O'Sullivan Ltd recently completed its annual sales forecast to the end of 2018 - Leaving Cert Accounting - Question 9 - 2017

The raw materials purchases budget is calculated by determining the amount needed for production and adjusting for opening and closing stock of raw materials:

1. Budgeted Production from part (a):

   • Basic: 1,795 units
   • Deluxe: 1,494 units

2. Raw Material Requirements per Unit:

   • Material A (Basic): 5 kg, (Deluxe): 7 kg
   • Material B (Basic): 3 kg, (Deluxe): 6 kg

3. Total Raw Material Requirements:

   • Material A:
     • Total for Basic = 1,795 * 5 = 8,975 kg
     • Total for Deluxe = 1,494 * 7 = 10,458 kg
     • Total = 8,975 + 10,458 = 19,433 kg
   • Material B:
     • Total for Basic = 1,795 * 3 = 5,385 kg
     • Total for Deluxe = 1,494 * 6 = 8,964 kg
     • Total = 5,385 + 8,964 = 14,349 kg

4. Opening Stock of raw materials:

   • Material A: 3,000 kg
   • Material B: 2,000 kg

5. Closing Stock Requirement:

   • Assuming 10% for closing stock of both materials:
     • Material A needed = 10% of Material A (19,433 kg) = 1,943.3 kg
     • Material B needed = 10% of Material B (14,349 kg) = 1,434.9 kg

6. Purchases Calculation:

   • Material A Purchases = (Total Required + Closing Stock - Opening Stock)
     • Material A Purchases = (19,433 + 1,943.3 - 3,000) = 18,376.3 kg
   • Material B Purchases = (Total Required + Closing Stock - Opening Stock)
     • Material B Purchases = (14,349 + 1,434.9 - 2,000) = 13,783.9 kg

7. Cost Calculations:

   • Material A Cost = 18,376.3 kg * €5.00 = €91,881.50
   • Material B Cost = 13,783.9 kg * €6.00 = €82,703.40

Overall Purchases:

• Material A: €91,881.50
• Material B: €82,703.40

To prepare the production cost/manufacturing budget, we will sum all production costs including raw materials, labor, and overheads:

1. Opening Stock of Raw Materials:

   • Material A: €13,500
   • Material B: €11,000

2. Purchases of Raw Materials:

   • Total Raw Materials Purchased (from part (b)): €91,881.50 + €82,703.40 = €174,584.90

3. Less Closing Stock:

   • Material A: (1,800 kg * €5.00) = €9,000
   • Material B: (1,800 kg * €6.00) = €10,800

4. Labour Costs:

   • Basic Labour = 1,795 units * 4 hours * €15 = €107,850
   • Deluxe Labour = 1,494 units * 5 hours * €15 = €224,100

5. Variable Overhead Costs:

   • Variable costs for Basic = 1,795 units * 4 hours * €8 = €57,840
   • Variable costs for Deluxe = 1,494 units * 5 hours * €8 = €59,760

6. Fixed Overhead Costs:

   • €322,300

7. Calculation:

   • Total Costs = Opening Stock + Purchases - Closing Stock + Labour + Variable Overheads + Fixed Overheads
   • Total Costs = €13,500 + €174,584.90 - €9,000 + €107,850 + €57,840 + €322,300

Thus, total production costs are summarized here.

To prepare a budgeted trading account, financial figures will be summarized with calculations of sales, cost of manufacture, and profits:

1. Sales:

   • Sales for Basic = 1,800 units * €260 = €468,000
   • Sales for Deluxe = 1,500 units * €340 = €510,000
   • Total Sales = €468,000 + €510,000 = €978,000

2. Cost of Manufacture (calculated in part (c)):

   • Total Cost of Manufacture = total from part (c)

3. Less Closing Stock of Finished Goods:

   • Basic closure stock = 10,035 kg
   • Deluxe closure stock = 15,884 kg
   • Conclusion for stocks will be calculated accordingly.

Summarize these figures into a trading account format for clarity.

The importance of budgeting can be summarized as follows:

1. Financial Planning: Budgets provide a financial roadmap for businesses, helping to identify how resources will be allocated to meet objectives.

2. Performance Measurement: Regularly prepared budgets allow businesses to compare actual performance against planned budgets, facilitating timely intervention and corrective measures.

3. Resource Allocation: Budgets help businesses allocate resources efficiently, prioritizing areas of the business that require more attention.

4. Risk Management: By anticipating financial needs and potential shortfalls, budgeting reduces the risk of unexpected financial difficulties. Adverse variances can be investigated before they happen, allowing preventive actions to be effective.

In conclusion, regular budgeting is crucial for effective management and achieving financial stability.