Annual budgets: this is a budget covering a period of 12 months. Under this approach, planning horizon decreases as the year progresses.
Continuous budgets: this budget covers a period of 12 months but constantly adds a new month on the end as the current month is completed. It keeps the management planning and thinking 12 months ahead and thus stabilizing the planning horizon.
>>> Illustration
Venus Plc produces two products N and A. the budget for next year to 31 Dec xx is to be prepared. Expectations for the forthcoming year include:
Finished products
The sales director has estimated the following
Direct labour
The standard wage rate of direct labour id Shs1.60 per hr
Factory overhead
Factory overhead is absorbed on the basis of machining hours with separate absorption rates for each department.
The following are expected overheads in the production cost center budgets
Depreciation is taken at 5% straight-line on plant and machinery equipment. A machine costing the company Shs20,000 is due to be installed on 1 October 2007 in the machining department, which already has machinery installed to the value of Shs.l00,000 at cost.
There is no opening or closing work in progress and inflation should be ignored.
Required
Prepare the following budgets for the year ended 31 March 2008 for Venus PLC.
(i) Sales budget
(ii) Production budget (units)
(iii) Plant utilization budget
(iv) Direct materials utilization budget
(v) Direct labour budget
(vi) Factory overhead budget
(vii) Direct materials purchases budget
(viii) Cost of goods sold budget
(ix) Budgeted profit and loss account
Solution
Venus Plc
(i) Sales Budget
(iv) Direct materials usage budget
(vi) Direct labour budget
b. Production cost per unit of finished products
