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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.
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|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|
|Budgeted closing stock, 31/12/2017||11,800||20,200|
|Actual opening stock (kgs) 01/01/2017||10,300||22,300|
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)