Question

Question 5

R Ltd. manufactures three products, A, B and C. The following information is given below.

Sales Forecast

Product   Quantity    Price Per Unit

A              1000            Rs.100

B               2000           Rs.120

C               1500            Rs.140

Materials Used in Company’s Products Are:

Material M1 Rs.4 per unit

Quantities used in Product

Product     M1      M2         M3

A                 4           2          –

B                 3          3           2

C                 2           1            1

Finished Stocks:

Product                                  A       B        C

Opening Inventory- units 1000 1500   500

Closing Inventory- units   1100 1650 550

Material Stocks:

Particulars                       M1      M2         M3

Opening Stock [Units] 26000 20000 12000

Closing Stock [Units] 31200   24000   14400

Required:

(a) The materials usage budget for January 2008. (4 marks)

(b) The materials purchases budget for January 2008. (14 marks)

(c) Define the term “limiting budget factor”. (1 mark)

Answer 1

(a)	First,we need to compute the products to be manufactured in the following manner
	Product			A	B	C
	Sales forecast			1000	2000	1500
	Add: Closing inventory-Finished stocks			1100	1650	550
				2100	3650	2050
	Less: Opening inventory-Finished stocks			1000	1500	500
	Units to be produced			1100	2150	1550
	Now,multiply the units to be produced with the Quantities used in product
	Material Usage Budget
				Units to be produced	M1	M2	M3
	Product
	A			1100	4400	2200
					(1100*4)	(1100*2)
	B			2150	6450	6450	4300
					(2150*3)	(2150*3)	(2150*2)
	C			1550	3100	1550	1550
					(1550*2)	(1550*1)	(1550*1)
	Material to be used for production				13950	10200	5850
(b)	Material Purchase Budget
					M1	M2	M3
	Material to be used for production				13950	10200	5850
	Add: Closing stock-Material stocks				31200	24000	14400
					45150	34200	20250
	Less: Opening stock-material stocks				26000	20000	12000
	Materails to be purchased				19150	14200	8250
©	Limiting Budget Factor:
	This is a factor which put some limitations on the capacity of an enterprise and increase cost of production and reduce profit.
	Example:
	Shortage of material
	Lack of demand
	Shortage of finance