production budget

Hodgson Ltd produces two products, the Lewington and the Neville. As the management accountant, your role is to prepare the budgets for the forthcoming year to 31 December 2017. Budgeted production and sales information is provided below.

 

	Lewington	Neville
Sales year end 31/12/17 (units)	7,200	9,500
Sales year end 31/12/18 (units)	8,000	5,600
Selling price (£)	200	500
Closing stock (as a % of 2018 sales)	11%	15%
Actual opening stock (units) at 01/01/2017	500	600
Material X per unit (kg)	8	7
Material Y per unit (kg)	5	17
Labour hrs per unit	15	13

 

 

Materials	X	Y
Budgeted closing stock, 31/12/2017	11,800	20,200
Actual opening stock (kgs) 01/01/2017	10,300	22,300
Purchase price	7	4

Budgeted labour costs are £6/hr for labour.

You are required to:

Prepare the following budgets for the year ending 31 December 2017:

a) Production budget (in units produced). (5 marks)

b) Materials (in kg and £s). (5 marks)

c) Explain the benefits that these budgets provide in the planning and decision-making process. (5 marks)