Accounting for Managers: Interpreting accounting information for decision-making

BUDGETING 215

Table 14.6 Telcon Manufacturing budget

in £’000s Jan Feb Mar Apr May Jun Total

Sales units 1,000 1,100 1,200 1,200 1,300 1,300 7,100
Expected selling price £10 £10 £10 £10 £10 £11

Revenue 10,000 11,000 12,000 12,000 13,000 14,300 72,300

Cost of sales
Direct materials
@ £4 (2 kg @ £2) 4,000 4,400 4,800 4,800 5,200 5,200 28,400
Direct labour
@ £2.50 2,500 2,750 3,000 3,000 3,250 3,250 17,750
Variable overhead
@ £1 1,000 1,100 1,200 1,200 1,300 1,300 7,100

Variable costs 7,500 8,250 9,000 9,000 9,750 9,750 53,250

Contribution margin 2,500 2,750 3,000 3,000 3,250 4,550 19,050
Fixed costs (in total) 1,500 1,500 1,500 1,500 1,500 1,500 9,000

Net profit 1,000 1,250 1,500 1,500 1,750 3,050 10,050

Table 14.7 Production budget

Jan Feb Mar Apr May Jun Total

Variable costs per unit £7.50 £7.50 £7.50 £7.50 £7.50 £7.50 £7.50

Inventory units at end
of month

1,100 1,200 1,200 1,300 1,300 1,400

Inventory units at
beginning of month

1,000 1,100 1,200 1,200 1,300 1,300

Increase in inventory 100 100 0 100 0 100

Production required
Units sold 1,000 1,100 1,200 1,200 1,300 1,300
Increase in inventory 100 100 0 100 0 100

Total units to be
produced

1,100 1,200 1,200 1,300 1,300 1,400

Production units @
variable cost

8,250 9,000 9,000 9,750 9,750 10,500 56,250

Of which:
Materials @ £4 4,400 4,800 4,800 5,200 5,200 5,600 30,000
Labour @ £2.50 2,750 3,000 3,000 3,250 3,250 3,500 18,750
Variable overhead @ £1 1,100 1,200 1,200 1,300 1,300 1,400 7,500