Airways Ltd is preparing its annual budget to the year end 31 December. It produces and...

   

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Airways Ltd is preparing its annual budget to the year end 31 December. It produces and sells one product at a selling price of €125. It is estimated that the selling price will increase to €130 from 1 July and it is budgeted that the sales levels, in units, for each quarter will be as follows: Quarter 1 35,000 X Y Z Quarter 2 45,000 Sales for the first quarter of the following year will be 50,000 units. Each unit requires raw materials X, Y and Z and the quantities required for one unit of the finished product and the associated cost per unit are: Raw Quantity to make one unit of finished Raw material cost: goods: material: Quarter 3 25,000 5 kgs 2 kgs 1.5 kgs Quarter 4 42,000 €7 per kg €4 per kg €25 per kg The cost of raw materials X and Y are expected to increase by 10% with effect from 1 April and Z by 2% from 1 October. Each unit of finished goods requires 3 hours of labour and the labour cost per hour is €12. This will increase by 10% per hour on 1 October Variable overheads are €8 per unit of finished goods Fixed overheads are budgeted at €303 325 for the year and are absorbed based on the total number of budgeted production units Opening inventories of finished goods are 8,000 units and closing inventories of finished goods are expected to be 15% of the next quarters sales. The company operates a just-in-time approach in relation to raw materials and no opening or dosing raw materials are held intinued on the next page Required: (a) Prepare the following budgets for the year ending 31 December. Your answer should show values for each quarter and the year in total: (1) Sales budget (in € and in units) (5 mark (5 mark (6 mark (14 mark: (ii) Production budget of finished goods (in units) (iii) Raw material usage budget for X, Y and Z (in units) (iv) Production cost budget (in E) Workings should be clearly shown for all elements of this question. (b) The Managing Director of the company does not place emphasis on the importance of preparing budgets. In your own words explain to them how the information you have provided in part (a) could be used to prepare a cash budget and the benefit this would provide to the business Airways Ltd is preparing its annual budget to the year end 31 December. It produces and sells one product at a selling price of €125. It is estimated that the selling price will increase to €130 from 1 July and it is budgeted that the sales levels, in units, for each quarter will be as follows: Quarter 1 35,000 X Y Z Quarter 2 45,000 Sales for the first quarter of the following year will be 50,000 units. Each unit requires raw materials X, Y and Z and the quantities required for one unit of the finished product and the associated cost per unit are: Raw Quantity to make one unit of finished Raw material cost: goods: material: Quarter 3 25,000 5 kgs 2 kgs 1.5 kgs Quarter 4 42,000 €7 per kg €4 per kg €25 per kg The cost of raw materials X and Y are expected to increase by 10% with effect from 1 April and Z by 2% from 1 October. Each unit of finished goods requires 3 hours of labour and the labour cost per hour is €12. This will increase by 10% per hour on 1 October Variable overheads are €8 per unit of finished goods Fixed overheads are budgeted at €303 325 for the year and are absorbed based on the total number of budgeted production units Opening inventories of finished goods are 8,000 units and closing inventories of finished goods are expected to be 15% of the next quarters sales. The company operates a just-in-time approach in relation to raw materials and no opening or dosing raw materials are held intinued on the next page Required: (a) Prepare the following budgets for the year ending 31 December. Your answer should show values for each quarter and the year in total: (1) Sales budget (in € and in units) (5 mark (5 mark (6 mark (14 mark: (ii) Production budget of finished goods (in units) (iii) Raw material usage budget for X, Y and Z (in units) (iv) Production cost budget (in E) Workings should be clearly shown for all elements of this question. (b) The Managing Director of the company does not place emphasis on the importance of preparing budgets. In your own words explain to them how the information you have provided in part (a) could be used to prepare a cash budget and the benefit this would provide to the business

Answer rating: 100% (QA)

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