Budgeting

For M, opening inventory is 3,000, sales are 48,000, and closing inventory is 8,000 So production is 53,000. Thie required 53,000 x 3 = 159,000 kg of X For X, opening inventory is 5,000, closing inventory is 12,000. So purchases are 166,000 kg

Sir please I don't understand how you get 12 000

For X, the closing inventory is enough for 1 months production. On average production is 48000/12 = 4.000 units. At 3 kg per unit, this is 12,000 kg

thanks sir

You are welcome :-)

I have question, could you please help me understand X Ltd manufactures a product called The "SP" The original budget for next year was: Annual Sales: 10.000 units selling price $20, Variable cost $14 Fixed cost $3 If the selling price of the "SP" were reduced by 10% the sale revenue that would be needed to generate the original budgeted profit would be: Could you please explain how to do it. Thank you in advance

Total fixed costs are 30000, and they will stay the same however many we sell. So it is the total contribution that we have to keep the same. Current budget contribution is 10000 x (20 - 14) = $60,000 New selling price is 20 - 10% = 18 per unit, so new contribution per unit is 18 - 14 = $4. So to get 60000 contribution we need to sell 60000/4 = 15000 units. The selling price is $18 per unit, so now you have it :-)

Once again thank you. I have another question about budgeting....maby is something I don't understand ......if we have find a actual profit in a standard marginal costing system there is no fixed overhead valume variancy. There will be a fixed overhead expenditure variance so why in below example the answer is $488030? The management accountant has calculated following variances for the last accounting period: Total sales margin variances $11245(F), Material usage variance $6025 (F), Labour rate variance $3100 (A), Fixed overhead valume variance $5075 (F), Fixed overhead expenditure variance $3800 (A), Variable overhead expenditure variance $2415 (A). Budget profit was $475 000. The actual profit is.....$488030. I would like to mention that at the beginning that question was not any information if is under absorbing or marginal. I just found out by first variance "Total sales margin variance" I calulated that: $475000+$11245+$6025-$3100-$3800- $2415=$482955. Where I made a mistake? Thank you very much for your help.

The answer has assumed that it is absorption costing and so they have added the fixed overhead volume variance. I understand your logic. However, they should not have referred to a 'sales margin variance' - it is not a standard term, and does not mean automatically that it is marginal costing. The correct name for it is either 'sales volume contribution variance' (in which case it is marginal costing) or 'sales volume profit variance' in which case it is absorption costing. (I hope it was not one of the OpenTuition questions - if it was then I need to correct it :-) )

This question was not one of the OpenTuition questions. So, now I know how to do it. Thank you for your help.Regards

You are welcome :-)

Dear John, This one other overhead how should I calculate to get $120,000? level of activity 70% 80% 90% $ DM 38388 43872 49356 DL 69720 79680 89640 Prod. overhead 90720 92880 95040 Other overh. 72000 72000 72000 What would be total cost in a budget that is flexed at the 55%level of activity? DM 38388:70*50 = 30162,DL=54780 ,Prod over. (high-low method) - var.cost 11880, fixed - 75600 and how calculate other overhead ? Thank you for your help Regards

Other overheads are clearly fixed at 72,000 whatever the level of activity.

Dear John Sir, i have a doubt as to Flexed Budget Overhead cost. When all the figures like Material, Labour etc are flexed to new level of activity why is Fixed Overheads kept the same ? in the new activity since its absorption costing even the new additional units will absorb more amount of overheads so it should be accordingly adjusted. kindly clarify Thanks

By definition, fixed overheads do not change with the level of activity, and so when we flex the budget we keep the fixed overheads constant. That is why absorption costing has a problem - more production does mean more overheads are absorbed, so we then need to adjust because of the over or under absorption.

Dear John Sir, You are really fantastic. Thanks again Amit

You are welcome :-)