economies of scale
history of latin america
May 9, 2020Pharmacology
May 9, 2020economies of scale
Omega is a long-established ?rm which used to make many different kinds of leather goods. However, in 2012 it made a loss for the ?rst time in over 20 years. This was due to ?erce competition, mainly from the Far East. In response to this, it has slashed its product range to its best-selling and most pro?table items. It is hoping to bene?t from economies of scale and now plans to make only two types of document case: the Delta and the Alpha.
Task:
From the following information, using the pro formas provided, you are required to create a budget for the year ending 31 December 2013.(30 marks)
Sales forecast
Delta Alpha
Number of cases sold 4,000 2,500
Selling price per case £60 £55
Standard production data
Omega has only two production departments: Cutting and Stitching.
Unit costs:
Direct labour rates Raw materials
Cutting Stitching Leather Zip fasteners
£6.00/h £7.00/h £3.00/unit £1.00/unit
Product content
Delta Alpha
Leather 2 units 4 units
Zips 1 unit 2 units
Cutting deptlabour 2 hours 1.5 hours
Stitching deptlabour 1 hour 0.5 hour
Production overheads
Cutting Department Stitching Department
Fixed Variable Fixed Variable
£ £ £ £
Indirect labour 7,000 3,000
Indirect materials 3,000 9,000
Maintenance 2,000 1,000 500 500
Business rates 6,000 1,000
Depreciation 8,000 2,000
Electricity 1,000 2,000 500 1,000
24,000 6,000 7,000 10,500
Marketing overheads
£
Salaries 28,000
Advertising 24,000
Other 2,000
54,000
Administration overheads
£
Salaries 32,000
Telephone 5,000
Other 4,150
41,150
Stocks forecast
Raw materials Completed cases
Leather Zips Delta Alpha
(units) (units) (units) (units)
ing stock 6,000 1,000 100 1,000
Closing stock 8,000 2,000 1,100 500
Debtors and creditors
Raw materials, labour, all overheads and debenture interest will be paid in full through the bank and cash accounts. Debtors and creditors at 31 December 2012 will pay and be paid during 2013. Debtors and creditors at 31 December 2013 are expected to be £25,000 and £10,000 respectively. One year’s interest on the debenture is paid during the year.
Fixed assets
There are no disposals expected during 2013 but some new equipment will be acquired, on cash terms, for £20,000 just before the end of 2013.
Expected balance sheet as at 31 December 2012
Cost Depreciation provision NBV
Fixed assets £ £ £
Buildings 40,000 40,000
Machinery 200,000 50,000 150,000
240,000 90,000 150,000
Current assets
Raw material stock 19,000
Finished goods stock 40,000
Total stock 59,000
Debtors 15,000
Bank and cash 10,000
84,000
Less: Current liabilities
Creditors 8,000
Net current assets 76,000
226,000
Less: Long-term liabilities
10% debenture 2021/22 120,000
106,000
Financed by:
Shareholders’ capital £
Ordinary shares 82,000
Retained profit 24,000
106,000
Pro formas
1. Sales budget for y/e 31 December 2013
Units Selling price Revenue
£ £
Delta ¦¦¦ ¦¦.. ¦¦¦¦.
Alpha ¦¦¦ ¦¦.. ¦¦¦¦.
Budget revenue ¦¦¦¦.
2. Production budget y/e 31 December 2013
Delta Alpha
(units) (units)
Planned sales ¦¦¦ ¦¦¦
Desired closing stock finished goods ¦¦¦ ¦¦
Total required ¦¦¦ ¦¦¦
Less ing stock finished goods ¦¦ ¦¦¦
Budgeted production ¦¦¦ ¦¦¦
3. Direct materials usage budget y/e 31 December 2013
Alpha
Material Production Usage Material Production Usage
content (units) content (units)
(units/case) (units/case)
Leather ¦¦ ¦¦¦ ¦¦¦.. ..¦. ¦¦¦ ¦¦¦
Zips ¦¦ ¦¦¦ ¦¦¦ ¦¦ ¦¦¦ ¦¦¦
Cost/unit Total production Cost of materials used
£ £
Leather ¦¦ ¦¦¦.. ¦¦¦..
Zips ¦¦ ¦¦¦ ¦¦¦
Budgeted material cost ¦¦¦..
4. Direct materials purchases budget y/e 31 December 2013
Leather Zips
Desired closing stock ¦¦¦ units ¦¦¦ units
Units needed for production ¦¦¦.. units ¦¦¦ units
Total required ¦¦¦.. units ¦¦¦.. units
Less ing stock ¦¦¦ units ¦¦¦ units
Purchases needed ¦¦¦.. units ¦¦¦.. units
Cost per unit £¦¦¦¦.. £..¦..¦..¦..
Budgeted purchases cost £¦¦¦..¦.. £¦¦¦..¦..
5. Direct labour budget y/e 31 December 2013
Labour content Cases Total Rate Total
in product produced labour per labour
(hours) (hours) hour cost
(£) (£)
Cutting Dept.
Delta ¦.. ¦¦¦ ¦¦¦.. ¦¦. ¦¦¦..
Alpha ¦.. ¦¦¦ ¦¦¦ ¦¦. ¦¦¦..
Stitching Dept.
Delta ¦.. ¦¦¦ ¦¦¦ ¦¦. ¦¦¦..
Alpha ¦.. ¦¦¦ ¦¦¦ ¦¦. ¦¦¦
Budgeted labour hours and cost ¦¦¦.. ¦¦¦¦.
6. Production overheads budget y/e 31 December 2013
Cutting Dept Stitching Dept
(expected 13,000
direct labour hours) (expected 6,000
direct labour hours)
Fixed Variable Fixed Variable
costs costs costs costs
£ £ £ £
Indirect labour ¦¦¦ ¦..¦.. ¦¦¦ ¦..
Indirect materials ¦..¦.. ¦¦¦ ¦¦. ¦¦¦
Maintenance ¦¦¦ ¦¦¦ ¦¦.. .. ¦¦
Business rates ¦¦¦ ¦..¦.. ¦¦¦ ¦¦.
Depreciation ¦¦¦ ¦..¦.. ¦¦¦ ¦..
Electricity ¦¦¦ ¦¦¦ ¦¦ ¦¦¦
Budgeted overhead costs ¦¦¦.. ¦¦¦ ¦¦¦ ¦¦¦..
Overhead absorption rate
per direct labour hour £¦¦¦.. £¦¦¦.. £¦¦¦.. £¦¦¦..
7. Budgeted unit cost of manufacturing y/e 31 December 2013
Delta Alpha
Unit cost Units in Cost Units in Cost
product product
£ £ £
Leather ¦¦. .¦¦ ¦¦. .¦¦ ¦¦¦
Zips ¦¦. .¦¦ ¦¦. ¦¦. ¦¦.
Direct labour:
Cutting ¦¦. ..¦.. ¦¦¦ ..¦¦.. ¦¦.
Stitching ¦¦. .¦¦ ¦¦. .¦¦¦ ¦¦.
Production overheads:
Cutting: fixed ¦¦¦.. ..¦.. ¦¦¦.. ¦..¦.. ¦¦¦..
variable ¦¦¦.. .. ¦.. ¦¦¦.. ¦.. ¦.. ¦¦¦..
Stitching: fixed ¦¦¦.. .. ¦.. ¦¦¦.. ¦.. ¦.. ¦¦¦..
variable ¦¦¦.. .. ¦.. ¦¦¦.. ¦.. ¦.. ¦¦¦..
Standard cost of product ¦¦¦¦. ¦¦¦¦.
8. Closing stock budget at 31 December 2013
Units Unit cost Total cost
£ £ £
Direct materials:
Leather ¦¦¦ ¦¦. ¦¦¦..
Zips ¦¦¦ ¦¦. ¦¦¦ ¦¦¦..
Finished products:
Delta ¦¦¦ ¦¦¦¦. ¦¦¦..
Alpha ¦¦ ¦¦¦¦. ¦¦¦.. ¦¦¦..
Budgeted closing stock ¦¦¦..
9. Cost of sales budget y/e 31 December 2013
£ £
Direct materials usage (3) ¦¦¦..
Direct labour (5) ¦¦¦¦.
Production overheads (6) ¦¦¦.. ¦¦¦¦.
Add: ing stock finished products ¦¦¦..
Less: Closing stock finished products ¦¦¦..
Budgeted cost of sales ¦¦¦¦.
10. Marketing and administration expenses budget y/e 31 December 2013
£ £
Marketing expenses:
Salaries ¦¦¦..
Advertising ¦¦¦..
Other ¦¦¦ ¦¦¦..
Administrative expenses:
Salaries ¦¦¦..
Telephone ¦¦¦
Other ¦¦¦ ¦¦¦..
Budgeted selling and administrative expenses ¦¦¦..
11. Budgeted profit statement y/e 31 December 2013
£
Sales (1) ¦¦¦¦.
Less: Cost of sales (9) ¦¦¦¦.
Gross profit ¦¦¦¦.
Less: Marketing and admin. expenses (10) ¦¦¦..
Budgeted net profit ¦¦¦..
Less: Debenture interest ¦¦¦..
Profit after interest ¦¦¦..
12. Cash budget y/e 31 December 2013 (Summary form)
£ £
ing cash balance ¦¦¦..
Add receipts ¦¦¦¦.
Total cash available ¦¦¦¦.
Less payments:
Purchases ¦¦¦..
Direct labour (5) ¦¦¦¦.
Factory overheads
Less depreciation (6) ¦¦¦..
Marketing and admin. expenses (10) ¦¦¦..
Debenture interest ¦¦¦..
Fixed asset purchases ¦¦¦..
¦¦¦¦.
Budgeted closing cash balance ¦¦¦..
13. Budgeted balance sheet of Omega Manufacturing as at 31 December 2013
£ £ £
Fixed assets
Cost Depreciation Provision NBV
Buildings ¦¦¦.. ¦¦¦.. ¦¦¦..
Machinery ¦¦¦¦. ¦¦¦.. ¦¦¦¦.
¦¦¦¦. ¦¦¦¦. ¦¦¦¦.
Current assets
Stocks:
Finished goods ¦¦¦..
Raw materials ¦¦¦.. ¦¦¦..
Debtors ¦¦¦..
Bank & cash ¦¦¦..
¦¦¦¦.
Less current liabilities
Creditors ¦¦¦..
Net current assets ¦¦¦¦.
¦¦¦¦.
Less long-term liabilities
¦.% debenture ¦¦../¦. ¦¦¦¦.
£¦¦¦¦.
Financed by:
Shareholders’ capital
Ordinary shares ¦¦¦..
Retained profits ¦¦¦..
£¦¦¦¦.
