Production Budgeting
Production Budgeting |
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Key Learning Outcomes
- Understand how to lay out each budget and the trading account.
- Understand how to calculate the closing stock figures.
- Understand the theory of Production Budgeting and other Management Accounting theory.
- Know the maximum time for this question ‒ 36 minutes.
Introduction: Production Budgeting
Production Budgeting is one of five Management Accounting topics asked as Question 8 and Question 9 in Section 3 of the Accounting examination over the years as follows: 1998, 2001, 2005, 2008, 2011, 2014.
The years stated above are listed solely to assist revision ‒ See Practical Matters 4.
Section 3 of the Accounting examination is worth 80 marks out of a total of 400 marks (20%).
The choice in Section 3 is to answer either Question 8 or Question 9 (80 marks each).
Practical Matters:
(1) Always do the solution in the same way ‒ this will increase speed and confidence.
(2) Use only one pen in the solution ‒ use of colour slows down the work.
(3) Write the solution on the left and right hand side of a double page.
(4) Do not try to predict the examination paper ‒ study all possible questions in this section.
Sample Exam Q&A
Question |
Tyrrell Ltd has recently completed its annual sales forecast to December 2017. It expects to sell two products – Amber at €270 and Sapphire at €340.
All stocks are to be reduced by 10% from their opening levels by the end of 2017 and are valued using the FIFO method.
You are required to:
(a) Prepare a Production Budget (in units).
(b) Prepare a Raw Materials Purchases Budget (in units and €).
(c) Prepare a Production Cost/Manufacturing Budget.
(d) Prepare a Budgeted Trading Account (if the budgeted cost of a unit of Amber and Sapphire is €247 and €270 respectively).
(e) State the factors taken into account by Tyrrell Ltd. in arriving at the expected sales in 2017 of 20,500 units.
(a) |
Prepare a Production Budget (in units). |
Sample Answer (a) |
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(b) |
Prepare a Raw Materials Purchases Budget (in units and €). |
Sample Answer (b) |
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(c) |
Prepare a Production Cost/Manufacturing Budget. |
Sample Answer (c) |
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(d) |
Prepare a Budgeted Trading Account (if the budgeted cost of a unit of Amber and Sapphire is €247 and €270 respectively). |
Sample Answer (d) |
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(e) |
State the factors taken into account by Tyrrell Ltd. in arriving at the expected sales in 2017 of 20,500 units. |
Sample Answer (e) |
Factors taken into account by Tyrrell Ltd. in arriving at the expected sales in 2017 of 20,500 units.
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Student Activity
Q1 | Show how the closing stock of finished goods figures of €247 for Amber and €270 for Sapphire in the question above were calculated. |
Q2 | State the layout of the following: (a) Production Budget. (b) Raw Materials Purchases Budget. (c) Production Cost/Manufacturing Budget. (d) Budgeted Trading Account. |
Q3 | Explain what is meant by a Capital Budget. |
Q4 | Explain the term ‘Master Budget’ and list the components of a Master Budget for a manufacturing firm. |
Q5 | State the items that could be considered to be the Principal Budget Factor. |
Q6 | Outline the differences in focus between Management Accounting and Financial Accounting. |
Student Activity Answers
You can download/view answers to the above questions here