ACCA PM · Guided practice (Show me how)
Chapter 11: Budgeting
Functional budgets, then a flexed budget
Part 1. The XYZ company produces three products, X, Y and Z. For the coming accounting period budgets are to be prepared using the following information.
Budgeted sales: Product X 2,000 units at $100 each; Product Y 4,000 units at $130 each; Product Z 3,000 units at $150 each.
| Standard usage of raw material | Wood (kg per unit) | Varnish (litres per unit) |
|---|---|---|
| Product X | 5 | 2 |
| Product Y | 3 | 2 |
| Product Z | 2 | 1 |
| Standard cost of raw material | $8 | $4 |
| Inventories of finished goods | X | Y | Z |
|---|---|---|---|
| Opening | 500u | 800u | 700u |
| Closing | 600u | 1,000u | 800u |
| Inventories of raw materials | Wood (kg) | Varnish (litres) |
|---|---|---|
| Opening | 21,000 | 10,000 |
| Closing | 18,000 | 9,000 |
Labour: standard hours per unit X 4, Y 6, Z 8. Labour is paid at the rate of $3 per hour.
Part 2. A company has prepared the following fixed budget for the coming year: sales 10,000 units; production 10,000 units.
| Direct materials | 50,000 |
| Direct labour | 25,000 |
| Variable overheads | 12,500 |
| Fixed overheads | 10,000 |
| 97,500 |
Budgeted selling price $10 per unit. At the end of the year, the following costs had been incurred for the actual production of 12,000 units:
| Direct materials | 60,000 |
| Direct labour | 28,500 |
| Variable overheads | 15,000 |
| Fixed overheads | 11,000 |
| 114,500 |
The actual sales were 12,000 units for $122,000. Use a marginal costing approach. Sign convention for variances: favourable = positive, adverse = negative.
(a) and (b) Sales and production
Prepare the XYZ company's sales budget in value and production budget in units for each product for the coming accounting period.
(c) and (d) Materials
Prepare the XYZ company's material usage and purchases budgets in quantities and value for the coming accounting period.
(e) Labour
Prepare the XYZ company's labour budget in hours and value for the coming accounting period.
Part 2: the flexed budget
Prepare the company's flexed budget for the actual annual activity.
Part 2: the statement
Prepare the company's operating statement reconciling original budget contribution to actual annual profit.
Opening this exercise…