Question

Answer All the Question(s)

a) The following information is available for XYZ Company Period
                       1      2    3 4    5 6
Units sold (000) 150 120 180 150 140 160
Units produced (000) 150 150 150 150 170 140
Budgeted activity is expected to average 150,000 units per period and there is no opening
stock for period 1. Unit selling price is Ksh 10, Unit variable cost is Ksh 6, fixed costs
per period is Ksh 300,000 while non manufacturing overheads are 100,000 per period.
Required:
Prepare a profit and loss statement based on variable and absorption costing
b) KPLC plans inventory levels (at cost) at the end of each month as follows: May,
$275,000; June, $220,000; July, $270,000 and August, 240,000. Sales are expected to
be June, $440,000: July, $350,000; August, $420,000. Cost of goods sold is 60% of
sales. Purchases in April were $250,000; May $180,000. Payments for each month’s
purchases are made as follows: 10% during that month; 80% the next month and the
final 10% the next month. Prepare budget schedules for June, July and August for
purchases and for disbursement for purchases

Answer 1

Answer with working notes is given below

Currency ksh Opening stock Production Sales Closing stock Selling price per unit Income Statement- Variable Costing 3 30,000 150,000 150,000 150,000 150,000 120,000 180,000 30,000 150,000 150,000 170,000 140,000 30,000 30,000 140,000 160,000 10,000 10 10 10 10 1,500,000 1,200,000 1,800,000 1,500,000 1,400,000 1,600,000 900,000 900,000 180,000 900,000 1,080,000 900,000 900,000 Sales Less : Variable Cost of Goods Sold Beginning Inventory - Finished Goods Variable Manufacturing Cost Variable Cost of Goods available for Sale Less: Closing stock Cost of Goods sold Contribution Margin Less: Fixed Cost Manufacturing overhead Non manufacturing overhead 900,000 900,000 180,000 720,000 480,000 1,020,000 1,020,000 180,000 840,000 560,000 180,000 840,000 1,020,000 60,000 960,000 640,000 900,000 600,000 1,080,000 720,000 900,000 600,000 300,000 100,000 300,000 100,000 300,000 100,000 300,000 100,000 300,000 100,000 300,000 100,000 Operating Income 200,000 80,000 320,000 200,000 160,000 240,000 Closing inventory is valued at variable manufacturing cost ksh 10 1 4 6 6.00 6.00 Product cost-inventory valuation Variable cost Total manufacturing cost per unit closing units Valuation of closing units 6.00 2 6.00 6.00 30,000 180,000 6.00 5 6.00 6.00 30,000 180,000 0 10,000 60,000 Income Statement-Absorption Costing 5 Opening stock Production Sales Closing stock Selling price per unit 150,000 150,000 30,000 150,000 180,000 150,000 150,000 150,000 120,000 30,000 10 170,000 140,000 30,000 30,000 140,000 160,000 10,000 10 10 10 100 1,500,000 1,200,000 1,800,000 1,500,000 1,400,000 1,600,000 Sales Less: Cost of Goods Sold Beginning Inventory - Finished Goods Variable Manufacturing Cost Fixed Manufacturing Cost Cost of Goods available for Sale Less: Closing stock Cost of Goods Sold Gross Profit Less: Operating expenses Non manufacturing overhead 900,000 300,000 1,200,000 240,000 900,000 300,000 1,440,000 900,000 300,000 1,200,000 900,000 300,000 1,200,000 240,000 960,000 240,000 0 1,020,000 300,000 1,320,000 232,941 1,087,059 312,941 232,941 840,000 300,000 1,372,941 81,429 1,291,513 308,487 1,200,000 300,000 1,440,000 360,000 1,200,000 300,000 100,000 100,000 100,000 100,000 100,000 100,000 Operating Income 200,000 140,000 260,000 200,000 212,941 208,487 6.00 6.00 6.00 2.00 Product cost-inventory valuation Variable cost Fixed manufacturing cost - (300,000/production) Total manufacturing cost per unit closing units Valuation of closing units 6.00 2.00 8.00 30,000 240,000 5 6.00 1.76 7.76 30,000 232,941 8.00 8.00 2.14 8.14 10,000 81,429

COGS Sales COGS -60% June $440,000 $264,000 July $350,000 $210,000 August Quarter $420,000 $1,210,000 $252,000 $726,000 Inventory Purchase Budget Budgeted COGS Add: Closing inventory - (25% of next month COGS) Total Requirement Less: Opening Inventory Purchase Budget June $264,000 $220,000 $484,000 $275,000 $209,000 July $210,000 $270,000 $480,000 $220,000 $260,000 August $252,000 $240,000 $492,000 $270,000 $222,000 Quarter $726,000 $240,000 $966,000 $275,000 $691,000 Schedule of Cash payment for purchases July August April purchase ( 10% of $250,000) May purchase (June - 80% of $180,000) (July - 10% of $180,000) June Purchase July Purchase August Purchase Total Cash Payments June $25,000 $144,000 $20,900 $18,000 $167,200 $26,000 $20,900 $208,000 $22,200 $251,100 Quarter $25,000 $162,000 $209,000 $234,000 $22,200 $652,200 $189,900 $211,200