,40076,80068,8003,53,600

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 units1,35,00055000 units = 190,000
Wages at 3 hrs. per unit @ $1.5 per hr.1,80,0002,45,000
Variable overhead @ $2 PU80,0001,25,000
Fixed overheads75,0001,00,000

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. 2019Actual 6 Months, Ending Dec. 2019Budget 6 Months, Ending June 2020
Per unitTotalPer unitTotalPer unit Total
Production Level40,00050,00060,000
Material45,000 x 31,35,00055,000 x 31,90,00065,000 x 3.9782,58,750
Wages3 hrs. x 1.501,80,0003 hrs. x 1.6332,45,0003 hrs. 36 mnts x 2.1334,60,728
Variable Overheads2 x 4,000 (0)80,0002.5 x 5001,25,0002.75 x 60,0001,65,000
Fix Overheads75,0001,00,0001,20,000


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.

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