QUESTION $4$

Buslines Ltd is preparing its annual budgets for the year ending $31$st December $2017.$ The company manufactures one product which currently sells for $50$ per unit. The Sales Director believes that the price can be increased by $10\%$ with effect from $1$st July $2017.$

The sales volumes for each quarter are expected to be as follows:

Sales Volume $($units$)$

Quarter $17000$

Quarter $29000$

Quarter $38000$

Quarter $412000$

Sales for the first quarter of the year $2018$ are estimated to be $8000$ units.

Each unit of the finished product requires $5$ kgs of material. The current price per kilogram of material is $4.$ The price however is expected to increase as of $1$st April $2017$ by $20\%.$

Assembly of each unit requires $3$ hours of direct labour. Labour is currently paid a rate of $7$ per hour although the personnel department anticipates a wage rise of $10\%$ to take effect from $1$st July $2017.$

Stock on $31$st December $2016$ is expected to be $4000$ units.

Closing stock at the end of each quarter is expected to be $25\%$ of next quarter$$s sales.

Required:

$1)$ Prepare the following budgets for the company:

a$)$ sales budget $($in $$s$)$

b$)$ production budget $($in units$)$

c$)$ material usage budget $($in kgs$)$

d$)$ material price budget $($in $$s$)$

e$)$ labour budget $($in hours$)$

f$)$ labour price budget $(3$ marks for each budget, total of $18$ marks$)$

$2)$ Discuss as fully as possible the importance of budgeting, by addressing the functions of budgeting in a business organisation.

$(7$ marks$)$