Caselet : David Ltd -Budgeting- Preparation of Master budget
David Ltd. has specialised in the manufacture of three kinds of sub-assemblies required by the manufactu
assemblies is in the ratio of 1:2:4 for sub-assemblies P, Q and R respectively. The following informaton are avail
1. The sub-assemblies consist of the following components:
Sub Assembly Requirements of Component
Price Frame Part X Part Y Part Z
P 430 1 10 2 8
Q 500 1 2 14 10
R 600 1 6 10 2
2. Purchase Price 40 16 10 6
3. Direct labour hours required and variable overheadsv for the manufacture of each of the sub-assemblies are:
Sub Assembly Skilled Hr. Unskilled Hr. Var. OH $
P 4 4 10
Q 3 4 8
R 3 6 7
4. Wage rate per hour ($) 6 5
5. The labourers work for 8 hours a day for 25 days a month.
6. Variable overheads per sub-assembly are P $10, Q $8, R $7 as stated above
7. The estimates of ‘opening stocks of sub-assemblies and components for the
Sub Assemlies Components
P 600 Framess 2,000
Q 1,400 X 800
R 3,200 Y 20,000
Z 8,000
8. Fixed overheads budget per month is as under which are incurred evenly throughout the year
USD
Production 1,580,000
Selling & Distribution 728,000
Administration 676,000
Total 2,984,000
The target of profit for the current year is $12 million before tax. The company has a plan to reduce the closing
assemblies and components by 10% as compared to the opening stock.
Assignment Questions:
Required
Prepare the following budgets for the July 2017:
i) Sales in quantities and value
ii) Production in quantities
iii) Material usage
iv) Material purchase in quantities and value
v) Manpower budget for both categories of labour including wages payable.
Sales Expected Sales = Fixed Cost + Expected Profit/ Co
Expected profit 12 mn
equired by the manufacturers of certain equipment. The current pattern of sales of sub-
owing informaton are available for your to prepare the master budget.
of the sub-assemblies are:
es and components for the month of July 2017 are as under:
ut the year
plan to reduce the closing stock of sub-
xed Cost + Expected Profit/ Contribution
Quantity
P Q R
1 Selling Price
A Material
Frame 1 1 1
Part X 10 2 6
Part Y 2 14 10
Part Z 8 10 2
B Labor
Skilled Hr. 4 3 3
Unskilled Hr. 4 4 6
C Variable Overheads
Variable Cost of sub assemblies
Contribution per sub assembly
Proportion wise contribution 1 2 4
D Expected Profit & Fixed Costs
Expected profit
Production
Selling & Distribution
Administration
Total Fixed cost & Expected Profit
Expected Sales of Equipment 2,400 4,800 9,600
2 Production
Sales 2,400 4,800 9,600
Opening Stock 600 1,400 3,200
Closing Stock 90% 540 1,260 2,880
Production 2,340 4,660 9,280
3&4 Material Requirement Budget
Production 2,340 4,660 9,280
Frame 2,340 4,660 9,280 16,280
Part X 23,400 9,320 55,680 88,400
Part Y 4,680 65,240 92,800 162,720
Part Z 18,720 46,600 18,560 83,880
Opening Stock
Frame 2,000
Part X 800
Part Y 20,000
Part Z 8,000
Closing Stock 90%
Frame 1,800
Part X 720
Part Y 18,000
Part Z 7,200
Material Purchase Requirement
Frame 16,080
Part X 88,320
Part Y 160,720
Part Z 83,080
5 Labour
Production 2340 4660 9280
Skilled Hr. 4 3 3
Unskilled Hr. 4 4 6
Skilled Hr. 9360 13980 27840 51180
Unskilled Hr. 9360 18640 55680 83680
Workers 6398
10460
256
418
Cost per Unit Amount
P Q R Total
430 500 600 3830
40 40 40 40
16 160 32 96
10 20 140 100
6 48 60 12
268 272 248
6 24 18 18
5 20 20 30
44 38 48
10 8 7
322 318 303
108 182 297
108 364 1188 1660
1000000
1580000 Expected Sales
728000
676000
3,984,000
2,400 9,192,000
40 643,200
16 1,413,120
10 1,607,200
6 498,480
4,162,000
6 56160 83880 167040 307080
5 46800 93200 278400 418400
725480
Expected Sales = Fixed Cost + Expected Profit
Contribution per unit
= 2984000 + 1000000
1660
= 3984000
1660
= 2400
P 1 2400
Q 2 4800
R 4 9600
