Just when I thought I had got the hang of budgeting, stuck on this question I have the answer been looking at this all afternoon and really stumped now. The part I don't understand is where in the answer do they get the figures for Production and purchases of raw material. Would be really grateful if somebody could help me please. Sue
Jack Ltd manufactures a hand-held recorder which he sells for £64. The company has prepared a projection of units
that could be demanded for the first 5 months of 209
This projection of demand is:
Month
Jan
Feb
March
April
May
No. of units
194
210
280
320
400
At1 January 2009 the company has stock of 46 recorders.It is the agreed policy that the stock at the month end will
equal 40% of the following month's planned sales.
Each recorder requires 1.5 kgof raw material, costing£8.20 per kg, for its manufacture.At 1 Jan the raw material stock is 140 kg
and company policy is that the month-end stock balance must equal 60 per cent of the following month's planned production needs.
You are required to prepare stock and raw material budgets for Jan to Mar 2009
Answer
Finished goods stock budget
Jan
Feb
March
April
Opening Stock
46
84
112
128
Production *
232
238
296
352
278
322
408
480
Less sales
194
210
280
320
Closing Stock
84
112
128
160
Raw Material budget
Jan
Feb
March
Opening Stock
140
214
266
Purchases of raw materials*
422
409
494
562
623
760
Less Production usage
348
357
444
Closing Stock
214
266
316
* note that these figures are the balancing figures.
Production is closing stock + Sales less Opening Stock (so 84+194-46 for Jan = 232)
Production usage is Production units multiplied by 1.5 kg per unit (so 232*1.5 for Jan = 348)
Closing stock of raw materials is required to be 60% of the following months production requirement.
In February the company needs to make 238 recorders which will take 357kg of materials. 60% of that is 214.2 (round down to 214)
You know therefore in January that you need 214 kg for next month, 348 kg for this months production usage and you already have 140 kg in storage.
Therefore 214 + 348 = 562 - 140 = 422
HTH,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks for the answer, I can't believe I forgot the closing stock + sales less opening stock. God don't you feel a bit thick sometimes lol, must stop studying when I get past the 5 hour mark. Time for a glass of vodka, my brain cells hurt. Thanks once again. Sue
sad as it may seem I really enjoyed doing that one.
I know what you mean about overdoing it. It's been two three hour past exam paper a day every day this week under exam conditions. Coming up to the exam now and my brains totally fried to the point where I'm thinking that I might do well even to remember my name in the actual exam hall!
Anyway, a bit a budgeting was a nice change from drowning in a sea of group Cashflow statements and financial instruments.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I have to learn cash flow statements IAS 7, manufacturing accounts, Absorption costing, marginal costing, standard costing and capital investment appraisal, sources of finance, valuation of inventories, for my second year in A Level, must not look at the second book yet, cos I could give myself nightmares, and also collect a few more gray hairs along the way hun. I must say I do enjoy this side of accounting, I find it more interesting. Kind Regards Sue
Of your list Sue the only one likely to keep you up at nights is Capital Investment Appraisal which covers Internal Rate of Return, Return on Investment, Residual Value, Net Present Value, Modified Internal Rate of Return, etc.
Don't know whether AAT are nice and give you the formulae in the exam. If not there are quite a few bits of algaebra to memorise for those ones.
You don't know how lucky you are to be starting with IAS7 rather than FRS1 on Cashflows.
Under UK GAAP there are eight categories of cashflow, under International standards there are just three.
Cashflow statements are genuinely the main reason that I changed from UK stream to International.
ACCA only test the indirect method of calculation so you start with Profit before tax (Taken straight from the Income Statement) then you know the cash that you've got at start and end of period (From the SOFP) so the change in cash and cash equivalents must equal the difference between those two.
Straight away you know what comes at the top of the calculation and the bottom so hypathetically it's simply a matter of getting the bit inbetween to add up to the total you already have.
When you get to cash flows post on here and I'll give you some pointers on how to remember what goes in which category as they won't give you the format in the exam. Generally they will give you a Statement of financial position and Income statement and tell you to apply some adjustments then turn it them into a statement of Cash Flows.
The complexity is supposed to be in the adjustments but under UKGAAP I always had serious issues trying to work out what went under which heading as several of them seem very interchangable.
Anyway, that's reading for next year.
Have a good weekend and talk soon
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
