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Holly Ltd manufactures two types of sliders ‘comfort’ and ‘standard’ - Leaving Cert Accounting - Question 9 - 2021
Question 9
Holly Ltd manufactures two types of sliders ‘comfort’ and ‘standard’. The sales of each type of slider and other relevant information for the coming year are budgete... show full transcript
Worked Solution & Example Answer:Holly Ltd manufactures two types of sliders ‘comfort’ and ‘standard’ - Leaving Cert Accounting - Question 9 - 2021
Step 1
Prepare a sales budget in units and in €.
Answer
To create the sales budget for the comfort and standard sliders, use the following calculations:
Budgeted Sales in Units:
- Comfort: 5,600 units
- Standard: 4,400 units
Expected Selling Price:
- Comfort: €25
- Standard: €18
Sales Revenue Calculation:
- Comfort Sales: 5,600 units × €25 = €140,000
- Standard Sales: 4,400 units × €18 = €79,200
Total Sales Revenue: Total Sales = €140,000 + €79,200 = €219,200
Step 2
Prepare a production budget in units.
Answer
To determine the production budget for both types of sliders, follow these steps:
Budgeted Production Calculation:
-
For Comfort:
- Budgeted Sales: 5,600
- Add: Budgeted Closing Stock: 610
- Less: Budgeted Opening Stock: 740
- Budgeted Production = 5,600 + 610 - 740 = 5,470 units
-
For Standard:
- Budgeted Sales: 4,400
- Add: Budgeted Closing Stock: 380
- Less: Budgeted Opening Stock: 530
- Budgeted Production = 4,400 + 380 - 530 = 4,250 units
Step 3
Prepare a material usage budget in units.
Answer
The material usage budget for both types of sliders can be calculated as follows:
Material Usage Calculation:
-
For Comfort:
- Budgeted Production: 5,470 units
- Material per unit: 9 grams
- Total Material Needed = 5,470 × 9 = 49,230 grams
-
For Standard:
- Budgeted Production: 4,250 units
- Material per unit: 6 grams
- Total Material Needed = 4,250 × 6 = 25,500 grams
Step 4
Prepare a material purchases budget in units and €.
Answer
To create the material purchases budget for the raw materials, follow these calculations:
Material Purchases Calculation:
-
For Material A:
- Budgeted Usage: 74,760 grams
- Add: Budgeted Closing Stock: 220 grams
- Less: Budgeted Opening Stock: 190 grams
- Total Material Purchases = 74,760 + 220 - 190 = 74,790 grams
- Expected Purchase Price = €2 per gram
- Total Cost = 74,790 × €2 = €149,580
-
For Material B:
- Budgeted Usage: 55,520 grams
- Add: Budgeted Closing Stock: 420 grams
- Less: Budgeted Opening Stock: 360 grams
- Total Material Purchases = 55,520 + 420 - 360 = 55,580 grams
- Expected Purchase Price = €2 per gram
- Total Cost = 55,580 × €2 = €111,160
Step 5
Prepare a labour (wages) budget.
Answer
To prepare the labour budget, perform the following calculations:
Labour Budget Calculation:
-
For Comfort:
- Budgeted Production: 5,470 units
- Labour time per unit: 5 hours
- Total Hours = 5,470 × 5 = 27,350 hours
- Labour Rate per hour = €10
- Labour Cost = 27,350 × €10 = €273,500
-
For Standard:
- Budgeted Production: 4,250 units
- Labour time per unit: 4 hours
- Total Hours = 4,250 × 4 = 17,000 hours
- Labour Rate per hour = €10
- Labour Cost = 17,000 × €10 = €170,000
Total Labour Cost: Total Labour Cost = €273,500 + €170,000 = €443,500
Step 6
Why would Holly Ltd prepare a material usage budget?
Answer
Holly Ltd would prepare a material usage budget to accurately forecast the raw materials needed for production. This budget aids in planning and ensures the company maintains sufficient stock levels while minimizing excess inventory. Additionally, it assists in cost management and supports financial planning by aligning material requirements with anticipated sales and production levels.