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Gaelic Ltd manufactures two types of hurling helmets ‘Comfort’ and ‘Wraparound’ - Leaving Cert Accounting - Question 9 - 2015
Question 9
Gaelic Ltd manufactures two types of hurling helmets ‘Comfort’ and ‘Wraparound’. The sales of each type of hurling helmet and other relevant information for the comi... show full transcript
Worked Solution & Example Answer:Gaelic Ltd manufactures two types of hurling helmets ‘Comfort’ and ‘Wraparound’ - Leaving Cert Accounting - Question 9 - 2015
Step 1
Prepare a Sales Budget in units and in €.
Answer
The Sales Budget for each type of helmet can be calculated as follows:
Comfort:
- Budgeted Sales: 4,200 units
- Expected Selling Price: €640
- Total Revenue = Budgeted Sales × Expected Selling Price = 4,200 × €640 = €2,688,000
Wraparound:
- Budgeted Sales: 2,800 units
- Expected Selling Price: €655
- Total Revenue = Budgeted Sales × Expected Selling Price = 2,800 × €655 = €1,834,000
Total Sales Budget = Comfort + Wraparound = €2,688,000 + €1,834,000 = €4,522,000.
Step 2
Prepare a Production Budget.
Answer
The Production Budget is calculated based on the budgeted sales and inventory levels:
Comfort:
- Budgeted Sales: 4,200 units
- Add Closing Stock: 610 units
- Less Opening Stock: 840 units
- Production = 4,200 + 610 - 840 = 3,970 units
Wraparound:
- Budgeted Sales: 2,800 units
- Add Closing Stock: 370 units
- Less Opening Stock: 450 units
- Production = 2,800 + 370 - 450 = 2,720 units.
Step 3
Prepare a Material Usage Budget.
Answer
The Material Usage Budget calculates the amount of materials needed for production:
Comfort:
- Production = 3,970 units
- Usage per unit = 4 grams
- Total Usage = 3,970 × 4 = 15,880 grams
Wraparound:
- Production = 2,720 units
- Usage per unit = 3 grams
- Total Usage = 2,720 × 3 = 8,160 grams.
Step 4
Prepare a Materials Purchases Budget in units and €.
Answer
To prepare the Materials Purchases Budget:
Material A:
- Budgeted Usage: 24,040 grams
- Add Closing Stock: 190 grams
- Less Opening Stock: 130 grams
- Total Purchases Required = 24,040 + 190 - 130 = 24,200 grams
- Purchase Price = €6
- Total Cost = 24,200 × €6 = €145,200.
Material B:
- Budgeted Usage: 30,730 grams
- Add Closing Stock: 320 grams
- Less Opening Stock: 270 grams
- Total Purchases Required = 30,730 + 320 - 270 = 30,780 grams
- Purchase Price = €4
- Total Cost = 30,780 × €4 = €123,120.
Step 5
Prepare a Labour (wages) Budget.
Answer
The Labour Budget is determined based on the number of hours required for production:
Comfort:
- Production Units: 3,970 units
- Hours per unit: 5
- Total Hours Required = 3,970 × 5 = 19,850 hours
- Labour Rate = €8
- Total Labour Cost = 19,850 × €8 = €158,800.
Wraparound:
- Production Units: 2,720 units
- Hours per unit: 7
- Total Hours Required = 2,720 × 7 = 19,040 hours
- Labour Rate = €8
- Total Labour Cost = 19,040 × €8 = €152,320.
Step 6
Why would Gaelic Ltd prepare the Materials Usage Budget?
Answer
A Materials Usage Budget is crucial for understanding the quantity of each material required for production. It allows Gaelic Ltd to effectively plan and make informed decisions regarding:
- Purchasing materials at optimal costs.
- Managing stock levels and ensuring timely availability for production.
- Preparing financial forecasts for cost management and budgeting.