obin has the following budgeted data for the forthcoming month: Products Sparrow Thrush Magpie 000s 000s 000s Sales and production (units) 50 40 30 £ £ £ Selling price (per unit) 45 95 73 Direct material and labour 32 84 65 Hours Hours Hours Machining (machine hours) 2 5 4 Assembly (direct labour hours per unit) 7 3 2 Overheads allocated and apportioned to production departments are normally recovered in product costs at £1.20/machine hour in the machining department and £0.825/direct labour hour in the assembly department. You ascertain that the above overheads could be reanalysed as follows: £000s Cost driver Quantity in month Machine services Assembly services Set-up costs Order processing Purchasing 357 318 26 156 84 941 Machine hours Direct labour hours Set-ups Customer orders Supplier orders 520 32,000 11,200 You have also been provided with the following estimates for next month: Sparrow Thrush Magpie Number of set-ups Customer orders Supplier orders 120 8,000 3,000 200 8,000 4,000 200 16,000 4,200 (a) Calculate the profit each product is expected to make, both per item and in total, under the current (traditional) absorption costing system. (b) Calculate the profit made on each product, per item and in total, using an activity based costing system. (c) Comment on the results, suggesting any possible action, and discussing any reservations in your recommendations.
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.
Robin has the following budgeted data for the forthcoming month:
|
|
Products |
||
|
|
Sparrow |
Thrush |
Magpie |
|
|
000s |
000s |
000s |
|
Sales and production (units) |
50 |
40 |
30 |
|
|
|
|
|
|
|
£ |
£ |
£ |
|
Selling price (per unit) |
45 |
95 |
73 |
|
Direct material and labour |
32 |
84 |
65 |
|
|
|
|
|
|
|
Hours |
Hours |
Hours |
|
Machining (machine hours) |
2 |
5 |
4 |
|
Assembly (direct labour hours per unit) |
7 |
3 |
2 |
You ascertain that the above overheads could be reanalysed as follows:
|
|
£000s |
Cost driver |
Quantity in month |
|
Machine services Assembly services Set-up costs Order processing Purchasing |
357 318 26 156 84 941 |
Machine hours Direct labour hours Set-ups Customer orders Supplier orders |
520 32,000 11,200 |
You have also been provided with the following estimates for next month:
|
|
Sparrow |
Thrush |
Magpie |
|
Number of set-ups Customer orders Supplier orders |
120 8,000 3,000 |
200 8,000 4,000 |
200 16,000 4,200 |
(a) Calculate the profit each product is expected to make, both per item and in total, under the current (traditional) absorption costing system.
(b) Calculate the profit made on each product, per item and in total, using an activity based costing system.
(c) Comment on the results, suggesting any possible action, and discussing any reservations in your recommendations.
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