Reference no: EM133104694

Question - Intermediate: Preparation of functional budgets. X plc manufactures Product X using three different raw materials. The product details are as follows:

Selling price per unit £250

Material A 3 kgs material price £3.50 per kg

Material B 2 kgs material price £5.00 per kg

Material C 4 kgs material price £4.50 per kg

Direct labour 8 hours labour rate £8.00 per hour

The company is considering its budgets for next year and has made the following estimates of sales demand for Product X for July to October:

July	August	September	October
400 units	300 units	600 units	450 units

It is company policy to hold stocks of finished goods at the end of each month equal to 50 per cent of the following month's sales demand, and it is expected that the stock at the start of the budget period will meet this policy.

At the end of the production process the products are tested: it is usual for 10 per cent of those tested to be faulty. It is not possible to rectify these faulty units.

Raw material stocks are expected to be as follows on 1 July:

Material A 1000 kgs

Material B 400 kgs

Material C 600 kgs

Stocks are to be increased by 20 per cent in July, and then remain at their new level for the foreseeable future.

Labour is paid on an hourly rate based on attendance. In addition to the unit direct labour hours shown above, 20 per cent of attendance time is spent on tasks which support production activity.

Required - Prepare the following budgets for the quarter from July to September inclusive:

(i) sales budget in quantity and value;

(ii) production budget in units;

(iii) raw material usage budget in kgs;

(iv) raw material purchases budget in kgs and value;

(v) labour requirements budget in hours and value.