Question 2 (a)
Production, material requirement and material purchase budgets
15 marks
- Time to write
- About 30 minutes
- Topic
- Functional budgets
Question
Question 2 (a) · 15 marksKaveri Engineering Ltd. makes two products, P1 and P2, from raw materials A, B, C and D used in these proportions:
In Product P1, raw materials A and B are used in the ratio 4:1.
In Product P2, raw materials C and D are used in equal proportions.
For product P1 and P2, the finished weight are equal in the weight of their ingredients.
For the month of January, 2020, 60 tons of P1 and 200 tons of P2 are expected to be sold.
For the month of January, 2020, the actual and budgeted inventories are:
| Material | Actual Inventory on 01-01-2020 | Budgeted inventory on 31-01-2020 |
|---|---|---|
| A | 15 tons | 24 tons |
| B | 10 tons | 36 tons |
| C | 200 tons | 310 tons |
| D | 240 tons | 200 tons |
| Product P1 | 10 tons | 5 tons |
| Product P2 | 40 tons | 60 tons |
The expected purchase price of material for January, 2020 is:
| Material | Rs |
|---|---|
| A | 520 |
| B | 420 |
| C | 110 |
| D | 200 |
All materials will be bought when January begins.
You are required to prepare:
The production budget for January.
The material requirement budget for the month of January.
The materials purchase budget for January, indicating the expenditure on materials.
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- (i)–(iii)3 items, each marked on its own: give each its share.
- prepare : (i) The production budgetDraw the format first (heading, columns, dates), then fill in the figures from your working.
What the paper leaves open
As printed, the finished weight of the two products "are equal in the weight of their ingredients"; read as: each product's finished weight equals the weight of its ingredients.
Write it in this order
- Read the data; tick every adjustment as you plan it 2 min
- 1 Production budget 4 marks 7 min
- 2 Material requirement budget 4 marks 7 min
- 3 Material purchase budget and expenditure 7 marks 12 min
- Check: every adjustment used, both sides agree, dates in 2 min
Try it first. About 30 minutes for 15 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
(i) Production budget for January (tons)
| Particulars | P1 | P2 |
|---|---|---|
| Budgeted sales | 60 | 200 |
| Add: Budgeted closing stock (31-01-2020) | 5 | 60 |
| Total required | 65 | 260 |
| Less: Opening stock (01-01-2020) | 10 | 40 |
| Production | 55 | 220 |
(ii) Material requirement budget for January (tons)
P1 uses A and B in the ratio 4: 1, and P2 uses C and D equally; the finished weight equals the weight of the ingredients.
| Material | Basis | Quantity required (tons) |
|---|---|---|
| A | 4/5 of 55 tons of P1 | 44 |
| B | 1/5 of 55 tons of P1 | 11 |
| C | 1/2 of 220 tons of P2 | 110 |
| D | 1/2 of 220 tons of P2 | 110 |
| Total | 275 |
(iii) Material purchase budget for January
| Particulars | A | B | C | D |
|---|---|---|---|---|
| Material required for production (tons) | 44 | 11 | 110 | 110 |
| Add: Budgeted closing stock (tons) | 24 | 36 | 310 | 200 |
| Total (tons) | 68 | 47 | 420 | 310 |
| Less: Opening stock (tons) | 15 | 10 | 200 | 240 |
| Quantity to be purchased (tons) | 53 | 37 | 220 | 70 |
| Price per ton (₹) | 520 | 420 | 110 | 200 |
| Purchase cost (₹) | 27,560 | 15,540 | 24,200 | 14,000 |
| Summary | ₹ |
|---|---|
| Total expenditure on materials in January | 81,300 |
Where the 15 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Production budget | 4 |
| 2 | Material requirement budget | 4 |
| 3 | Material purchase budget and expenditure | 7 |
| Total | 15 |
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