Budget

ABC Ltd Functional Budgets

ABC Ltd manufactures three products for the building industry. Budgeted sales of the products A, B and C are as follows:

Product Quantity price/unit £ Opening stock
A 4000 180 800
B 6000 190 2000
C 7000 200 2500

Materials information

Components M1 M2 M3 M4
Unit cost £2 £3 £4 £5
Quantities/unit
A 5 3 1 2
B 4 4 2 3
C 3 2 1 5
Opening stock 40000 20000 10000 30000

Labour information
Fitters Machinists
Hourly rate £13.50 £12.50
Hours per unit A 3 1.5
Hours per unit B 4 2
Hours per unit C 5 2.5

The company plans an increase of 10% in the quantities of finished stocks held at the end of the budget period, and a reduction of 20% in the quantities of component stocks.

Production overheads amount to £87,948 absorbed using total direct labour hours for production.
Selling and distribution overheads total £652,000 absorbed as a percentage of total sales volume.

Required:
Prepare the budgets
Sales
Production
Material usage and purchases
Labour utilisation
Budgeted profit statement

I have an issue with the last task Budgeted profit statement

ABC Ltd-Functional Budget

Sales Budget Quantity Price £ Budgeted Sales £
A 4,000 180 720,000
B 6,000 190 1,140,000
C 7,000 200 1,400,000
3,260,000

Production Budget
Products A B C
Budgeted Sales 4,000 6,000 7,000
Opening Stock 800 2,000 2,500
3,200 4,000 4,500
Budgeted closing stock 880 2,200 2,750
Production Budget 4,080 6,200 7,250

Material requirement Budget
Budgeted Production M1 M2 M3 M4 Total
A 20,400 12,240 4,080 8,160
B 24,800 24,800 12,400 18,600
C 21,750 14,500 7,250 36,250
Total material required 66,950 51,540 23,730 63,010

A B C Total
M1 £40,800 £49,600 £43,500 £133,900
M2 £36,720 £74,400 £43,500 £154,620
M3 £16,320 £49,600 £29,000 £94,920
M4 £40,800 £93,000 £181,250 £315,050
£134,640 £266,600 £297,250 £698,490

Material Purchasing budget
Required for production 66,950 51,540 23,730 63,010
Opening Stock 40,000 20,000 10,000 30,000
26,950 31,540 13,730 33,010
Budgeted closing stock 32,000 16,000 8,000 24,000
Budgeted material purchases 58,950 47,540 21,730 57,010

Budgeted material purchases 58,950 47,540 21,730 57,010
Cost per unit £ 2 3 4 5
Budgeted mat. Purchases £117,900 £142,620 £86,920 £285,050 £632,490

Labour requirement Budget
Budgeted production 4,080 6,200 7,250
Product A B C Total Rate Budget Lab. Cost
Fitters 12,240 24,800 36,250 73,290 £13.50 £989,415
Machinists 6,120 12,400 18,125 36,645 £12.50 £458,063
Total Budgeted labour cost 18,360 37,200 54,375 109,935 £1,447,478

Fitters £165,240 £334,800 £489,375 989,415
Machinists £76,500 £155,000 £226,563 458,063
£241,740 £489,800 £715,938 1,447,478

Budgeted production overhead £87,948

A B C Total
Budgeted production 4,080 6,200 7,250 17,530
Total hours 18,360 37,200 54,375
OAR 0.8 0.8 0.8
Allocated production O/H £14,688 £29,760 £43,500 £87,948

Overhead absorption rate £0.80

Selling & distn. Budget £652,000

Sales O/H absorption Allocation
A 720,000 22.1% £144,000
B 1,140,000 35.0% £228,000
C 1,400,000 42.9% £280,000
3,260,000 100.0% £652,000

Budgeted Profit Statement
A B C Total
Sales 720,000 1,140,000 1,400,000 3,260,000

Cost of sale
Material cost £134,640 £266,600 £297,250 £698,490
Labour £241,740 £489,800 £715,938 £1,447,478
Production overheads £14,688 £29,760 £43,500 £87,948
Cost of sale £391,068 £786,160 £1,056,688 £2,233,916

Gross Profit £328,932 £353,840 £343,313 £1,026,085
Selling and distribution cost £144,000 £228,000 £280,000 £652,000
Budgeted net profit £184,932 £125,840 £63,313 £374,085

Surely you have an answer to this question in the same book in which you found the question? In future please ask about whatever it is in the answer that you are not clear about.

In the budgeted profit statement you need the cost of goods sold, which is the opening inventory of finished goods, plus the cost of the goods produced, less the closing inventory of finished goods.