ACCA SBL Syllabus G. Finance In Planning And Decision-Making - Sales & Functional budgets - Notes ^{2 / 8}

is a budget of income and/or expenditure which applies to a particular function.

The main functional budgets are:

= how many units do you plan to sell (e.g 100 units)

How many units do you need to produce if you want to sell eg.100 units.

You have to take into account if you have some units already in your inventory or if you need to keep some inventory at the year end (Y/E)

Budgeted production =

= Forecast sales + closing inventory of finished goods – opening inventory of finished goods

Finished goods inventory equal to 20% of the next month’s budgeted sales.

Sales for the current month are 2,000 units and are budgeted to be 2,400 units next month.

How many units will be produced in the current month?

Solution

Sales 2,000
Cl Inventory 480 (20% x 2,400)
Op Inventory (400) (20% x 2000)

2,080 units will be produced this month.

How many kg/litres do you need to produce a certain amount of units.

Material usage budget
Material usage =
Budgeted production x Quantity required to produce one unit
Material purchases budget
Material purchases budget =
Material usage budget + closing inventory (of material kg/l) – opening inventory (of material kg/l)

A company produces product X.

Expected production is 3,000 units.

Each unit uses 5kg of raw materials.

What is the materials usage budget?

Solution

Materials usage = Production * Quantity/unit

= 3,000 x 5
= 15,000 kg

Labour budget = no. of hours x labour rate per hour

The overhead budget will be made up of variable costs and fixed costs