Roche Ltd has recently completed its annual sales forecast to December 2009 - Leaving Cert Accounting - Question 9 - 2008

The Raw Materials Purchases Budget requires knowing the quantity of each material needed for production and then adjusting for opening and closing stock. We'll calculate the required for each material:

1. For Material x:

   • Required for Super = 9,520 units x 7 kg = 66,640 kg
   • Required for Supreme = 3,840 units x 5 kg = 19,200 kg
   • Total Required = 66,640 + 19,200 = 85,840 kg
   • Opening Stock = 5000 kg
   • Closing Stock = 80% of (6000kg total from production) = 4800 kg
   • Purchases = Total Required - Opening Stock + Closing Stock = 85,840 - 5000 + 4800 = 87,640 kg
   • Cost = 87,640 kg x €2 = €175,280

2. For Material y:

   • Required for Super = 9,520 units x 6 kg = 57,120 kg
   • Required for Supreme = 3,840 units x 8 kg = 30,720 kg
   • Total Required = 57,120 + 30,720 = 87,840kg
   • Opening Stock = 3000kg
   • Closing Stock = 3840x0.8 = 3072 kg
   • Purchases = Total Required - Opening Stock + Closing Stock = 87,840 - 3000 + 3072 = 87,840 kg
   • Cost = 87,840 kg x €5 = €439,200

Thus, the purchases budget in units and €:

• Material x: 87,640 kg at €175,280
• Material y: 87,840 kg at €439,200

To calculate the Production Cost/Manufacturing Budget, we need to analyze the costs associated with production.

1. Opening stock of raw materials:

   • Material x: 5,000 kg at €2.50 = €12,500
   • Material y: 3,000 kg at €2.40 = €7,200
   • Total opening stock = €12,500 + €7,200 = €19,700

2. Calculate the cost of raw materials consumed:

   • Material x: 66,640 kg at €2 = €133,280
   • Material y: 57,120 kg at €5 = €285,600
   • Total cost = €133,280 + €285,600 = €418,880

3. Calculate the cost of labor:

   • Skilled labor for Super = 9,520 units x 7 hours x €13 = €870,080
   • Skilled labor for Supreme = 3,840 units x 8 hours x €13 = €399,360
   • Total cost = €870,080 + €399,360 = €1,269,440

4. Add variable and fixed overheads:

   • Variable = (total skilled hours x €4) = ((9,520x7 + 3,840x8) x €4) = €812,160
   • Fixed overheads: €204,080
   • Total manufacturing costs = Raw material cost + Labor cost + Variable + Fixed = €418,880 + €1,269,440 + €812,160 + €204,080
   • Thus, total cost = €2,704,560

The Budgeted Trading Account summarizes the expected revenues and costs:

1. Sales of finished goods:

   • Super: 10,000 units x €220 = €2,200,000
   • Supreme: 4,200 units x €260 = €1,092,000
   • Total sales = €2,200,000 + €1,092,000 = €3,292,000

2. Opening stock of finished goods:

   • Super: €120 x 600 = €72,000
   • Supreme: €140 x 450 = €63,000
   • Total opening stock = €72,000 + €63,000 = €135,000

3. Less Cost of Manufacture = €2,704,560

4. Less Closing Stock of Finished Goods = (480 units x €120) + (360 units x €140)

   • Super: €57,600
   • Supreme: €50,400
   • Total Closing Stock = €57,600 + €50,400 = €108,000

5. Gross Profit = Total Sales - Total Cost + Total Opening Stock - Total Closing Stock

   • Gross Profit = €3,292,000 - €2,704,560 + €135,000 - €108,000 = €882,440

A Capital Budget is a financial plan that outlines an organization’s expected investment in fixed assets over a specific period, typically including projects like new equipment, infrastructure improvements, or technology upgrades. It serves as a critical tool in the decision-making process for capital expenditures, ensuring that resources are allocated efficiently and align with the organization's strategic goals. It also involves evaluating potential returns on investments, assessing risks, and aligning project outcomes with long-term objectives.

The Principal Budget Factor is the main constraint impacting the overall budget. While sales demand is often seen as the primary factor, other considerations may include the availability of materials, financial resources, or production capacity. Organizations must assess these factors to create an effective budget that aligns with operational capabilities and market conditions.