Bicon Ltd. manufactures two products using two types of materials and one grade of labour. Shown below is an extract from the company's working…

CA Intermediate · Cost and Management Accounting · MTP · September 2024
Bicon Ltd. manufactures two products using two types of materials and one grade of labour. Shown below is an extract from the company's working papers for the next month's budget: Product - A Product-B Budgeted sales (in units) 2,400 3,600 Budgeted material consumption per unit (in kg): Material-X 5 3 Material-Y 4 6 Standard labour hours allowed per unit of product 3 5 Material-X and Material-Y cost 4and 6 per kg and labours are paid 25 per hour. Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week. There are 180 direct workers. The target productivity ratio (or efficiency ratio) for the productive hours worked by the direct workers in actually manufacturing the products is 80%. In addition the non-productive down-time is budgeted at 20% of the productive hours worked. There are four 5-days weeks in the budgeted period and it is anticipated that sales and production will occur evenly throughout the whole period. It is anticipated that stock at the beginning of the period will be: Product-A 400 unitsProduct-B 200 unitsMaterial-X 1,000 kgs.Material-Y 500 kgs. The anticipated closing stocks for budget period are as below: Product-A 4 days salesProduct-B 5 days salesMaterial-X 10 days consumptionMaterial-Y 6 days consumption Required: CALCULATE the Material Purchase Budget and the Wages Budget for the direct workers, showing the quantities and values, for the next month.

Suggested Answer and Working Notes:

Number of days in budget period = 4 weeks × 5 days = 20 days Number of units to be produced Product-A (units) Product-B (units) Budgeted Sales 2,400 3,600 Add: Closing stock (2,400 units / 20 days × 4 days) (3,600 units / 20 days × 5 days) 480 900 Less: Opening stock 400 200 Production (units) 2,480 4,300 Material Purchase Budget Material-X (Kg.) Material-Y (Kg.) Material required: Product-A (2,480 units × 5 kg.) (2,480 units × 4 kg.) 12,400 9,920 Product-B (4,300 units × 3 kg.) (4,300 units × 6 kg.) 12,900 25,800 25,300 35,720 Add: Closing stock (25,300 kgs. / 20 days × 10 days) (35,720 kgs. / 20 days × 6 days) 12,650 10,716 Less: Opening stock 1,000 500 Quantity to be purchased 36,950 45,936 Rate per kg. of Material 4 6 Total Cost 1,47,800 2,75,616 Wages Budget Product-A (Hours) Product-B (Hours) Units to be produced 2,480 units 4,300 units Standard hours allowed per unit 3 5 Total Standard Hours allowed 7,440 21,500 Productive hours required for production (7,440 hours / 80%) (21,500 hours / 80%) 9,300 26,875 Add: Non-Productive down time (20% of 9,300 hours) (20% of 26,875 hours) 1,860 hours. 5,375 hours. Hours to be paid 11,160 32,250 Total Hours to be paid = 43,410 hours (11,160 + 32,250) Hours to be paid at normal rate = 4 weeks × 40 hours × 180 workers = 28,800 hours Hours to be paid at premium rate = 43,410 hours – 28,800 hours = 14,610 hours Total wages to be paid = 28,800 hours × ₹ 25 + 14,610 hours × ₹ 37.5 = 7,20,000 +5,47,875 = 12,67,875

Topics: Budgets and Budgetary Control

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