Page 139 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes

Task Mr. X Co. Ltd. manufactures two different products X and Y. X forecast of the
number of units to be sold in first seven months of the year is given below:

Months Product X Product Y
Jan. 1,000 2,800
Feb. 1,200 2,800
Mar. 1,600 2,400
Apr. 2,000 2,000
May 2,400 1,600
June 2,400 1,600
July 2,000 1,800
It is expected that (a) there will be no work in progress at the end of every month,
(b) fi nished units equal to half the sales for the next month will be in stock at the end of
each month (including the previous December).
Budgeted production and production costs for the whole year are as follows:

Product X Product Y
Production in Units
22,000 24,000
Per unit (`) Direct Material 10.00 15.00
Direct Labour 5.00 10.00
Total factory overhead apportioned 88,000 72,000

7.2.2 Materials/Purchase Budget

This budget takes place only after identifying the number of finished products expected to

produce to the tune of production budget, in meeting the needs and demands of the customers
and consumers during the season.
In order to produce to the tune of production budget to meet the market demands, the raw
materials for the production should be maintained sufficient to supply them without any

interruption. To have uninterrupted flow of production, the firm should go for the immediate
procurement of raw materials through the multiplication of raw material required to produce for
a single product with number of units expected to produce.
!
Caution Why the stock of raw materials is deducted from the expected volume of materials
procured for production to the tune of production budget?
If there is any existing stock of raw materials, i.e. opening stock of raw materials available
from the yester seasons or years should be deducted from the volume of materials required
for production to be ordered and placed. The remaining volume should be the volume to
be ordered for production.

Example: The sales manager of the MR Ltd. reports that next year he anticipates to sell
50,000 units of a particular product.

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