Accounting budgeting solution

1. NX0474
Seminar 7
Budgeting

2. SALES BUDGET
MADAKI PLC
Sales Budget
January February March April
Forecast sales (units) 2,250 2,050 1,650 2,050
Planned selling price of £220 per unit 495,000 451,000 363,000 451,000
SP x SU
£220 x 2,250 Units

3. PRODUCTION BUDGETS
MADAKI PLC
PRODUCTION BUDGET IN UNITS
December January February March April
Required sales (units) 2,250 2,050 1,650 2,050
Add required closing stock 675 615 495 615 375
2,865 2,545 2,265 2,425
Less opening stock (675.00) (615.00) (495.00) (615.00)
Production requirement 2,190 1,930 1,770 1,810
30% next
month sales
NOTE: The closing stock policy is to ensure that the company has enough production to cover demands from customers
in the early days of the following month, when production is still ongoing. The closing stock becomes opening stock in the
following month.

4. MADAKI PLC
RAW MATERIALS PURCHASES BUDGET
MATERIAL B (kg) December January February March April
kg kg kg kg kg
Required as per production budget 6,570 5,790 5,310 5,430
Add required closing stock 2957 2,606 2,390 2,444 2,012
9,176 8,180 7,754 7,442
Less opening inventory (2,957) (2,606) (2,390) (2,444)
Required material purchases 6,219 5,574 5,364 4,998
Budget value @ £7 per kg 43,533 39,018 37,548 34,986
RAW MATERIAL PURCHASES BUDGET
45% of next
month usage
3kg per
production unit

5. LABOUR COST BUDGET
MADAKI PLC
LABOUR COST BUDGET
January February March April
Required production units 2,190 1,930 1,770 1,810
Grade 1 @ 4 hours per unit (hrs) 8,760 7,720 7,080 7,240
Grade 1 @ £15 per hour (£) 131,400 115,800 106,200 108,600
Grade 2 @ 6 hours per unit (hrs) 13,140 11,580 10,620 10,860
Grade 2 @ £9 per hour (£) 118,260 104,220 95,580 97,740
Total budgeted labour cost (£) 249,660 220,020 201,780 206,340

6. MATERIAL - A
IN SHORT SUPPLY
• If material A is in short supply, the company would need to obtain an alternative
source of supply, a find a substitute material.
• If unable to do both, they would need to use limiting factor analysis to determine the
optimum output level for the available material.
• In this situation, sales will not be the limiting factor and the production budget will
become the key budget factor in the budget preparation process.