Doherty Ltd manufactures two types of chargers called 'Superior Charger' and 'Standard Charger' - Leaving Cert Accounting - Question 9 - 2019

To prepare the production budget, we apply the following formula:

$ext{Production Required} = ext{Budgeted Sales} + ext{Closing Stock} - ext{Opening Stock}$

1. For Superior Charger:

   • Budgeted Sales: 5,400 units
   • Closing Stock: 570 units
   • Opening Stock: 610 units
   • Production Required: 5,400 + 570 - 610 = 5,360 units

2. For Standard Charger:

   • Budgeted Sales: 2,800 units
   • Closing Stock: 420 units
   • Opening Stock: 530 units
   • Production Required: 2,800 + 420 - 530 = 2,690 units

To calculate the material usage budget, we use:

1. For Material A:

   • Superior Charger: 5,360 units × 5 grams = 26,800 grams
   • Standard Charger: 2,690 units × 3 grams = 8,070 grams
   • Total for Material A: 26,800 + 8,070 = 34,870 grams

2. For Material B:

   • Superior Charger: 5,360 units × 3 grams = 16,080 grams
   • Standard Charger: 2,690 units × 2 grams = 5,380 grams
   • Total for Material B: 16,080 + 5,380 = 21,460 grams

To determine the purchases budget, we calculate:

1. For Material A:

   • Budgeted Usage: 34,870 grams
   • Closing Stock: 320 grams
   • Opening Stock: 260 grams
   • Production Units: 34,870 + 320 - 260 = 34,930 grams
   • Purchase Price: 34,930 grams × €6 = €209,580

2. For Material B:

   • Budgeted Usage: 21,460 grams
   • Closing Stock: 280 grams
   • Opening Stock: 370 grams
   • Production Units: 21,460 + 280 - 370 = 21,370 grams
   • Purchase Price: 21,370 grams × €6 = €128,220

To prepare the labour budget, we determine the total labour cost:

1. For Superior Charger:

   • Budgeted Production: 5,360 units
   • Hours per Unit: 4 hours
   • Total Hours: 5,360 × 4 = 21,440 hours
   • Labour Rate: €12/hour
   • Total Cost: 21,440 × €12 = €257,280

2. For Standard Charger:

   • Budgeted Production: 2,690 units

   • Hours per Unit: 3 hours

   • Total Hours: 2,690 × 3 = 8,070 hours

   • Labour Rate: €12/hour

   • Total Cost: 8,070 × €12 = €96,840

   • Total Labour Cost: €257,280 + €96,840 = €354,120

Doherty Ltd would prepare a labour budget for the following reasons:

1. To determine the total cost of labour for the year, ensuring accurate financial planning.
2. To control and manage labour costs effectively, preventing overspending and optimizing resource allocation.