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  4. They sell an equal number of each product.
    Selling 1 of each of them give total revenue of 100+200 = 300.

    So to get revenue of 900,000, then need to sell 900,000/300 = 3,000 units of each.

    (In future, please ask questions in the F2 Ask the ACCA Tutor Forum – not here. This is for comments on the lecture. 馃檪 )

  5. A company makes two products – A and B . The products are sold in the ratio 1:1 . Planned selling prices are $100 and $200 per unit respectively . The company needs to earn $900,000 revenue in the coming year. Required:
    Prepare the sales budget for the coming year
    Sir i need help in this

  6. Hi sir
    Please look at this question
    CA Co manufactures a single product and has drawn up the following flexed budget for the year.
    60% 70% 80%
    $ $ $
    Direct materials 120 000 140 000 160 000
    Direct labour 90 000 90 000 120 000
    Production overhead 54 000 58 000 62 000
    Other overhead 40 000 40 000 40 000
    Total cost 304 000 343 000 382 000

    What would be the total cost in a budget that is flexed at the 77% level of activity.

    The answer states:

    Direct material cost per 1% activity level = $2000
    Direct labour cost per 1% activity level = $1500

    production overhead
    at 60% $54000
    at 80% ($62000)
    Difference $8000

    Variable cost per activity change 1% change in activity = $8000/20 = $400

    Substituting in 80% activity
    $
    Variable cost = 80 * 400 32 000
    Total cost 62 000
    fixed cost 30 000

    Budget flexed at 77%
    $000
    Direct material 77 * $2000 154.0
    Direct labour 77 * $1500 115.5
    Prod. O/head:
    Variable 77 * $400 30.8
    Fixed 30.0
    other o/head 40.0
    Total 370.3

    My question is how do you explain the $2000 and $1500 for direct material and direct labour respectively and is there is shorter way that the answer could be arrived at given time constraints in an exam.

    • Since at 60%, the materials are $120,000 then at 1% they must be 120,000/60 = $2,000. (It’s the same for 70% and 80% since it is a variable cost.
      Same for labour – since 60% is $90,000 then 1% is 90,000/60 = $1,500.

      No – there is not a quicker way.

  8. Hi Sir John,
    Can you please tell me why did you add 100 increase in inventory, while making a production budget? In the question it says inventory for finished good (which im assuming is ready to sell) so then why would we need to take this under production budget if it has already been produced and is under finished goods heading?

    • I assume that you are meaning about Product X.

      500 inventory have already been produced (the opening inventory) but we are budgeting on the inventory increasing to 600 by the end of the year (the closing inventory). So……in addition to producing the 2000 that we intend to sell, we also need to produce an extra 100 in order for the inventory to increase.

      (Or, if it more obvious for you – for the 2000 we budget on selling, 500 are already in inventory and so we only need to produce 1500. But that would mean there would be no inventory left at the end of the year. So we also need to produce another 600 in order to have the closing inventory – total production is again 2100)

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