Lecture 1

Question 1

What is a master budget?

What is operating budget?

What is finacial budget?

Answer 1

• all smaller budgets combined together

Operating budget = sales, production , matierls and labour

Financial budget = capital budget, cash flow and balance sheet

Question 2

How do you create a master budget? Look at this example
Company produces
10 units of material a @ 1.80
5 units of material b @ 4.00
8 hours of direct labour @3.00
Sales : 9,000
Selling price per unit : 200
Closing finished good stock : 1,870
Opening finished good stock : 170
Clsosing raw material a stock: 10,200
Opening raw matierl a stock : 8,500
Closing Raw matieral b stock : 1,700
Opening raw matierl b stock : 8,000
Variable overhead rate per labour: 80p
Fixed factory overheads : 59,920
Fixed non factory overheads : 70,00

How do you workout sales budget ( how much we are expected to sell) ?

How do we workout production budget? ( how much units are we producing ) ?

How do we workout direct material usage?

First 3 parts then workout the second part.

Answer 2

Master budget ( first 3 parts)
1. Sales budget : 9,000 x 200=1,800,000
Sales x how much per unit

2. Production budget : sales + closing finishing goods STOCKS - opening finishing goods STOCKS
   Sales: 9,000
   Closing finishing goods : 1,870
   Opening finishing goods : 170
   9,000 +1,870- 170 =10,700

3.direct matieral usage
A: 10 units x 10,700= 107,000
B: 5 units x 10,700 = 53,500

Question 3

Master budget part
Using same example : 10 units of material a @ 1.80
5 units of material b @ 4.00
8 hours of direct labour @3.00
Sales : 9,000
Selling price per unit : 200
Closing finished good stock : 1,870
Opening finished good stock : 170
Clsosing raw material a stock: 10,200
Opening raw matierl a stock : 8,500
Closing Raw matieral b stock : 1,700
Opening raw matierl b stock : 8,000
Variable overhead rate per labour: 80p
Fixed factory overheads : 59,920
Fixed non factory overheads : 70,00

Second part :
1. How do you workout material purchases?
2. How do you workout labour ?
3. How do you workout overhead?

Answer 3

4. Matieral purchases : matieral needed for production + closing matieral - opening material x by matierl prices
   A: 107,000 + 10,200-8,500= 108,700 x 1.80 (material a prices ) = 195,660
   B: 53,500 + 1,700- 8,000=47,200 x 4.00 (material b prices ) = 188,800
   195,660 + 188,800=384,460 total matieral purchases
5. Labour : 8 hour labour and labour cost 3.00
   10,700 x 8=85,600 x 3= 256,8000
6. Factory overheads
   0.80p per labour x 85,600 labour hour = 68,480
   Fixed factory overhead is given : 59,920
   68, 480+ 59,920 =128,400

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