CMA Study Group

Budgeted production costs

  • 1.  Budgeted production costs

    Posted 06-23-2021 04:55 AM
    Can anyone please help me to understand the calculation of batch setup cost?





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    Tejas Doke
    Accountant
    Dombivli MH
    India
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  • 2.  RE: Budgeted production costs

    Posted 06-24-2021 03:27 AM
    What aspect of it did you have difficulty with?





  • 3.  RE: Budgeted production costs

    Posted 06-24-2021 04:40 PM
    Hi Tejas,

    as the name & question suggests, batch setup costs vary on the basis of number of batches.
    so we need to find budgeted cost per batch using info from the budget of August.
    budgeted cost per batch= Total setup costs / number of batches
                                          = (cost/unit * budgeted production) / 5 batches
                                          = (4 * 220,000) / 5
                                          = 176,000 per batch

    An average batch produces max 50,000 units. So, 220,000 units will require (220,000 / 50,000) = 4.4
    which means minimum 5 batches are inevitable for a production of 220,000 units.

    on similar lines, for Sept , it will require (260,000/50,000) = 5.2  i.e 6 batches

    Note - Those figures of 42,000 - 45,000 - 50,000 units are of actual batch sizes for Aug, hence are not relevant & are given only to confuse us.

    I Hope this helps

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    Chirag Patel
    India
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  • 4.  RE: Budgeted production costs

    Posted 06-27-2021 06:59 AM
    Thank you Chirag....​

    ------------------------------
    Tejas Doke
    Accountant
    Dombivli MH
    India
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