Multiple choice Budgeting

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Accounting, Finance & Control 2018-2019 AFC – budgeting year 2019 Target: ROS (Return On Sales) 2019 > 15% Hypotheses for building the 2019 Budget: - The company manufactures only one type of product; - Inventories are accounted using the Last In First Out (LIFO) method; - Inventories of Finished Goods are accounted using the full costing method; - The scale of production cannot be increased in the short-term; - Target levels of inventories at 31/12/2019: • Raw materials: + 5% kg compared to 31/12/2018; • Finished Goods: + 50 units compared to 31/12/2018 (this decision cannot be modified). Inventories at 31/12/2018 (Pre-Consumptive) Quantity Value (€) Raw Materials 1,000 kg 1,000 € WIP None Finished Goods 75 u 3,000 Relevant data for 2019: a) Sales: - Volume of sale: 1,000 units; - Price: 70 €/unit; b) Production: - Maximum capacity (hours of maintenance included): 3,000 hours/year; - Scheduled maintenance: 150 hours/year; - Standard data for 2019: Resource Consumption Cost Raw Material 6 kg/units 2.00 €/kg Direct Labour 2 hours/unit 8.00 €/hour Machine Time 3 hours/unit - Standard indirect costs (useful for the 2019 Budget): • Variable: 1.50 €/machine hour, with this breakdown: - Energy: 0.90 €/machine hour; - Other costs: 0.60 €/machine hour; • Fixed: - Equipment depreciation: 3,000 €; - Supervisor: 2,000 €; - Other costs: 605 €; - Price for purchasing finished goods from an outsourcer1: 45 €/unit. c) Other costs (non manufacturing): - Labor: • Wages sales department: 4,800 €; • Wages administration/human resources/finance & control: 5,000 €; - Sales commissions: 2% sales; - Advertising and marketing expenses: 4,300 €; - Costs for administrative activities: 2,000 €; - Expenses for R&D: 5,000 €. Assignments: 1. Determine the expected EBIT (Net Operating Income) for…