Omicron plc prepares financial statements to 31 December each year. On 1 January 2021, Omicron plc entered into a contract with a customer to sell Product X for £10 per unit. If the customer purchases more than 10,000 units of Product X in a calendar year, the contract specifies that the price per unit is retrospectively reduced to £9 per unit. For the quarter ended 31 March 2021, Omicron plc sells 1,500 units of Product X to the customer and based on this volume of purchases, Omicron plc consider that it is highly probable that the customer’s purchases will not exceed the 10,000-unit threshold required for the volume discount in the calendar year. In May 2021, Omicron plc’s customer acquires another company and, in the quarter, ended 30 June 2021, Omicron plc sells an additional 7,000 units of Product X to the customer. In the light of the new fact, Omicron plc estimates that the customer’s purchases will exceed the 10,000- unit threshold for the calendar year. Required Explain the correct treatment for the two transactions and show the necessary journal entries.
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.
Omicron plc prepares financial statements to 31 December each year. On 1 January 2021, Omicron plc entered into a contract with a customer to sell Product X for £10 per unit. If the customer purchases more than 10,000 units of Product X in a calendar year, the contract specifies that the price per unit is retrospectively reduced to £9 per unit. For the quarter ended 31 March 2021, Omicron plc sells 1,500 units of Product X to the customer and based on this volume of purchases, Omicron plc consider that it is highly probable that the customer’s purchases will not exceed the 10,000-unit threshold required for the volume discount in the calendar year. In May 2021, Omicron plc’s customer acquires another company and, in the quarter, ended 30 June 2021, Omicron plc sells an additional 7,000 units of Product X to the customer. In the light of the new fact, Omicron plc estimates that the customer’s purchases will exceed the 10,000- unit threshold for the calendar year.
Required
Explain the correct treatment for the two transactions and show the necessary
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