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1- (i) Production Budget:- Closing Stock Products 20% Month Sales Forecast Closing Stock December -- 6,400 January 32,000 6,000 February 30,000 6,200 March 31,000 5,600 April 28,000 5,200 May 26,000 5,400 June 27,000 5,800 July 29,000 4,800 August 24,000 -- Jan. Feb. March April May June Total July Closing Stock Required 6,000 6,200 5,600 5,200 5,400 5,800 5,800 4,800 (+)Sales Forecast 32,000 30,000 31,000 28,000 26,000 27,000 174,000 29,000 Total Required 38,000 36,200 36,600 33,200 31,400 32,800 179,800 33,800 (-) Opening Stock (6,400) (6,000) (6,200) (5,600) (5,200) (5,400) (6,400) (5,800) Produce 31,600 30,200 30,400 27,600 26,200 27,400 173,400 28,000 (ii) Material Usage Budget:- Jan. Feb. March April May June Total July Budgeted Production 31,600 30,200 30,400 27,600 26,200 27,400 173,400 28,000 Unit Content 8 8 8 8 8 8 8 8 Material Required 252,800 241,600 243,200 220,800 209,600 219,200 1,387,200 224,000 (iii) Material Purchase Budget: Closing Stock Material 25% Month Sales Forecast Closing Stock December -- 63,200 January 252,800 60,400 February 241,600 60,800 March 243,200 55,200 April 220,800 52,400 May 209,600 54,800 June 219,200 56,000 July 224,000 -- Jan. Feb. March April May June Total Closing Stock Required 60,400 60,800 55,200 52,400 54,800 56,000 56,000 (+) Production Required 252,800 241,600 243,200 220,800 209,600 219,200 1,387,200 Total Required 313,200 302,400 298,400 273,200 264,400 275,200 1,443,200 (-) Opening Stock (63,200) (60,400) (60,800) (55,200) (52,400) (54,800) (63,200) Purchases 250,000 242,000 237,600 218,000 212,000 220,400 1,380,000 Purchase Price/kg 6 6 6 6 6 6 6 Purchases Cost 1,500,000 1,452,000 1,425,600 1,308,000 1,272,000 1,322,400 8,280,000 (iv) Direct Labor Budget: Jan. Feb. March April May June Total Budgeted Production 31,600 30,200 30,400 27,600 26,200 27,400 173,400 Labor Content/unit 4 4 4 4 4 4 4 Budgeted DLHs 126,400 120,800 121,600 110,400 104,800 109,600 693,600 Rate per Hour 6 6 6 6 6 6 6 Direct Labor Cost 758,400 724,800 729,600 662,400 628,800 657,600 4,161,600 (v) Variable Production Overhead Budget According to Direct Labor Hours: Jan. Feb. March April May June Total Budgeted DLHs 126,400 120,800 121,600 110,400 104,800 109,600 693,600 V. Prod. Rate/Hour 4 4 4 4 4 4 4 V. Prod. OH Cost 505,600 483,200 486,400 441,600 419,200 438,400 2,774,400 2- Budgeted Fixed Production Overheads Absorption Rate: Budgeted Fixed Production OH = 3,468,000 = 5 Budgeted DLHs 693,600 BAR = Thus, Budgeted Absorption Rate (BAR) = 5 ₤/DLH. 3- Calculation of Budgeted Production Cost, Total Cost & Selling Price/unit: Direct Material 8 Kg * ₤ 6 = 48 Direct Labor 4 hr * ₤ 6 = 24 Variable Production OH 4 hr * ₤ 4 = 16 Fixed Production OH 4 hr * ₤ 5 = 20 Budgeted Production Cost 108 Sales OH 9 Admin. OH 5 Budgeted Total Cost 122 Profit Margin (25%) 30.5 Budgeted Selling Price 152.5 Budgeted Profit & Loss a/c Sales Revenue 174,000 * ₤ 152.5 = 26,535,000 Cost of Production of Sales: Opening Stock of Material 63,200 * ₤ 6 = 379,200 Purchase (Material Purchase Budget) 8,280,000 Total Available 8,659,200 Closing Stock of Material 56,000 * ₤ 6 = (336,000) Cost of Material Used 8,323,200 Direct Labor 4,161,600 Variable Production OH 2,774,400 Fixed Production OH 3,468,000 Total Cost of Production 18,727,200 Opening Stock 6,400 * ₤ 108 = 691,200 Total Available 19,418,400 Closing Stock 5,800 * ₤ 108 = (626,400) Cost of Production of Sales 132,000 * 63 = (18,792,000) Operating Profit 7,743,000 Sales OH 174,000 * ₤ 9 = 1,566,000 Admin. OH 174,000 * ₤ 5 = 870,000 Total Sales & Admin. OH (2,436,000) Profit before Tax & Zakat 5,307,000

Budget Preparation The following information is availed to you by Gumana Ltd, a manufacturing company which is producing and selling a single product, during the month of December, 2006 a time at which the company is in the process of preparing its budget for the 1st half of the year ending 31st December 2007. (1) Sales Forecast Month sales Forecast (unit) January 28000 February 27000 May 29000 April 31000 May 26000 June 25000 July 23000 August 27000 (2) The unit content The production of one unit of the product requires the usage of 6 kilograms of direct material at an estimated purchase price of LS 8 per kilogram and 5 direct labour working hours at an estimated wage rate of LS 6 per direct labour hour. Variable production overheads are charged into the cost of production of the unit produced at the rate of LS 4 per direct labour hour. Fixed production overheads are estimated for the 1st half of the year 2007 at LS 4118750 and are absorbed into the cost of production of the unit produced by an absorption rate calculated on the basis of the budgeted direct labour hours for the period. (3) The company’s polices In respect of the closing stock of finished goods, the company’s policy is to keep on hand at the end of each month a closing stock equivalent to 25% of the sales forecast quantity in the month that follows the month at the end of which the stock is held. As for the direct material closing stock the company’s policy is to keep on hand at the end of each month an equivalent of 20% of the productions’ requirements of the material in the month that follows the month at the end of which the stock in held. These policy requirements will be adhered to by the end of December, 2006. Sales overheads and administration overheads are estimated and charged into the cost of sales at LS 8and LS 5 per unit respectively. The selling price per unit is determined by adding a profit margin of 20 % of the total budgeted cost of the unit to that cost. Required 1- Prepare monthly by month and in total for the 1st half of the year2007 the following. (i) Production budget. (ii) Material usage budget. (iii) Material purchase budget. (iv) Direct labour budget. (v) Variable production overheads budget. 2- Calculate the budgeted fixed production overheads absorption rate. 3- Calculate the production cost, the total cast and the budgeted selling price per unit. 4- Prepare in full details the budgeted profit and loss account as it would appear on 30th June 2007.