There is a continuing demand for three sub-assemblies labelled as A, B, and C made and...

  
 

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There is a continuing demand for three sub-assemblies labelled as A, B, and C made and sold by BMP Limited. Sales are in the ratios of A 1, B2, C 4 and selling prices are A £215, B £250 and C £300. Each sub-assembly consists of a copper frame onto which are fixed the same components but in differing quantities as follows: Sub- assembly ABC А В Frame 1 с Buying: in costs per unit 20 (£) B C Component Component Component D E F 5 3 2 1½ 1½ S Operation times by labour for each sub-assembly are: SI Sub-assembly Skilled hours Unskilled hours A 2 4 5 3 The skilled labour is paid £6 per hour and unskilled £4.50 per hour. The skilled labour is located in a machining department and the unskilled labour in an assembly department. A five-day week of 37% hours is worked and each accounting period is for four weeks. Variable overhead per sub-assembly is A £5, B £4 and C £3.50. At the end of the current A five-day week of 37% hours is worked and each accounting period is for four weeks. Variable overhead per sub-assembly is A £5, B £4 and C £3.50. At the end of the current year, stocks are expected to be as shown below but because interest rates have increased and the company utilises a bank overdraft for working capital purposes, it is planned to effect a 10% reduction in all finished sub-assemblies and bought-in stocks during Period 1 of the forthcoming year. Forecast stocks at current year end: A B C Sub-assembly 300 700 1,600 Page 6 of 8 I Copper frames Component D Component E Component F 1,000 4,000 10,000 4,000 Work-in-progress stocks are to be ignored. Overhead for the forthcoming year is budgeted to be: Production £728,000, Selling and Distribution £364,000 and Administration £338,000. These costs, all fixed, are expected to be incurred evenly throughout the year and are treated as period costs. Within Period 1 it is planned to sell one thirteenth of the annual requirements which are to be the sales necessary to achieve the company profit target of £6,500,000 before tax. Production £728,0 Selling These costs, all fixed, are expected to be incurred evenly throughout the year and are treated as period costs. Within Period 1 it is planned to sell one thirteenth of the annual requirements which are to be the sales necessary to achieve the company profit target of £6,500,000 before tax. Required: a) Prepare budgets in respect of Period 1 of the forthcoming year for al. sales, in quantities and value; a2. production, in quantities only; a3. materials usage, in quantities; a4. materials purchases, in quantities and value; I a5. manpower budget, i.e. numbers of people needed in each of the machining department and the assembly department; (26 marks) b) Discuss the factors to be considered if the bought-in stocks were to be reduced to one week's requirements - this has been proposed by the purchasing officer but resisted by the production director - and specify the amount of stock reduction needed (in units). (7 marks) (Total 33 marks) There is a continuing demand for three sub-assemblies labelled as A, B, and C made and sold by BMP Limited. Sales are in the ratios of A 1, B2, C 4 and selling prices are A £215, B £250 and C £300. Each sub-assembly consists of a copper frame onto which are fixed the same components but in differing quantities as follows: Sub- assembly ABC А В Frame 1 с Buying: in costs per unit 20 (£) B C Component Component Component D E F 5 3 2 1½ 1½ S Operation times by labour for each sub-assembly are: SI Sub-assembly Skilled hours Unskilled hours A 2 4 5 3 The skilled labour is paid £6 per hour and unskilled £4.50 per hour. The skilled labour is located in a machining department and the unskilled labour in an assembly department. A five-day week of 37% hours is worked and each accounting period is for four weeks. Variable overhead per sub-assembly is A £5, B £4 and C £3.50. At the end of the current A five-day week of 37% hours is worked and each accounting period is for four weeks. Variable overhead per sub-assembly is A £5, B £4 and C £3.50. At the end of the current year, stocks are expected to be as shown below but because interest rates have increased and the company utilises a bank overdraft for working capital purposes, it is planned to effect a 10% reduction in all finished sub-assemblies and bought-in stocks during Period 1 of the forthcoming year. Forecast stocks at current year end: A B C Sub-assembly 300 700 1,600 Page 6 of 8 I Copper frames Component D Component E Component F 1,000 4,000 10,000 4,000 Work-in-progress stocks are to be ignored. Overhead for the forthcoming year is budgeted to be: Production £728,000, Selling and Distribution £364,000 and Administration £338,000. These costs, all fixed, are expected to be incurred evenly throughout the year and are treated as period costs. Within Period 1 it is planned to sell one thirteenth of the annual requirements which are to be the sales necessary to achieve the company profit target of £6,500,000 before tax. Production £728,0 Selling These costs, all fixed, are expected to be incurred evenly throughout the year and are treated as period costs. Within Period 1 it is planned to sell one thirteenth of the annual requirements which are to be the sales necessary to achieve the company profit target of £6,500,000 before tax. Required: a) Prepare budgets in respect of Period 1 of the forthcoming year for al. sales, in quantities and value; a2. production, in quantities only; a3. materials usage, in quantities; a4. materials purchases, in quantities and value; I a5. manpower budget, i.e. numbers of people needed in each of the machining department and the assembly department; (26 marks) b) Discuss the factors to be considered if the bought-in stocks were to be reduced to one week's requirements - this has been proposed by the purchasing officer but resisted by the production director - and specify the amount of stock reduction needed (in units). (7 marks) (Total 33 marks)

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It is given that annual profit target is K65000000 And all fixed costs including pro... View the full answer