RST Manufacturing is producing its cost of sales budget. Direct materials are budgeted to be 60% of sales value. However, due to the expansion of the company in the recent past, suppliers are giving RST Manufacturing a 2% discount on all purchases of direct materials by the firm. Budgeted sales for January 2020 are expected to be £200,000 and to rise by £10,000 a month in the budget year up to December 2020. Direct labour is expected to amount to 10% of sales value and variable overhead is budgeted to be 5% of direct labour cost. What is the budgeted cost of sales (direct materials + direct labour + variable overhead) figure that will appear in the budgeted monthly statement of profit or loss for June 2020?

Question

Quizplus · Accepted Answer

Direct materials: £200,000 x 60% x (1 - 2%) = £118,800Direct labour: £200,000 x 10% = £20,000Variable overhead: £20,000 x 5% = £1,000Total budgeted cost of sales: £118,800 + £20,000 + £1,000 = £139,800For June 2020, budgeted sales = £200,000 + (£10,000 x 5) = £250,000Therefore, budgeted cost of sales for June 2020 = £139,800 x (250,000/200,000) = £173,250

RST Manufacturing Is Producing Its Cost of Sales Budget