The Garden Ornament Company manufactures two types of garden ornament: a duck and a heron. The information presented in Tables T1 to T5 has been prepared, as a result of discussions by line managers, for the purposes of preparing a master budget for Year 6.
Sales and production volumes and direct costs
(T1)
|
|
Ducks
|
Herons
|
|
Unit sales for the year
|
8,000
|
15,000
|
|
|
£
|
£
|
|
Unit selling price
|
30
|
45
|
|
Unit variable cost:
|
|
|
|
Direct material
|
14
|
16
|
|
Direct labour
|
12
|
13
|
Direct labour costs are based on an average cost of £15,000 per person per year.
Other costs
(T2)
|
Production heat and light
|
£8,000 for the year
|
|
Production fixed overheads
|
£4,000 for the year
|
|
Partners' salaries
|
£55,000 for the year
|
|
Rent of premises
|
£11,000 for the year
|
|
Office staff salaries
|
£48,450 for the year
|
|
Marketing and distribution
|
18 per cent of sales
|
Working capital targets
(T3)
|
Debtors at end of year
|
Half of one month's sales.
|
|
Trade creditors for materials
|
One month's purchases.
|
|
Stock of raw materials
|
Enough for 60 per cent of next month's production.
|
|
Stock of finished goods
|
No stock held, as goods are made to order and delivered to the customer on completion.
|
Sales and purchases are planned to be spread evenly over the year.
Capital budget plans
(T4)
Purchase one new moulding machine at £70,000, at the start of the year.
Depreciate all machinery for a full year at 20% per annum on a straight-line basis.
Balance sheet at 31 December Year 5
(T5)
|
|
£
|
£
|
|
Equipment at cost
|
|
190,000
|
|
Accumulated depreciation
|
|
40,000
|
|
Net book value
|
|
150,000
|
|
Stock of raw materials:
|
|
|
|
For 400 ducks @ £14 each
|
5,600
|
|
|
For 750 herons @ £16 each
|
12,000
|
|
|
Trade debtors
|
32,000
|
|
|
Cash
|
2,500
|
|
|
|
52,100
|
|
|
Trade creditors
|
30,000
|
|
|
|
|
22,100
|
|
|
|
172,100
|
|
Partners' capital
|
|
172,100
|
Required
Prepare a master budget and all supporting budgets.