Names: Aradukunda Umugwaneza Eliot.

Code: BBM/2021/85537
BAF2202-MANAGEMENT ACCOUNTING CAT 1&2
ANSWER ALL QUESTIONS
QUESTION 1
The following information has been assembled by Sancross Products Ltd which manufactures
and retails products A and B. The details given below relate to the year commencing 1 July
2000:
Standard Product
Price per kg A kg g
Direct material – M1 Sh 4 15 20
M2 Sh 5 14 12
Standard Product
Rate per hour A hours B hours
Direct labour – L1 Sh 8 20 15
L2 Sh 10 22 24
Fixed production overhead is applied on direct labour basis. Administration, selling and
distribution expenses are recovered at the rate of 20% of production cost and profit loaded at
25% of standard production cost.
Product
A B
Sh ‘000’ Sh ‘000’
Projected sales for the year 12,033 10,053
Finished goods stock position valued at production cost is expected to be as follows:
Product
A B
Sh ‘000’ Sh ‘000’
1 July 2000 3,000 2,000
30 June 2001 5,000 4,000
Direct material stocks valued at standard prices are as follows:
Material
M1 M2
Sh ‘000’ Sh ‘000’
1 July 2000 200 250
30 June 2001 220 270
For the year to 30 June 2001, fixed production overhead has been estimated at
Sh 1,800,000 and direct labour at 1,200,000 hours.
No opening or closing work-in-progress is anticipated.
Required:
a) Production budget in units.
b) Direct materials cost budget.
c) Purchases budget in value.
d) Direct labour cost budget.
Answer.
1. A) Production budget in units.

For Product A, the projected sales for the year are 12,033 kg. To meet this demand, the
company needs to produce an additional 2,000 kg to bring the finished goods stock up
to the desired level of 5,000 kg. This is obtained by taking 5,000kg-3,000kg=2,000kg.
Therefore, the production budget will be 12,033kg+2,000kg=14,033kg.

For Product B, the projected sales for the year are 10,053 kg. To meet this demand, the
company needs to produce an additional 2,000 kg to bring the finished goods stock up to
the desired level of 4,000 kg. This is obtained by taking 4,000kg-2,000kg=2,000kg.
Therefore, the production budget will be 10,053kg+2,000kg=12,053kg.

B) Direct materials cost budget.

For Product A, the cost of direct material M1 is Sh 4 per kg and the required quantity is
15 kg per unit, so the cost of direct material M1 is Sh 4 x 15 = Sh 60 per unit. The cost
of direct material M2 is Sh 5 per kg and the required quantity is 12 g per unit, so the cost
of direct material M2 is Sh 5 x 12/1000 = Sh 0.06 per unit. The total cost of direct
materials per unit is Sh 60 + Sh 0.06 = Sh 60.06.
 For Product B, the cost of direct material M1 is Sh 4 per kg and the required quantity is
14 kg per unit, so the cost of direct material M1 is Sh 4 x 14 = Sh 56 per unit. The cost
of direct material M2 is Sh 5 per kg and the required quantity is 12 g per unit, so the cost
of direct material M2 is Sh 5 x 12/1000 = Sh 0.06 per unit. The total cost of direct
materials per unit is Sh 56 + Sh 0.06 = Sh 56.06.

The total direct materials cost budget for Product A is 14,033 units x Sh 60.06 per
unit = Sh 842,406.94.

The total direct materials cost budget for Product B is 12,053 units x Sh 56.06 per
unit = Sh 677,456.84.
C) Purchase budget in value.
For Material M1, the cost of direct material is Sh 4 per kg. The required quantity for
Product A is 15 kg per unit x 14,033 units = 210,495 kg. The required quantity for
Product B is 14 kg per unit x 12,053 units = 168,742 kg. The total required quantity is
210,495 kg + 168,742 kg = 379,237 kg. As the direct material stocks valued at standard
prices are 200,000 kg for M1 and 250,000 kg for M2 on 1 July 2000, the company needs
to purchase 379,237 kg - 200,000 kg = 179,237 kg of M1.

For Material M2, the cost of direct material is Sh 5 per kg. The required quantity for
Product A is 12 g per unit x 14,033 units = 168,396 g. The required quantity for Product
B is 12 g per unit x 12,053 units = 144,636 g. The total required quantity is 168,396 g +
144,636 g = 313,032 g. As the direct material stocks valued at standard prices are
250,000 kg for M2 on 1 July 2000, the company needs to purchase 313,032 g/1000 kg -
250,000 kg = 63,032 kg of M2.

The total purchases budget in value for M1 is Sh 4 per kg x 179,237 kg = Sh 716,948.

The total purchases budget in value for M2 is Sh 5 per kg x 63,032 kg = Sh 315

D) Number of direct labor hours

Total the number of direct labor hours for both products, L1 and L2. For L1 = 20 hours
multiply with Sh 8 = Sh 160 per hour. For L2 = 22 hours multiply wit Sh 10 = Sh 220 per
hour.
Total direct labor hours = 20 + 22 = 42 hours
Total direct labor cost = 42 hours * (Sh 160 + Sh 220) = Sh 11,960 So, the direct labor
cost budget for the year is Sh 11,960.

QUESTION 2
You are in charge of making forecasts and preparing budgets. You have been supplied with
cost and revenue forecasts and details of payment as follows:
1. Forecast of revenue and costs for the quarter ending 31 March 2001
 January February March
Shs. Shs. Shs.
Direct
Materials (purchases) 112,000 100,000 135,000
Wages 90,000 80,000 100,000
Overhead
Production 34,000 32,000 40,000
Administration 22,000 20,000 27,000
Selling and distribution 13,000 11,000 18,000
Sales 360,000 350,000 440,000

2. Forecast of revenue and costs for the quarter ending 30 June 2001
April May June
Sh. Sh. Sh.
Direct
Materials (purchases) 90,000 67,000 79,000
Wages 72,000 54,000 63,000
Overhead
Production 45,000 36,000 40,000
Administration 22,000 25,000 27,000
Selling and distribution 13,000 11,000 16,000
Sales 350,000 360,000 360,000
Cash balance on 1 April 2001 Sh. 90,000

Other details
• Period of credit allowed by suppliers averages two months.
• Debenture to the value of Shs. 125,000 are being issued in May 2001 and the amount is
expected to be received during the month.
• A new machine is being installed at the end of March 2001 at a cost of Sh 150,000 and
payment is promised in early May 2001.
• Sales commission of 3% is payable within one month of sales.
• A dividend of Sh 100,000 is to be paid in June 2001.
• There is a delay of one month in the payment of overheads. There is also a delay in payment
of wages averaging a quarter of a month.
• Twenty per cent of the debtors pay cash, receiving a cash discount of 4% and 70% of debtors
pay within one month and receive a cash discount of 2 ½%. The other debtors pay within two
months.

Required:
A cash budget on a monthly basis from the second quarter of the year 2001.
Answers
Here's the cash budget on a monthly basis from the second quarter of the year 2001:
April 2001
Cash inflow:
Sales (360,000 x 20%) = 72,000
Debtors (360,000 x 70%) = 252,000
Debtors (252,000 x 97.5%) = 245,400
Cash balance on 1 April = 90,000
Total cash inflow = 459,400
Cash outflow:
Direct materials (90,000)
Wages (54,000)
Overhead production (36,000)
Administration (25,000)
Selling and distribution (11,000)
Sales commission (360,000 x 3%) = 10,800
Dividend (100,000)
Total cash outflow = 346,800
Cash balance =459,400-346,800= 112,600
May 2001
Cash inflow:
Sales (360,000 x 20%) = 72,000
Debtors (360,000 x 70%) = 252,000
Debtors (252,000 x 97.5%) = 245,400
Debenture (125,000)
Total cash inflow = 700,400
Cash outflow:
 Direct materials (67,000)
Wages (54,000)
Overhead production (36,000)
Administration (25,000)
Selling and distribution (11,000)
Sales commission (360,000 x 3%) = 10,800
Payment for machine installation (150,000)
Total cash outflow = 364,800
Cash balance = 700,400-364,800= 335,600
June 2001
Cash inflow:
Sales (360,000 x 20%) = 72,000
Debtors (360,000 x 70%) = 252,000
Debtors (252,000 x 97.5%) = 245,400
Total cash inflow = 569,400
Cash outflow:
Direct materials (79,000)
Wages (63,000)
Overhead production (40,000)
Administration (27,000)
Selling and distribution (16,000)
Sales commission (360,000 x 3%) = 10,800
Dividend (100,000)
Total cash outflow = 335,800
Cash balance = 569,400-335,800= 233,600

Deadline 28th February 2023