Question

The PQ company has budgeted sales for 100,000 units of its product for 2019. Expected unit costs, based on past experience, is estimated to be Sh 60 for direct materials, Sh 40 for direct labour, and Sh 30 for production overheads. Assume no opening or closing stocks in process. PQ begins the year with 40,000 finished units on hand but budgets the closing finished goods inventory at only 10,000 units.

Required: Compute the budgeted production costs for 2019.

Hint: Budgeted material costs = budgeted production units × material cost per unit

Budgeted labour costs = budgeted production units × labour cost per unit

Budgeted production overhead costs = budgeted production units × overhead cost per unit

Prepare your budget in good format.

Answer 1

Budgeted sales units	100000
Add: Budgeted ending inventory	10000
Total needs	110000
Less: Beginning inventory	40000
Budgeted production units	70000

The PQ Company
Production Costs Budget
For the Year 2019
Budgeted material costs	4200000
Budgeted labor costs	2800000
Budgeted production overhead costs	2100000
Total budgeted production costs Sh	9100000

Budgeted material costs = 70000 x 60 = 4200000

Budgeted labor costs = 70000 x 40 = 2800000

Budgeted production overhead costs = 70000 x 30 = 2100000