Apex Ltd manufacturers’ one standard product, the standard marginal cost of which is as follows: (RM) Direct material 10.00 Direct wages 7.50 Variable production overhead 1.25 ______ 18.75 ====== The budget for the year includes the following: Output (units) 80,000 (RM) Fixed overhead: Production 1,000,000 Administration 600,000 Marketing 500,000 Contribution Margin 2,500,000 Management, in considering this budget for the coming year, is dissatisfied with the results likely to arise. A board meeting held recently discussed possible strategies to improve the situation and the following ideas were proposed: Compile a forecast profit statement for the year for each of the proposals given and comment briefly on each. The production director suggested that the selling price of the product should be reduced by 10%. This, he feels, could increase the output and sales by 25%. It is estimated that fixed production overhead would increase by RM50,000 and fixed marketing overhead by RM25,000. The finance director suggested that the selling price should be increased by 10%. It is estimated that if the current advertising expenditure of RM100,000 were to be increased by RM400,000, sales could be increased to 90,000 units. Fixed production overhead would increase by RM25,000 and marketing overhead by RM20,000. The managing director seeks a profit of RM600,000. He asks what selling price is required to achieve this if it is estimated that: An increase in advertising expenditure of RM360,000 would result in a 10% increase in sales, and fixed production overhead would increase by RM25,000 and marketing overhead by RM17,000. The marketing director suggested that with an appropriate increase in advertising expenditure sales could be increased by 20% and a profit on turnover of 15% obtained. It is estimated that in this circumstance fixed production overhead would increase by RM40,000 and marketing overhead by RM25,000. What additional expenditure on advertising would be made to achieve these results?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Apex Ltd manufacturers’ one standard product, the
(RM)
Direct material 10.00
Direct wages 7.50
Variable production
______
18.75
======
The budget for the year includes the following:
Output (units) 80,000
(RM)
Fixed overhead:
Production 1,000,000
Administration 600,000
Marketing 500,000
Contribution Margin 2,500,000
Management, in considering this budget for the coming year, is dissatisfied with the results likely to arise. A board meeting held recently discussed possible strategies to improve the situation and the following ideas were proposed:
Compile a
- The production director suggested that the selling price of the product should be reduced by 10%. This, he feels, could increase the output and sales by 25%. It is estimated that fixed production overhead would increase by RM50,000 and fixed marketing overhead by RM25,000.
- The finance director suggested that the selling price should be increased by 10%. It is estimated that if the current advertising expenditure of RM100,000 were to be increased by RM400,000, sales could be increased to 90,000 units. Fixed production overhead would increase by RM25,000 and marketing overhead by RM20,000.
- The managing director seeks a profit of RM600,000. He asks what selling price is required to achieve this if it is estimated that: An increase in advertising expenditure of RM360,000 would result in a 10% increase in sales, and fixed production overhead would increase by RM25,000 and marketing overhead by RM17,000.
- The marketing director suggested that with an appropriate increase in advertising expenditure sales could be increased by 20% and a profit on turnover of 15% obtained. It is estimated that in this circumstance fixed production overhead would increase by RM40,000 and marketing overhead by RM25,000. What additional expenditure on advertising would be made to achieve these results?
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