Q 1. From the following information relating to the previous year 2010 and conditions expected to prevail in the next year, prepare a budget for the next year 2011:
Last year 2010 actuals
Sales $100,000
(40,000 units)
Raw materials 53,000
Wages 11,000
Variable overheads 16,000
Fixed overheads 10,000
Next year 2011 prospects
Sales $150,000
(60,000 units)
Raw materials 5% price increase
Wages
10% increase in wage rates
5% increase in productivity
Additional plants, one lathe $25,000 and one drill $12,000.Charge depreciation at the rate of 20% on additional plant.
Solution
Budgeted income statement for the year 2011
Saes revenue
Less cost of goods sold:
Raw materials($53,000*60,000/40,000 *105/100)
Wages ($11,000*60,000/40,000 *110/100 *95/100)
Variable overheads ($16,000*60,000/40,000 *95/100)
Fixed overheads
Add depreciation
Lathe ($25,000*20%)
Drill ($12,000* 20%)
Budgeted profit
Note: Due to increase in productivity, expenses incurred on wage bill and variable overheads will be reduced by 5%.
It is assumed that variable overheads are spent in relation to actual hours worked.
Q 2. A glass manufacturing company requires you to calculate and present the budget income statement for the year from the following information:
Sales:
Toughened glass
Bent toughened glass
Direct material cost
Direct wages of 20 workers at the rate of $150 per month.
Factory overhead:
Works manager
Foreman
Stores and spares
Depreciation on machinery
Light and power
Repairs and maintenance
Other sundries
