Accounts CIA 2 Budget

CUIM_MBA_G
BUDGETING AND
BUDGETARY CONTROL
SUBMITTED BY:
ABHIJEET SINGH
1020801
JETA PRAKASH
1020813
MADHUKAR DAS
1020815
NISHANT GUPTA
1020818
TYRONE POPE
1020830
YASH VARDHAN
1020833
NEHA CHAJJER
1020839
NIKITA SHARMA
1020840
PARNITA KUMARI
1020841
VASUNDHARA BHARADWAJ 1020846
CUIM_MBAG_MGMT_ACC_CIA_2
BUDGETING AND BUDGETARY CONTROL
CONCEPT OF BUDGET:
A Budget is a pre-determined statement of management policy during a given
period which provides a standard for comparison with the results actually
achieved-Brown and Howard
Characteristics:
a) A budget is primarily a planning device but it also serves as a basis for performance
evaluation and control.
b) A budget is prepared either in monetary terms or in quantitative terms or both .
c) A budget is prepared for definite future period.
d) Purpose of a budget is to implement the policies formulated by management for
attaining the given objectives.
Advantages:
1) Compels managers to think ahead to anticipate and prepare for changing conditions.
2) Co-ordinates the activities of various departments and functions of the business.
3) Increases production efficiency, eliminates waste and controls the cost.
4) Also aids in obtaining bank credits.
5) It ensures that the working capital is available for the efficient operation of the business
and aims at maximizing the profits.
6) Creates necessary conditions for the introduction of standard costing techniques.
7) Assists in delegation of authority and assignment of responsibility.
8) Shows management where action is needed to remedy a situation.
CLASSIFICATION OF BUDGETS:
Budgets may be classified into the following categories;
1) ON THE BASIS OF FUNCTION AND SCOPE:

A)
Functional budgets
B)
Master budget
2)ON THE BASIS OF FLEIBILITY:

A) Fixed budget
B) Flexible budget
A) FUNCTIONAL BUDGETS:
A Functional budget is one which relates to a particular function of the business, eg
Sales Budget , Purchase Budget , etc.
Types of Functional Budgets:
1) Sales Budget
2) Production Budget
3) Production Cost Budget
4) Raw Material Budget
5) Purchases Budget
6) Labour Budget
7) Production Overhead Budget
8) Selling And Distribution Cost Budget
9) Administration Cost Budget
10) Capital Expenditure Budget
11) Cash Budget
1) SALES BUDGET:
The sales budget is a statement of planned sales in terms of quantity and value. It
forecasts what the company can reasonably expect to sell to its customers during the
budget period .The sales budget can be prepared to show sales classified according to
product , salesmen ,customers ,territories and periods, etc.
2) PRODUCTION BUDGET:
The Production budget is a plan of production for the budget period. The principal
considerations involved in budgeting production are:
a) Sales Budget
b) Inventory Policy
c) Production Capacity
d) Management Policy
3) PRODUCTION COST BUDGET:

This budget shows the estimated cost of production. The cost of production is shown in
detail in respect of material cost , labor cost, and factory overhead.
3) RAW MATERIAL BUDGET:

This budget shows the estimated quantities of all the raw materials and components
needed for production demanded by the production budget. It serves the following
functions:
A) It assists purchasing department in planning the purchases.
B) It helps in the preparation of purchase budget
C) It provides data for raw material control
4) PURCHASE BUDGET:
The purchase budget provides details of the purchases which are planned to be made
during the period to meet the needs of the business .It indicates.
A) The quantities of each type of raw material and other items to be purchased.
B) The timing of purchases.
C) The estimated cost of materials purchased.
Factors to be taken under consideration:
1) Opening and closing stocks to be maintained as it will affect material requirements.
2) Maximum and minimum stock quantities,
3) Economic order quantities.
5) Financial resources available.
6) Purchase orders placed before the budget period.
7) Policy of the management.
5) LABOR BUDGET:
It is classified under direct and indirect. The labor budget represent the forecast of
labor requirements to meet the demands of the company during the budget period. It is
prepared as follows :
I)
The standard direct labor hours of each grade of labor required for each unit of
output and standard wage rate for each grade of labor are ascertained.
II)
Multiplication of units of finished goods to be produced by the labor cost per unit
gives the direct labor cost. The indirect labor cost is normally a fixed amount.
6) PRODUCTION OVERHEAD BUDGET:

It represents the forecast of all the production overhead (fixed, variable and semi
variable) to be incurred during the budget period .
The budget expenses for each sub period during the budget period should be
indicated and the classification of expenses should be the same as used by the
accounting department. The budgeted overhead costs of service departments are
totaled and apportioned to production departments according to the services received.
5
8) THE SELLING AND DISTRIBUTION COST BUDGET :

It represents the plan of all costs incurred in selling and distributing the companys
products during the budget period. As a general rule , the sales budget and the selling
and distribution budget is prepared simultaneously.
9) ADMINISTRATION COST BUDGET :
This budget represents forecast of all administration expenses like directors fees ,
managing directors salary , office lightings , heating and air-conditioning, etc. Most of
these expenses are fixed .
10)CAPITAL EXPENDITURE BUDGET :
It represents the expenditure on all fixed assets during the budget period. It includes
items as new buildings, machinery, land and intangible items like patents, etc. Special
characteristics:
a) Capital expenditure budget deals with items not directly related to profit and loss
account. Expenses related to capital expenditure such as depreciation , repairs , and
maintenance , etc. are , however , correlated to this budget and they are included in
overhead budgets.
b) Capital expenditure is frequently planned a number of year in advance , perhaps
five to ten years , in which case it is broken down into convenient periods like years
or months .
c) This budget involves large amount of expenditure which needs top management
approval.
11)CASH BUDGET:
It is a detailed estimate of cash receipts from all sources and cash payments for all
purposes and the resultant cash balances during the budget period. There are three
methods of preparing cash budgets:
a) Receipts and payment method
b) Adjusted profit and loss method
c) Balance sheet method
FIXED AND FLEXIBLE BUDGET:
FIXED BUDGET:
A fixed budget is one which is prepared keeping in mind one level of output. It is
defined as budget which is designed to remain unchanged irrespective of the level of
activity attained.
FLEXIBLE BUDGET:
It is one which is designed to change in relation to the level of activity attained . It has
been developed with the objective of changing the budget figures to correspond with
the actual output received. These are prepared in those companies where it is
extremely difficult to forecast output and sales with accuracy.
USES OF FLEXIBLE BUDGETS:
It is more realistic, practical and useful.
They are useful in control point of view.
ZERO BASED BUDGETING (ZBB)

It is a planning and budgeting process which requires each manager to justify his entire
budget request in detail from scratch (hence zero base).
Main features of ZBB:
1) All budget items, both old and new are proposed, are considered totally afresh.
2) Amount to be spent on each budget item is to be totally justified.
3) A detailed cost benefit analysis of each budget programmed is undertaken and each
programmed has to compete for scarce resources.
4) Departmental objectives are linked to corporate goals.

5) The main stress is not on how much a department will spend but on why it
needs to spend.
6) Managers at all levels participate in ZBB process and they have corresponding
accountabilities.
7
PERFORMANCE BUDGETING:
It lays emphasis on achievement of physical targets, it focuses on functions,
programmes and activities. These budgets are established in such a manner that each
item of expenditure related to a specific responsibility centre is closely linked with the
performance of that sector. It also sometimes called as Program me Budgeting or
Planning, Programme and Budget System (PPBS).
Steps in performance budgeting:
1) Establishment of responsibility centre
2) Establishment of performance targets
3) Estimating financial requirements
4) Comparison of actual with budgeted performance
5) Reporting and action
RESPONSIBILITY ACCOUNTING:
It is one of the basic components of a good control system. The main characteristic
feature is that it is relevant to the measurement of performance of departments or
divisions of an organization while other control systems are applicable to the
organization as a whole. Budgeting and variance analysis (standard costing)are thus
part of the responsibility accounting process.
Horngren has defined responsibility accounting as a system of accounting that
recognizes various responsibility centers throughout the organization and reflects the
plans and actions of each of these centers by assigning particular revenues and costs to
the one having the pertinent responsibility.
Pre-requisites for Responsibility Accounting :
1) The areas of responsibility are well defined at different levels of the organization.
2) There are clearly set goals and targets.
3) Managers actively participate in establishing the budgets against which the
performance is measured
4) Accounting system generates correct and dependable information for each

responsibility center
5) The managers are held responsible only for those activities over which they exercise
significant degree of control.
6) Managers must try to attain the goals and objectives
7) Goals for each area of responsibility should be attainable with efficient performance
8) Performance reporting should be timely and should contain significant information
relating to the responsibility centre.
RESPONSIBILITY CENTRE:
Responsibility accounting is based on the recognition of individual areas of
responsibility as specified in the organization structure of the firm. These areas of
responsibility are known as responsibility centers. It may be a department , a product
line , a territory or any type of clearly identifiable area of responsibility. It is of the
following three types:
a) Cost Centre
b) Profit Centre
c) Investment Centre
QUESTION
1) J K Ltd .sells two products Jay and Kay in four areas-- North South East West. The
following sales are budgeted for the month of Jan 1990:
NorthJay 6000 units and Kay 3250 units.
South Kay 6500 units
EastJay 8500 units
West---Jay 4500 units and Kay 2750units.
Selling pricesJay Rs .30 per unit; Kay Rs.15 per unit.
It was decided that additional advertising campaign will be undertaken in South and East
which will result in additional sales of 1500 unit of Jay in South and 2500 units of kay in
east.
You are required to prepare a sales budget for the month of January 1990.
SOLUTION
Sales Budget forJanuary, 1990.
Area
Product
North
Jay
Kay
Total
Jay
Kay
Total
Jay
Kay
Total
Jay
Kay
Total
Jay
Kay
6000
3250
9250
1500
6500
8000
8500
2500
11000
4500
2750
7250
20500
15000
Total
35500
South
East
West
Total
10
Quantity
Units
Price
Rs.
Amount
Rs.
30
15
30
15
30
15
30
15
30
15
180000
48750
228750
45000
97500
142500
255000
37500
292500
135000
41250
176250
615000
225000
840000
QUESTION
2) Madras agro chemicals manufactures chemical X. A forecast for quantity sold in the
first four months of the year is as follows:
January
February
March
April
Quantity in Units
6000
6000
5200
4400
1991
1991
1991
1991
It is anticipated that
a) there will be no work in progress at the end of any month
b) finished units equal to half the sales for the next month will be in stock at the end of
each month including (December,1990)
You are required to prepare a Production Budget for each of the three months ending
31st March,1991.
SOLUTION
Production Budget
For the month ending 31st March 1991
Jan
units
Add:
less:
Budget Sales
Closing stock
Opening stock
Production
QUESTION
11
6000
3000
9000
3000
6000
feb
units
6000
2600
8600
3000
5600
march
units
5200
2200
7400
2600
4800
3) Glass Manufacturing Company requires you to prepare and present the budget for the
next year from the following information:
Sales :
Toughened Glass
Rs 300 000
Bent Toughened Glass
Rs 500 000
Factory over head:

Indirect labour
works manager Rs 500
foreman Rs. 400 per month
stores and spares
depreciation on machinery
light and power
repairs and maintenance
other sundries
Admin, selling and distribution exp.
SOLUTION
2.5% on sales
Rs 12,600
Rs 5000
RS 8000
10% on dir.wag
Rs 14000/yr
i) Sales Budget:
Toughened glass
Bent Toughened Glass
total sales
ii)Less: Administration, selling and distribution
expenses
(A) Net sales revenue
14000
786000
Prime cost
480000
36000
516000
Production cost budget:

Direct material(60% of
sales)
Direct wages
Factory overhead:
Variable:stores and spares
(2.5% of sales)
Light and power
Repairs and maintance
Fixed : Indirect Labour
works manager
Foreman
Depriciation
sundries
12
Rs.
300 000
500 000
800 000
20000
5000
8000
6000
4800
12600
3600
33000
549000
27000
(B)Works cost
576000
210000
QUESTION
4) Prepare a Flexible Budget for production at 80 per cent and 100 percent activity on the
basis of the following information:
Production at 50% capacity - 5000 units
Raw material - Rs.80 per units .
Direct labour --- Rs 50 per unit
Factory expenses Rs 50000(50% fixed)
Administration expenses --- Rs 600000(60% variable)
SOLUTION
Flexible Budget
Items
Raw Material
Direct Labour
Direct expences
Prime cost
Factory Expenses
Fixed
Variable
Factory
Adm. Expenses
Fixed
Variable
Total cost
13
80%
(8000 units)
Per unit
Total
Per unit
Rs.
Rs.
Rs.
80
640000
80
50
400000
50
15
120000
15
145
1160000
145
100%
(10000 units)
Total
Rs.
800000
500000
150000
1450000
3.125
5
153.125
25000
40000
1225000
2.5
5
152.5
25000
50000
1525000
3
7.2
163.325
24000
Rs. 57,600
Rs. 13,06,600
2.4
7.2
162.1
24000
72000
1621000
QUESTION
5) Production cost of a factory for a year is as follows;
Direct wages
Direct material
Production overhead ---
180000
420000
140000
Fixed
Variable
180000
During the forthcoming year it is anticipated that;

a)The average rate of direct remuneration will fall from Rs 3 per hour to Rs 2.50 per hr.
b)Production efficiency will remain unchanged:
c)Direct labour hrs will increase by 25%.
The price of material and overhead is remaining the same
Draw up a budget and compute a factory overhead rate, the overheads being absorbed on a
direct wage basis
SOLUTION
Production Cost Budget
Direct material
Direct wages
Factory overhead
Factory overhead
rate(%of D.wages)
180000 *2.50*125
3.00*100
Fixed
variabl
e
Prime cost
607500
Production cost
320000
927500
140000
180000
Factory
overhead
*100
Direct labour cost
320000 *100
187500
14
Rs.
420000
187500
170.67
QUESTION
6). A department attains a sale of Rs 600000 at 80% of its normal capacity and its expenses are
given below.
Administrative expenses
1. OFFICE SALARIES
SALES
2. GENERAL EXPENSES
SALES
3. RATES AND TAXES
SALES
4. DEPRECIATION
SALES
RS
Selling costs
90000
RS
SALARIES
2% OF SALES
8750
7500
8% OF
TRAVELLING EXPENSES
2% OF
GENERAL EXPENSES
1% OF
SALES OFFICE EXPENSES
1% OF
The distribution costs are: wages- Rs 1500; rent- 1% of sales; and other expenses-4% of sales.
Draw up a flexible administration overhead, selling and distribution overhead costs budget at
80% and 905 of normal capacity.
Solution:
FLEXIBLE BUDGET
PARTICULARS
BASIS
SALES
LEVEL OF ACTIVITY
80%(600000)
90%(6750000
Administrative costs
15
Office salaries
Fixed
90000
90000
General expenses
2% of sales
12000
13500
Depreciation
Fixed
7500
7500
Rates and taxes
Fixed
8750
8750
TOTAL ADMIN. EXPENSES
(A)
118250
119750
Selling costs
Salaries
8% of sales
48000
54000
Travelling expenses
2% of sales
12000
13500
Sales office expenses
1% of sales
6000
6750
6000
6750
(B)
72000
81000
Wages
Fixed
15000
15000
Rent
1% of sales
6000
6750
Other expenses
4% of sales
24000
27000
(c)
45000
48750
(A)+(B)+(C)
232250
249500
General expenses
TOTAL SELLING EXPENSES
1% of sales
Distribution costs
TOTAL DISTRIBUTION
COSTS
TOTAL COSTS
QUESTION
7). Gaurav ltd. Will commence business on 1 Jan when it will issue equity share of Rs 10 each at a
premium of 30% payable in cash to finance.
(A) Capital expenditure
1 Jan Rs 5 lakh
31 March- Rs 10.1 lakh by cash payment
(b) Working capital for the first six months on the basis of:
(i) Sales Jan and Feb- Rs 60000 p.m., March-Rs 80000,April- Rs 1 lakh, May to July- Rs 40000 p.m.
collections have to be made on the last day of the month after that on which the goods were sold .
commission at 5% is payable on collection.
(ii) on the first date of each month ,there should be stock to supply all sales of the following month
only. Payments to be made on the last date of the month after goods were purchased.
16
(iii) salaries and other fixed expenses Jan to March Rs 3000 p.m .,April to June- Rs 5000 p.m.
These are payable on the last day of the month .
Prepare month wise cash budget for six months ending June.
Solution :
CASH BUDGET FOR THE PERIOD ENDED 30TH JUNE
PARTICULARS
Opening balance receipts
MONTHS
Jan
feb
mar
april
may
june
Nil
147000
111000
4000
60000
650000
60000
60000
80000
100000
40000
650000
207000
171000
84000
100000
100000
Creditors raw materials
90000
60000
75000
30000
30000
Commission on sales
3000
3000
4000
5000
2000
Salaries and fixed expenses
3000
3000
3000
5000
5000
5000
Capital expenditure
500000
101000
(B)
503000
96000
167000
84000
40000
37000
147000
111000
Issue of equity shares

(working notes)
Collection from debtors
(A)
PAYMENTS:
CLOSING BALANCE
4000
WORKING NOTES:
Calculation of amount raised from the issue of equity shares
Month wise deficit, i.e. excess of payments over receipts
1. Jan- receipt/nil-payments/Rs 503000 = Rs 503000
2. Feb- Rs 60000-Rs 96000 = Rs 36000
3. March- Rs60000-Rs167000 =107000
17
60000
63000
4. April- Rs80000-Rs84000= 4000
5. May no deficit
6. June- no deficit
Thus Rs 650000 woth of capital has to be issued
Issue of equity shares(including premium) Rs 650000
Less: share premium (30/100*Rs650000) Rs 150000
Share capital = Rs 500000
18
QUESTION
8). X ltd manufactures two products using one type of material and one grade of labour .
PARTICULARS
PRODUCT
PRODUCT B
Budgeted sales
3600 units
4800 units
Budgeted material consumption per

product.
5 kg
3 kg
5 hours
4 hours
(standard cost =Rs 12 per kg)

Standard hours allowed per
product
(standard rate=Rs5 per hour)
Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week. There
are 90 direct workers. The target productivity ratio for the productive hours worked by the direct
workers in manufacturing the product is 80%; in addition the non-productive downtime is
budgeted at 20% of the productive hours worked . there are twelve 5 day weeks in the budget
period and it is anticipated that sales and production will occur evenly throughout the whole
period,.
Stock at the beginning of the period will be, product A-1020 UNITS, PRODUCT B-2400 UNITS and
raw material -4300 units
Closing stocks product A 15 days sales, product B-20 days sales and raw materials 10 days
consumption.
Solution:
PRODUCTION BUDGET
PARTICULARS
PRODUCT A (units)
PRODUCT B (Units)
Sales (for 12*5=60 days)
3600
4800
Add: closing stock (for 15 and 20

days)
3600*15/60=900
4800*20/60=1600
Less: opening stock
1020
2400
Budgeted production
3480
4000
19
Raw materials required per unit
5 kg
3kg
Budgeted raw materials usage
3480*5=17400kg
4000*3=12000kg
Direct labour hrs required per unit
5hrs
4hrs
Standard hrs for budgeted

production
3480*5=17400
4000*4=16000hrs
QUESTION
9).You are required to prepare a Sales Overhead Budget from the following estimates:
Advertisement
Rs.2,500
Salaries of sales department
Rs.5,000
Expenses of sales department
Rs.1,500
Counter salesmans salaries and dearness allowance Rs.6,000

Commission to counter salesman at 1% of their sales. Travelling salesmans commission at 10% on
their sales and expenses at 5% on their sales. The sales during period were estimated as follows:
Counter sales
Travelling salesmans sales
Rs. 80,000
Rs. 10,000
Rs. 1, 20,000
Rs. 15,000
Rs. 1, 40,000
Rs. 20,000
Solution:
Sales Overhead Budget for the period
Rs.
Rs.
Rs.
Counter sales
80,000
1,20,000
1,40,000
Travelling Sales
10,000
15,000
20,000
Total Sales
90,000
1,35,000
1,60,000
2,5000
2,500
2,500
Fixed Overhead
Advertisement
20
Salaries of sales dept.
5,000
5,000
5,000
Expenses of sales dept.
1,500
1,500
1,500
Salaries and DA of
counter salesmen.
6,000
6,000
6,000
15,000
15,000
15,000
800
1,200
1,400
Commission of
travelling
salesmen(10%)
1,000
1,500
2,000
Expenses (5% on
travelling sales)
500
750
1,000
(B)Total
2,300
3,450
4,400
Total sales overhead (A
17,300
18,450
19,400
(A)Total
Variable Overheads
Commission of counter
salesmen(1%)
+B)
QUESTION
10).The following information is provided in respect of Pvt. Ltd. company Prepare a Cash Budget
for April, May and June 2007.
Months
21
Details
Sales
Purchases
Wages
Expenses
Jan
Actual
80,000
45,000
20,000
5,000
Feb
Actual
80,000
40,000
18,000
6,000
March
Actual
75,000
42,000
22,000
6,000
April
Budget
90,000
50,000
24,000
7,000
May
Budget
85,000
45,000
20,000
6,000
June
Budget
80,000
35,000
18,000
5,000
Additional information:
i.
ii.
iii.
iv.
10% of the purchases and 20% of sales are in cash

The average collection period of the company is 1/2 month and the credit purchases are
paid regularly after one month.
Wages are paid half monthly and the rent of Rs.500 included in expenses is paid
monthly. Other expenses are paid after one month lag.
Cash balance on April 1, 2007 may be assumed to be Rs.15,000.
Solution:
CASH BUDGET
For the month ending June 2007
Particulars
April
May
June
RECEIPTS
Opening Balance
15,000
27,200
35,700
Cash Sales
18,000
17,000
16,000
Collection from Debtors
66,000
70,000
66,000
Total say A
99,000
1,14,200
1,17,700
5,000
4,500
3,500
Payments to creditors
37,800
45,000
40,500
Wages
23,000
22,000
19,000
500
500
500
5,500
6,500
5,500
PAYMENTS
Cash purchases
Rent
Other expenses
22
Total, say B
CLOSING CASH BALANCE, A B
71,800
78,500
69,000
27,200
35,700
48,700
QUESTION
11). The following information is provided in respect of Rashmi Ltd. Prepare a Cash Budget for
April, May and June 2007.
Months
Details
Sales
Purchases
Wages
Expenses
Jan
Actual
80,000
45,000
20,000
5,000
Feb
Actual
80,000
40,000
18,000
6,000
March
Actual
75,000
42,000
22,000
6,000
April
Budget
90,000
50,000
24,000
7,000
May
Budget
85,000
45,000
20,000
6,000
June
Budget
80,000
35,000
18,000
5,000
v.
vi.
vii.
viii.
23
10% of the purchases and 20% of sales are in cash

The average collection period of the company is 1/2 month and the credit purchases are
Wages are paid half monthly and the rent of Rs.500 included in expenses is paid
monthly. Other expenses are paid after one month lag.
Cash balance on April 1, 2007 may be assumed to be Rs.15,000.
Solution:
CASH BUDGET
For the month ending June 2007
Particulars
April
May
June
RECEIPTS
Opening Balance
15,000
27,200
35,700
Cash Sales
18,000
17,000
16,000
66,000
70,000
66,000
Total say A
99,000
1,14,200
1,17,700
5,000
4,500
3,500
37,800
45,000
40,500
Wages
23,000
22,000
19,000
500
500
500
Other expenses
5,500
6,500
5,500
Total, say B
71,800
78,500
69,000
27,200
35,700
48,700
PAYMENTS
Cash purchases
Rent
CLOSING CASH BALANCE, A B
QUESTION
12). Hindustan Ltd. is to start production on January 1, 2008. The prime cost of a unit is expected to
be Rs.40 (Rs.16 per material and Rs.24 for labor). In addition, variable expenses per unit are
expected to be Rs.8 and fixed expenses per month Rs.30,000. Payment for materials is to be
made in the month following the purchases. One-third of sales will be for cash and the rest on
credit for settlement in the following month. Expenses are payable in the month in which they
are incurred. The selling price is fixed at Rs.80 per unit. The number of units to be produced
and sold is expected to be: January 900, February 1,200, March 1,800, April 2,000, May 2,100
and June 2,400. Draw a cash budget indicating cash requirements.
24
Solution
CASH BUDGET
For six months ending 30th June
Particulars
RECEIPTS
Opening bal
Cash Sales
Collection
from
Debtors
A. Total
PAYMENTS
Creditors
Wages
Variable
Expenses
Fixed
Expenses
B. Total
Closing Bal.
[A B]
Jan
Feb
Mar
Apr
May
June
24,000
-
(34,800)
32,000
48,000
(37,600)
48,000
64,000
(32,400)
53,333
96,000
(5,867)
56,000
1,06,667
27,600
64,000
1,12,000
24,000
45,200
74,400
1,16,933
1,56,800
2,03,600
21,600
7,200
14,400
28,800
9,600
19,200
43,200
14,400
28,800
48,000
16,000
32,000
50,400
16,800
33,600
57,600
19,200
30,000
30,000
30,000
30,000
30,000
30,000
58,800
(34,800)
82,800
(37,600)
1,06,800
(32,400)
1,22,800
(5,867)
1,29,200
27,600
1,40,400
63,200
Jan
900
72,000
24,000
Feb
1,200
96,000
32,000
Mar
1,800
1,44,000
48,000
Apr
2,000
1,60,000
53,333
May
2,100
1,68,000
56,000
June
2,400
1,92,000
64,000
Working Notes:
Particulars
Sales [Units]
Sales [Rs.]
Cash Sales
[Rs.] 1/3
QUESTION
13).Ranjini Ltd. intends to approach her Bankers for temporary overdraft facility for three months
from 1st June to 31st August, 2007. Prepare a Cash budget for the above period.
Months
Sales
Purchases
Wages
25
April
3,60,000
2,49,600
24,000
May
3,84,000
2,88,000
28,000
June
2,16,000
4,86,000
22,000
July
3,48,000
4,92,000
20,000
Aug
2,52,000
5,36,000
30,000
(a) The entire sale is on credit basis out of which 50% is realized in succeeding month and
balance in the second month following sales.
(b) Creditors are paid in the month following purchase.
(c) Estimated cash as on 1st June is Rs.50,000
Solution
Cash Budget for the period ending 31st August
Particulars
June
July
August
RECEIPTS
Opening balance
50,000
1,12,000
(94,000)
3,72,000
3,00,000
2,82,000
A. Total
4,22,000
4,12,000
1,88,000
2,88,000
4,86,000
4,92,000
22,000
20,000
30,000
B. Total
3,10,000
5,06,000
5,22,000
Closing Balance [A B]
1,12,000
(94,000)
(3,34,000)
NIL
94,000
3,34,000
PAYMENTS
Wages
Overdraft needed
QUESTION
14). Prepare a cash budget from January to April.
Expected Purchases
26
Expected Sales
Jan
48,000
60,000
Feb
80,000
40,000
Mar
81,000
45,000
April
90,000
40,000
Wages paid Rs.5, 000 per month. Cash balance on 1st January Rs.8, 000. Management
decides that:
a) In case of deficit up to of Rs.10, 000, arrangement can be made with the bank.
b) In case of deficit exceeding Rs.10, 000 but within Rs.42, 000, debentures to be issued.
c) In case of deficit exceeding Rs.42, 000, equity shares to be issued.
Solution
CASH BUDGET
Particulars
Jan
Feb
March
April
RECEIPTS
Opening balance
Cash sales
Total, say A
8,000
15,000
(30,000)
(71,000)
60,000
40,000
45,000
40,000
68,000
55,000
15,000
(31,000)
48,000
80,000
81,000
90,000
5,000
5,000
5,000
5,000
53,000
85,000
86,000
95,000
15,000
(30,000)
(71,000)
(1,26,000)
PAYMENTS
Purchases
Wages
Total, say B
Closing Balance [A B]
The total deficit of Rs. 1,26,000 should be raised from the issue of Equity Shares.
27
QUESTION
15). A company expects to have Rs 37500 cash in hand on 1st April and requires you to prepare as
estimate of cash position during the three months. April, May and June. The following information is
supplied to you:
Months
Sales
Purchases
Wages
Factory exp Office exp
Selling exp
February
75000
45000
9000
7500
6000
4500
March
84000
48000
9750
8250
6000
4500
April
90000
52000
10500
9000
6000
5250
May
120000
60000
13500
11250
6000
6570
June
135000
60000
14250
14000
7000
7000
Other information:
a.
b.
c.
d.
e.
f.
Period of credit allowed by suppliers 2 months

20% of sales is for cash and period of credit allowed to customers for credit is one month
Delay in payment of all expenses 1 month
Income tax of Rs 57500 is due to be paid on June 15th
The company is to pay dividends to shareholders and bonus to workers of Rs 15000 and
22500 respectively in the month of April.
Plant has been ordered to be received and paid in May. It will cost Rs 120000.
Solution:
Cash budget for 3 months
Particulars
April
May
June
Receipts: o/p bal
37500
11700
(-91050)
Cash sales [20% of 18000

sales]
24000
27000
Credit sales
67200
52500
96000
Total
122700
107700
31950
Payments
28
Creditors
45000
48000
52000
Wages
9750
10500
13500
Income tax
57500
Office Expenses
6000
6000
6000
Selling expenses
4500
5250
6570
Factory expenses
8250
9000
11250
share 15000
Bonus
22500
Plant brought
120000
Total
11700
(91050)
(11480)
Expenses
Dividend
hold
to
QUESTION
16). Excellent Manufacturers can produce 4000 units of a certain product at 100% capacity. The
following information is obtained from the books of accounts:
Aug.2006
Units produced
2800
Rs.
Repairs and maintenance
3600
Rs.
500
560
1800
2000
700
900
Consumable stores
1400
1800
Salaries
1000
1000
Inspection
200
240
Depreciation
1400
1400
Power
Shop labor
29
Sept.2006
Rate of production per hour is 10 units. Direct material cost per unit is Re. 1 and direct
wages per hour is Rs. 4
You are required to:
i)
Compute the cost of production at 100%, 80% and 60% capacity showing the variable,
fixed and semi-variable items under the flexible budget.
ii)
Find out the overhead absorption rate per unit at 80% capacity.
Solution:
Flexible budget from Aug-Sept. 2006
_____________________________________________________________________________________
100%
Capacity
4000 units
Rs.
80%
capacity
60%
capacity
3200 units 2400 units

Rs.
Rs.
Variable cost:
Direct material [@Re 1 per unit.]
4000
3200
2400
Direct wages [@ Rs. 4 per hour for 10 units]
1600
1280
960
Shop labor
1000
800
600
Consumable stores
2000
1600
1200
_____________________________________________
Table A total
8600
6880
5160
Semi-variable costs:
Power
2100
1900
2400
Inspection
260
220
180
590
530
470
2950
2650
2350
Total B
Fixed cost:
30
Salaries
1000
1000
1000
Depreciation
1400
1400
1400
Total C
Total (A+B+C)
2400
13,950
Cost per unit (Total cost /units)

ii)
2400
2400
11,390
9910
3.73
4.13
3.49
Calculation of overhead absorption rate per unit at 80% capacity

Total cost at 80%
Rs. 11 930
Less: direct material and wages
4480
Overhead cost
7450
Overhead rate per unit = 7450 /3200 units
= 2.33
Working notes:
Calculation of semi-variable costs.
Variable cost per unit = difference in cost/ difference in units
Power = 2000 800/3600 2800 =200/800= Re. 0.25
At 70% fixed element in power cost= 1800- 700 (i.e. 2800 units @0.25 per unit) = Rs. 1100
Semi variable power cost at 100% = 1100 + 1000 (i.e. 4000 units @ 0.25) = Rs. 2100
Similar calculations for repairs and inspection.
QUESTION
17). A company produces two products and budgets at 60 % level of activity for the year 2006. It
gives the following information:
31
Product A
Product B
Raw material cost per unit
Rs. 7.50
3.50
Direct wages per unit
Rs. 4.00
3.00
Variable overhead per unit
Rs. 2.00
1.50
Fixed overhead per unit
Rs. 6.00
4.50
Selling price per unit
Rs. 20
15.00
Production and sales units
4000
6000
The managing director is not satisfied with the budgeted results as stated above and wants
to improve the performance. The managing director proposed that the sales quantities of
the products A and B could be increased by 50% provided the selling price is reduced by 5%
in the case of product A and 10% in the case of product B. the price reduction should be
made applicable to the entire quantity of sales of each of the two products.
You are required to present the overall profitability under the original budget and revised
budget after taking the increased sales into consideration.
Solution:
Sales (units)
(A) Sales value
Original budget
Revised budget
A
total
A
total
4000
6000
6000
9000
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
80000 90000
170000
114000 121500
235500
30000 21000
51000
45000
76500
31000
16000 18000
34000
24000
51000
27000
8000
17000
9000
12000
25500
13500
24000 27000
51000
24000
51000
27000
Costs:
Raw material
Labor
Variable O/H
Fixed O/H
32
(B) Total cost
78000 75000
153000
105000 99000
204000
(C) Profit (A-B)
2000 15000
17000
9000
31500
22500
Working note:
Revised sales figures are computed as follows:
Selling price per unit
Re. 20
15
Less: 5% and 10%
Re. 1
1.50
Rs. 19
Sales value = 6000 units * Rs. 19
13.50
= Rs. 114000
= 9000 units * Rs. 13.50
= Rs. 121500
QUESTION
17.) Prepare a Cash Budget for the three months ending 30th June, 2005 from the information given
below:
(a) Month
Sales
Materials
Wages
Overheads
Rs.
Rs.
Rs.
Rs.
February
14000
9600
3000
1700
March
15000
9000
3000
1900
April
16000
9200
3200
2000
May
17000
10000
3600
2200
June
18000
10400
4000
2300
(b) Credit terms are:

Sales and debtors- 10% of sales are on cash, 50% of the credit sales are collected next month and
the balance in the following month:
Creditors-
33
Materials
2 months
Wages
month
Overheads
month
(c) Cash and bank balance on 1st April, 2005 is expected to be Rs. 6000.
(d) Other relevant information are:
(i) Plant and machinery will be installed in February 2005 at a cost of Rs. 96000.
The monthly installments of Rs. 2000 is payable from April onwards.
(ii) Dividend @ 5% on Preference Share Capital of Rs. 200000 will be paid on 1st June.
(iii) Advance to be received for sale of vehicle Rs.9000 in June.
(iv) Dividends from investments amounting to RS. 1,000 are expected to be received in June.
(v) Income tax (advance) to be paid in June is Rs. 2000.
Solution
Cash Budget
For three months ending 30th June, 2005
Balance b/f
April
Rs.
May
Rs.
June
Rs.
Total
RS.
6000
3950
3000
6000
Receipts :
Sales*
14650 15650 16650 46950
Dividend
1000
1000
Advance against vehicles
9000
9000
Total
20650 19600 29650 62950
Payments :
34
Creditors (materials)
9600
9000
9200
27800
Wages
3150
3500
3900
10550
Overheads
1950
2100
2250
6300
Installment for plant
2000
2000
2000
6000
Pref. dividend
10000 10000
Income-tax advance
2000
Total
Closing balance
2000
16700 16600 29350 62650

3950
3000
300
300
*working notes:
1. Calculation of collection from debtors
Feb. Rs.
March
Rs.
April Rs.
May Rs.
June Rs.
Sales
14000
15000
16000
17000
18000
Cash sales (10%)
1400
1500
1600
1700
1800
Credit sales
12600
13500
14400
15300
16200
50% collection in next month
67500
7200
7650
50% collection in the following month
6300
6750
7200
Total collections
13050
13950
14850
Cash sales
1600
1700
1800
14650
15650
16650
2. Payment to creditors for materials wages and overhead have been computed on a similar pattern.
(i) For example, payment for creditors for materials will be : February purchases will be paid in
April, March purchases will be paid in May, and April purchases will be paid in June.
(ii) Payment for overhead in
April = (3000*1/4) + (3200*3/4) = Rs. 3150

May = (3000* 1/4) + (3600*3/4) = Rs.3500
June = (3000* 1/4) + (4000 * 3/4) = Rs. 3900
(iii) Payment for overhead in April = (1900* 1/2) + (2000* 1/2) = Rs. 1950.
35
QUESTION
18). Glass manufacturing Company requires you to present the budget for the next year from the
following information :
Sales :
Toughened Glass
Rs. 600000
Bent Glass
Rs. 200000
Direct material cost

Direct wages
60% of sales
20 workers @ Rs. 150 per month
Factory overheads :
Indirect labour
Works manager
Foreman
Rs. 500 per month

Rs. 400 per month
Stores and spares
2.5% on sales
Depreciation on machinery
Rs. 12600
Light and power
Rs. 3000
Rs. 8000
Other sundries
10% on direct wages
Administration, selling and distribution expenses
Rs. 36000 per year
36
Solution
Master Budget for the year ending
Sales:
Rs.
Toughened Glass
600000
Bent Glass
200000
Total sales
800000
Less: Direct materials (60% of Rs. 800000)
480000
Direct wages (20 * 150 * 12 months)
36000
Prime cost
516000
Fixed factory overheads:

Works managers salary (500*12)
6000
Foremans salary (400*12)
4800
Depreciation
12600
Light and power
3000
26400
Variable Factory Overhead:

Stores and spares
20000
8000
Sundry expenses
3600
Works Cost
574000
Gross Profit
226000
Less: Adm., selling and dist. Expenses

Net Profit
37
31600
36000
190000
QUESTION
19). Draw up a flexible budget for overhead expenses on the basis of the following data and
determine the overhead rates at 70%, 80% and 90% plant capacity.
Variable overheads:
Indirect labor
Stores including spares
Rs.
12000
4000
Semi-variable overheads:
Power (30% fixed, 70% variable)
Repairs and maintenance (60% fixed, 40% variable)
20000
2000
Fixed overheads:
Depreciation
Insurance
11000
3000
Salaries
10000
Total overheads
62000
Estimated direct labour hours

hrs
38
124000
Solution
Flexible Budget for the period
Particulars
At
70% At
80% At
90%
capacity
capacity
capacity
Variable overheads
Rs.
Rs.
Rs.
Indirect labour
10500
12000
13500
Stores including spares
3500
4000
4500
Fixed
6000
6000
6000
Variable
12250
14000
15750
Fixed
1200
1200
1200
Variable
700
800
900
Depreciation
11000
11000
11000
Insurance
3000
3000
3000
Salaries
10000
10000
10000
(A) Total overheads
58150
62000
65850
(B) Estimated direct labour hours
102500
124000
139500
Direct labour hour rate (A / B)
Re. 0.536
0.5
0.472
Semi-Variable overheads:
Power:
Repairs and Maintenance :
Fixed overheads:
Working notes :
1. Indirect labour cost at 70% = 12000*70/80 = Rs. 10500
at 90% = 12000*90/80 = Rs. 13500
Similar calculation for other variable items, i.e., stores.
2. Power Fixed = Rs. 6000, Variable = Rs. 14000.
39
Variable power at 70% = 14000*70/80 = Rs. 12250
at 90% = 14000*90/80 = Rs. 15750
Similar calculation for repairs and maintenance
3. Direct labour hours at 70% = 124000*70/80 = 108500
at 90% = 124000*90/80 = 139500
QUESTION
20).
For the production department of XXL Ltd you are required to :
(a) Prepare a fixed budget of overheads;

(b) Prepare a flexible budget of overheads at 70% and 110% of budgeted volume;
(c) Calculate a department hourly rate of overheads absorption as per (a) and (b) above. The
budgeted level of activity of the department is 5000 hour per period and a study of the
various items of expenditure reveals the following :
Rs.
Indirect wages
Repairs
Re. per
hr.
0.4
Up to 2000 hours
100
For each additional 500 hours 35

up to a total of 4000 hrs.
Additional from 4001 to 5000 60
hrs.
Additional above 5000 hrs.
Rent and rates
Power
70
350
Up to 3600 hours
0.25
For hours above 3600
0.2
Consumable
supplies
Supervision
40
0.24
Up to 2500 hours
400
Additional for each extra 600 100
hours above 2500 and up to
4900 hours
Depreciation
Additional above 4900 hours
150
Up to 5000 hours
650
Above 5000 hours and up to 820

6500 hours
Cleaning
Heat and lighting
Up to 4000 hours
60
Above 4000 hours
80
From 2100 hrs. to 3500 hrs.
120
From above 3500 hrs. to 5000 150

hrs.
Above 5000 hours
175
Solution
Fixed and Flexible Budget for the period
Items of Overhead
Nature of Overhead
Fixed
Budget
Flexible Budget
100%
70%
5000 hrs
3500 hrs. 5500 hrs.
Rs.
Rs.
Rs.
110%
Indirect wages
Variable
2000
1400
2200
Repairs
Semi-variable
300
205
370
Rent and taxes
Fixed
350
350
350
Power
Semi-variable
1180
875
1280
Consumable Supplies
Variable
1200
840
1320
41
Supervision
Semi-variable
950
600
950
Depreciation
Semi-variable
650
650
820
Cleaning
Semi-variable
80
60
80
Heat and lighting
Semi-variable
150
120
175
6860
5100
7545
Rs. 6860
Rs. 5100
RS. 7545
5000 hrs.
3500 hrs. 5500 hrs.
=Rs.
1.37
=Rs.
1.46
Total overheads
Hourly
rate
overheads
of
(Total overheads / Hours)
=Rs.
1.37
QUESTION
21). J K Ltd. Sells two products Jay & Kay in four areas North, South, East and West. The following
are budgeted for the month of Jan. 2005:
North - Jay 5,000 @ Rs.30 each, and Kay 3,000 units @ Rs.15 each
South - Kay 6,000 @ Rs.15 each
East
- Jay 7,500 units @ Rs. 30 each
West
- Jay 4,000 units @ Rs. 30 each and Kay 2,500 units @ Rs. 15 each
Actual sales for the same period were as follows:

North - Jay 5,750 @ Rs.30 each, and Kay 3,500 units @ Rs.15 each
South - Kay 6,250 @ Rs.15 each
East
- Jay 8,250 units @ Rs. 30 each
West
- Jay 4,750 units @ Rs. 30 each and Kay 2,625 units @ Rs. 15 each
On the basis of all the relevant factors, the following sales are budgeted for the month of Feb. 2005.
North - Jay 6,000 and Kay 3,250 units
South - Kay 6,500 units
East
- Jay 8,500 units
West
- Jay 4,500 units and Kay 2,750 units
42
It was decided that additional advertising campaign will be undertaken in South and East which
will result in additional sales of 1,500 units of Jay in South and 2,500 units of Kay in East.
You are required to prepare a sales budget for the month of Feb. 2005 for presentation to
management also showing the budgeted and actual sales for the month of Jan. 2005 which are to be
provided as a guide in preparing the sales budget.
Solution
Sales Budget
For the month of Feb. 2005
Budget Feb. 2005
Budget Jan 2005
Actual Jan 2005
Area
Quantity
Product units
Price
Rs.
Amount
Rs.
Quantity
units
Price
Rs.
Amount
Rs.
Quantity
units
Price
Rs.
Amount
Rs.
North
Jay
6,000
30
180,000
5000
30
150000
5,750
30
172,500
Kay
3,250
15
48,750
3000
15
45000
3,500
15
52,500
Total
9,250
228,750
8000
195000
9250
Jay
1,500
30
45,000
Kay
6,500
15
97,500
6000
90000
6,250
Total
8,000
142,500
6000
90000
6,250
Jay
8,500
30
255,000
7500
225000
8,250
Kay
2,500
15
37,500
Total
11,000
225000
8,250
Jay
4,500
Kay
2,750
Total
7,250
Jay
20,500
Kay
15,000
Total
35,500
South
East
West
Total
43
15
30
225000
15
93,750
93,750
30
247,500
292,500
7500
247,500
30
135,000
4000
30
120000
4,750
30
142,500
15
41,250
2500
15
37500
2,625
15
39,375
176,250
6500
157500
7,375
30
615,000
16500
30
495000
18,750
30
562,500
15
225,000
11500
15
172500
12,375
15
185,625
840,000
28000
667500
31,125
181,875
748,125
QUESTION
22).Viveka elementary school has a total of 150 students consisting of 5 sections with 30 students
per section. The school [plans for a picnic around the city during the weekend to places such as
the Zoo, the amusement park, Planetarium etc. A private transport operator has come forward
to lease out the buses door taking out the students. Each bus will have a maximum capacity of
50(excluding 2 seats reserved for teaches accompanying the students).The school will employ
two teachers for each bus, paying them an allowance of Rs 50 each. It will also lease out the
required number of buses. The following are the other cost estimates:
Cost per student
Breakfast
Lunch
5
10
Tea
Entrance fee at Zoo
Rent Rs650 per bus.

Special permit Fee Rs50 per bus.
Blocked entrance Fee at planetarium Rs250
Prize to students for games Rs 250No costs are accompanied per teacher (apart fromRs50
allowance).
You are required to prepare:
(a) A flexible budget estimating the total costs for levels of 30, 60, 90, 120 and 150 students.
(b) Compare the average cost per student at these levels.
(c) What will be your conclusion regarding the break-even level of students if the school
proposes to collect Rs45 per student?
44
Solution.
Flexible budget to estimate total cost
No. of Students
30
Rs.
60
Rs.
90
Rs.
120
Rs.
150
Rs.
Variable Costs:
Breakfast
150
300
450
600
750
Lunch
300
600
900
1200
1500
Tea
90
180
270
360
450
Entrance fee to Zoo
60
120
180
240
300
600
1200
1800
2400
3000
Rent of Bus
650
1300
13000
1950
1950
Permit Fee
50
100
100
150
150
100
200
200
300
300
800
1600
1600
2400
2400
Pl.
250
250
250
250
250
Prizes to stud. For games
250
250
250
250
250
500
500
500
500
500
1900
3300
3900
5300
5900
Semi-Fixed Costs:
Allowance to teachers
Fixed Costs:
blocked Entrance Fee at
Total Costs
Average costs per
student
1900/30
3300/60 3900/90 5300/120 5900/180

63.33
55
Breakeven level
Collection per
45
student
45
Variable cost per
20
43.33
44.17
39.33
student
Contribution per
student
25
Since semi-fixed costs changes for every 50 students, fixed costs + semi-fixed costs for 3 level of
students to be covered are:
Level
upto50
Fixed Costs(including semi-fixed costs)

Contribution per student
51 to
101 to
100
150
1300
2100
2900
25
25
25
1300
2100
2900
25
25
25
52
84
116
Break -even point

no. of students to recover fixed costs
including semi-fixed costs
The figure 52 lies outside 1st limit, while 84 and 116 lies within the limit hence they are 2 breakeven points.
QUESTION
23). your company manufactures two products A and B. A forecast of the number of the units to be
sold in the seven months of the year is given below:
Product
Product
January
1,000
2800
February
1,200
2800
March
1,000
2400
April
2,000
2000
46
May
2,400
1600
June
2,400
1600
July
2,000
1800
It is anticipated that () there will be no work-in-progress at the end of any month, (ii) famished
units equal to half the sales for the next month will be in stock at the end of each month (including
the previous December).
Budgeted production and production costs for the whole year are as follows:
Production (Units)
Product
Product
22,000
24,000
Rs.
Rs.
Per unit, Direct

Material
12.5
19
66,000
96,000
Direct Labour
Total Factory
Overhead
apportioned
Prepare for the six months ending 30th lume, a production budget for each month and a
Summarized production cost budget.
Solution:Production Budget
(For six months ending 30th June)
Jan
Feb
Mar
Apl
May
June
Total
(Units)
(Units)
(Units)
(Units)
(Units)
(Units)
(Units)
Product
A
Sales
(+) Closing Stock
(-) Opening Stock
Production Budget
47
1,000
1,200
1,600
2,000
2,400
2,400
600
800
1,000
1,200
1,200
1,000
1,600
2,000
2,600
3,200
3,600
3,400
500
600
800
1,000
1,200
1,200
1,100
1,400
1,800
2,200
2,400
2,200
11,100
Product
B
Sales
2,800
2,800
2,400
2,000
1,600
1,600
(+) Closing Stock
1,400
1,200
1,000
800
800
900
4,200
4,000
3,400
2,800
2,400
2,500
(-) Opening Stock
1,400
1,400
1,200
1,000
800
800
Production Budget
2,800
2,600
2,200
1,800
1,600
1,700
12,700
B) Summarized Production Cost Budget

Product
Product A
Total
Rate
Amount
Rate
Amount
Rs.
Rs.
Rs.
Rs.
Direct Material
Direct Labour
12.5 1.38.750
19 2,41,300
Rs.
3,80,050
4.5
49,950
88,900
1,38,850
33,300
50,800
84,100
20
2,22,000
30 3,81,000
6,03,000
Factory
Overhead
Total
QUESTION
24). Estimate the cash requirement of Meerut Fruit Co. Ltd. For June11998 on basis of data given:
(i)Sales
Feb 1998
Rs.25, 000
Mar1998
Rs.20, 000
Apr to June1998
Rs.30, 000 per month
Half the sales are for cash.90%of credit sales are collected in the month following the month of sale
and the balance one month later.
(ii) Fruits are always bought of cash of discount of 5%. The purchase began for 2nd Quarter was
15,000 per month at Rs1 per basket.
48
(iii) Wages and salaries for 2nd quarter were budgeted at Rs.5,000 per month.
(iv) Manufacturing and other expenses for the quarter were
Cash expenses
Rs, 4,500
Depreciation
Rs. 7,500
Selling expenses
Rs, 3,000
Administrative expenses Rs. 2,000 (equally in April and May only)

Solutions:Cash Budget (For three months ending 30th June, 1998)
Particulars
Opening Cash Balance
April
May
June
Rs.
Rs.
Rs.
2,500
9,250
Add Cash inflows :

(i) Cash Sales (1/2 of sales)
15,000
15,000
15,000
(ii) Cash Collected from Debtors
10,250
14,500
15,000
(A)Total cash available
25,250
32,000
39,250
14,250
14,250
14,250
(ii)Wages and salaries
5,000
5,000
5,000
(iii)Cash Expenses
1,500
1,500
1,500
(iv)Selling Expenses
1,000
1,000
1,000
(v)Administrative Expenses
1,000
1,000
22,750
22,750
21,750
2,500
9,250
17,500
Cash Outflows:
(i) Cash Purchase (Less Trade
discount)
(B)Total Payments
Closing Cash balance(A)- (B)
Working Notes:
(i)
As the opening Cash balance for the month of April l has not been given in the question,
it has been assumed to be nil
49
(ii)
Closing cash balance of month becomes the opening balance of the next month.
(iii) Cash collections from debtors have been calculated as follows :

Feb
March
April
May
June
Rs.
Rs.
Rs.
Rs.
Rs.
Credit Sales
(being1/2 of sales)
12,500
10,000
Cash collected from debtors;
15,000
15,000
15,000
9,000
13,500
13,500
1,250
1,000
1,500
10,250
14,500
15,000
(a)90% of prev. months Crdedit sales

(b)10% of credit sales of two months
earlier
QUESTION
25). A company making for stock in the first quarter of the year is assisted by its bankers with
overdraft accommodation. The following are the relevant budgeted figures:
Rs.
Rs.
Rs.
Sales
Purchases Wages
November
60,000
41,500
4,900
December
64,000
48,000
5,000
January
36,000
81,000
4,000
February
58,000
82,000
3,800
March
42,000
89,500
5,200
Budgeted cash at the bank on 1st January is Rs.8,600.Credit terms of sales are payment by the end of
the month following the month of supply .On an average, one half of the sales are paid on due date,
while the other half are paid during the next month. Creditors are paid during the month following
the month of supply.
50
You are required to prepare a cash budget for the quarter from1st January to 31st March ,showing
budgeted amount of bank facilities required at each month end.
Solution
Cash Budget (For the quarter ending 31st March)
Particulars
Opening bank Balance
January
February March
Rs.
Rs.
Rs.
8,600
18,600
-16,200
62,000
50,000
47,000
(A)Total Cash available
70,600
68,600
30,800
48,000
81,000
82,000
4,000
3,800
5,200
(B)Total Payments
52,000
84,800
87,200
Clearing Bank balance(A) - (B)
18,600
-16,200
-56,400
Add Cash Inflows:
Cash Outflows:
(i)Payment to creditors for purchases
(ii)Payment of wages
Notes:
(i)
Collection from debtors have been calculated as follows:
Credit Sales
Nov
Dec
Jan
Feb
March
Rs.
Rs.
Rs.
Rs.
Rs.
60,000
64,000
36,000
58,000
42,000
32,000
18,000
29,000
30,000
32,000
18,000
62,000
50,000
47,000
Amount Collected
(i)for sales during the preceding month
(1/2of sales)
(ii)For the sales during the month
preceding the previous month(1/2) of
sales)
Total Collection
51
(ii)
Since the lag in payment of wages has not been given, these shall be treated to bepayable
in the same month.
(iii)
The company has to arrange for the bank overdraft facility for Rs.16,200 at February-end
for Rs.56,200 at March end.
QUESTION
26). From the following forecasts of income and expenditure prepare a Cash Budget for the halfyear ended on 30th June, 1994Months
Sales
Purchases Wages
Manufacturing
Administration
Selling
Expenses
Expenses
expenses
Rs.
Rs.
Rs.
(Credit) (Credit)
1993 Rs.
Rs.
Rs.
Nov
25,000
10,000
2,500
1,100
1,000
600
Dec
30,000
15,000
2,800
1,200
975
650
January
20,000
10,000
2,000
1,250
1,060
550
Feb
25,000
15,000
2,200
1,150
1,040
650
Mar
30,000
17,500
2,400
1,300
1,105
750
Apr
30,000
20,000
2,600
1,350
1,120
800
May
40,000
22,500
2,800
1,450
1,180
825
June
45,000
25,000
3,000
1,500
1,185
875
1994
(1)A sales commission of 5% on sales and due two months after sales is payable in addition to above
selling expenses.(2) Capital Expenditure-Plant purchased,1st January for Rs.80,000, payable in two halfyearly installments, the first payable in February.(3)A dividend of Rs.5000(net) is payable at April.(4)
Period of credit allowed by creditors and customers is 2 months.(5) Lag in payment of wages- 1/8th of
month(6) Lag in payment of other expenses- 1 month(9( Cash balance on 1st January, was expected to be
37,500.
Solution:
52
Particulars
Opening balance of
Jan
Feb
Mar
Apr
May
Jun
Total
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
37,500
36,275
4,790
8,575
6,595
11,550
25,000
30,000
20,000
25,000
30,000
30,000 1,60,000
Total
62,500
66,325
24,790
33,575
36,595
41,550
Less payment
26,175
61,535
16,215
26,980
25,045
27,930
36,225
4,790
8,575
6,595
11,550
13,620
10,000
15,000
16,000
15,000
17,500
20,000
87,500
2,100
2,175
2,375
2,575
2,775
2,975
14,975
1,200
1,250
1,150
1,300
1,350
1,450
7,700
975
1,060
1,040
1,105
1,120
1,180
6,480
650
550
650
750
800
825
4,225
1,250
1,500
1,000
1,250
1,500
1,500
8,000
cash
Receipts received
from
customers
Closing balance of
cash
Payments:
Paid to creditors
Wages
Manufacturing
expenses
Administration
expenses
Selling and
distribution
expenses
Sales
Purchase of plant
10,000
10,000
Installment payment
of building
40,000
40,000
Dividend
Total payments
5,000
26,175
61,535
16,215
26,980
5,000
25,045
27,930 1,83,880
Amount of wages which is being paid actually in various months is calculated as per table given below:
53
Months
Wages
Lag in
for
payment
Amount actually paid in the month
months
of 1/8 month
for month 7/8
lag payment
Total
Dec-93
2,800
350
Jan-94
2,200
250
1,750
350 2,100
Feb-94
2,200
275
1,925
250 2,175
Mar-94
2,400
300
2,100
275 2,375
Apr-94
2,600
325
2,275
300 2,575
May-94
2,800
350
2,450
325 2,775
Jun-94
3,000
375
2,625
350 2,975
QUESTION
27). A department attains sales of Rs 600000 at 80% of its normal capacity. Its expenses are
Office salaries
90,000
General exp
2% of sales
Dep
7500
Rent and rates
8750
Salaries
8% of sales
Travelling exp
2% of sales
Sales office
1% of sales
Gen selling expenses
1% of sales
Wages
15000
Rent
1% of sales
Other exp
4% of sales
Draw flexible budget operating at 90 per cent, 100 per cent and 110 per cent of normal capacity.
Solution
Flexible Budget
Sales
80%
90%
100%
110%
600000
675000
750000
825000
-------------------------------------------------------------------------------Administration Costs:
54
Office salaries(fixed)
90000
90000
90000
90000
General exp(2% of sales)
12000
13500
15000
16500
Depreciation
7500
7500
7500
7500
Rent and rates
8750
8750
8750
8750
--------------------------------------------------------------------------------(A)
Total Admin Exp
118250
119750
121250
122750
-------------------------------------------------------------------------------Selling Costs:
Salaries(8% of sales)
48000
54000
60000
66000
-------------------------------------------------------------------------------Travelling exp(2% of sales)
12000
13500
15000
16500
Sales office(1% of sales)
6000
6750
7500
8250
General expenses(1% of sales) 6000
6750
7500
8250
-------------------------------------------------------------------------------(A) Total Selling Exp
72000
81000
90000
99000
-------------------------------------------------------------------------------Distribution Costs:
Wages
15000
15000
15000
15000
Rent
6000
6750
7500
8250
Other exp
24000
27000
30000
33000
-------------------------------------------------------------------------------(C) Total Dist cost
45000
48750
52500
56250
-------------------------------------------------------------------------------Total cost (A+B+C)
235250
249500
263750
278000
QUESTION
28). The following data relates to the working of a factory at Wardha for the current year:
Capacity worked, 50%
Fixed costs:
Rs
Salaries
84000
Rent
56000
55
Rs
Dep
70000
Other admin exp
80000
290000
-------Variable costs:
Materials
240000
Labour
256000
Other exp
38000
534000
---------Possible sales at various levels of working are

Capacity(%)
Sales(Rs)
60
950000
75
1150000
90
1375000
100
1525000
Prepare a flexible budget and show the forecast of profit at 60%, 75%, 90% and 100% capacity.
Flexible budget
------------------------------------------------------------------------------------------------------------------------------60%
75%
90%
100%
------------------------------------------------------------------------------------------------------------------------------Sales Revenue
950000
1150000
1375000
1525000
--------------------------------------------------------------------------Less
Materials
288000
360000
432000
480000
Labour
307200
384000
460800
512000
Other exp
45600
57000
68400
76000
-------------------------------------------------------------------------------56
(A) Total Var Cost
640000
801000
961200
1068000
Salaries
84000
84000
84000
84000
Rent and rates
56000
56000
56000
56000
Depreciation
70000
70000
70000
70000
Adm exp
80000
80000
80000
80000
-----------------------------------------------------------------------(B) Total fixed cost
290000
290000
290000
290000
____________________________________________________________________________________________________________________
Total cost(A+B)
930800
1091000
1251200
1358000
_____________________________________________________________________________________________________________________
Forecast of profits
19200
59000
123800
167000
QUESTION
29). From the following data, prepare a flexible budget for production of 40000 and 75000 units,
distinctly showing variable cost and fixed cost as well as total cost. Also indicate element wise cost
per unit. Budgeted cost per unit is as follows
Direct material
95
Direct labour
50
Production overhead
40
Production overhead(fixed)
Admin overhead(fixed)
Selling overhead(10% fixed) 10

Distribution overhead
15
Flexible Budget
1,00,000 units
57
40000units
75000units
________________________________________________________________________________
Direct Material @ 95
9500000
3800000
7125000
Direct labour @ 50
5000000
2000000
3750000
Prod overhead @40
4000000
1600000
3000000
900000
360000
675000
1200000
480000
900000
Selling overhead
10*90/100 @ 9
Distribution overhead
15*80/100 @ 12
----------------------------------------------------------------------------------------Variable cost
20600000
8240000
15450000
-----------------------------------------------------------------------------------------Fixed cost
Production overhead@5
500000
500000
500000
Admin overhead@12.50
500000
500000
500000
Selling overhead@1
100000
1000000
100000
Distribution overhead@3
300000
3000000
300000
----------------------------------------------------------------------------Total fixed cost
1400000
1400000
1400000
---------------------------------------------------------------------------Total cost
22000000
9640000
16850000
QUESTION
30). A large retail stores makes 25% of its sales for cash and the remainder on 30 days net. Due to faulty
collection practice, there have been losses from bad debts to the extent of 1 % of credit sales on
average in the past. The experience of the store tells that normally 60 % of credit sales are collected
in the month following the sale, 25% in the second following month and 14 % in the third following
month. Sales in the preceding three months have been January 2007 Rs.80,000, February
Rs.1,00,000 and March Rs.1,40,000. Sales for the next three months are estimated as April Rs.1,
50,000, May Rs.1, 10,000 and June Rs.1, 00,000. Prepare a schedule of projected cash collection .
58
Solution:
Statement of expected Cash Receipts
Collection form
April
May
June
Cash sales
37500
27,500
25,000
January
8400
February
18750
10,500
March
63000
36,350
14,700
April
67,500
28,125
May
49,500
Total
127650
1,31,750
1,17,325
Collection from
Debtors :
Assume that the credit policy is enforced strictly ,what would be the cash receipts.
Cash sales : Debtors
37,500
27,500
25,000
March
1,05,000
April
1,12,500
May
82,500
Total
1,42,500
1,40,000
1,07,500
Forecasts of cash payments: The items of expenditures differ from business to business. The
normal items which come under the lists are :
1. Cash purchases
2. Payment to creditors or suppliers
3. Payments to Bills payable
4. Payment to employees in the nature of wages, salaries
5. Manufacturing, selling and distribution and administration expenses
6. Repayments of bank load and special obligations such as bonus, donations, advances
7. Interest and dividend payments
8. Capital expenditures for acquiring assets of enduring benefit
59
9. payment of tax liability
10. other expenses of periodic nature
The quantum of amount likely to be spend on the above each item is generally determined with
reference to functional budgets of the concerns. The policy of the management will also play a crucial
role. It is the policy which determines the ratio of cash purchases and credit purchases.
In many cases, the time lag affects the amount of expenditures to be incurred in a particular period. The
formula adopted for the expenses payable in next month is : months amount x time lag
QUESTION
31). The following are the forecasts relating to wages and factory expenses.
July Aug Sept Oct Nov
Wages 32,000 32,000 32,000 40,000 32,000
Factory expenses 5,000 5,000 5,000 5,000 5,000
The lag in payment of wages is 1 / 8 month and that in case of factory expenses 1/ 2 month.
Estimate the amounts of wages and factory expenses payable in each month of September to
November.
Solution
Statement showing the disbursements of cash
Particulars
Sept
Oct
Nov
Aug 32,000
4,000
Sept 32,000
28,000
4,000
Oct 40,000
35,000
5,000
Nov 32,000
28,000
32,000
39,000
33,000
Aug 5,000
2,500
Sept 5,000
2,500
2,500
Oct 5,000
2,500
2,500
Wages:
Factory expenses
60
Nov 5,000
2,500
5000
5000
5000
QUESTION
32). The following information is provided in respect o DR Ltd. Prepare a Cash Budget for April, May and
June 2007.
Months Details Sales Purchases Wages Expenses (in Rupees)
Jan
Actual 80,000 45,000
20,000 5,000
Feb
Actual 80,000 40,000
18,000 6,000
March Actual 75,000 42,000
22,000 6,000
April
24,000 7,000
Budget 90,000 50,000
May
Budget 85,000 45,000
June
Budget 80,000 35,000
20,000 6,000
18,000
5,000
a. 10 % of the purchases and 20 % of sales are for cash
b. The average collection period of the company is 1 / 2 month and the credit purchases are
c. Wages are paid half monthly and the rent of Rs.500 included in expenses is paid monthly.
Other expenses are paid after one mo nth lag.
d. Cash balance on April 1, 2007 may be assumed to be Rs.15,000.
Solution
Cash budget for the month ending June 2007
Particulars
April
May
June
Opening Balance
15,000
27,200
35,700
Cash Sales
18,000
17,000
16,000
Debtors
66,000
70,000
66,000
Total , say A
99,000
1,14,200
1,17,700
RECEIPTS
Collection from
61
PAYMENTS
Cash purchases
5,000
4,500
3,500
37,800
45,000
40,500
Wages
23,000
22,000
19,000
Rent
500
500
500
Other expenses
5,500
6,500
5,500
Total, say B
71,800
78,500
69,000
27,200
35,700
48,700
CLOSING CASH
BALANCE, A B
QUESTION
33). DR is to start production on January 1, 2008. The prime cost of an unit is expected to be Rs.40
(Rs.16 per material and Rs.24 for labor). In addition, variable expenses per unit are expected to be Rs.8
and fixed expenses per month Rs.30,000. Payment for materials is to be made in the month following the
purchases. One third of sales will be for cash and the rest on credit for settlement in the following month.
Expenses are payable in the month in which they are incurred.
The selling price is fixed at Rs.880 per unit. The number of units to be produced and sold are expected to
be: January 900, February 1,200./ March 1,800. April 2,000. May 2,100. June 2,400.
Draw a cash budget indicating cash requirements.
Solution
Cash budget for six months ending 30th June
Particulars
Jan
Feb
March
April
May
June
Opening balance
34,800
37,600
32,400
5,867
17,600
Cash Sales
24,000
32,000
48,000
53,333
56,000
64,000
Collection from
48,000
64,000
96,000
1.06.667
1,12,000
RECEIPTS
62
Debtors
Total, say A
24,000
45,200
74,400
1,16,933
1,56,800
1,93,600
Creditors
14,400
19,200
28,800
32,000
33,600
Wages
21,600
28,800
43,200
48,000
50,400
57,600
Variable
7,200
9,600
14,400
16,000
16,800
19,200
Fixed Expenses
30,000
30,000
30,000
30,000
30,000
30,000
Total, Say B
58,800
82,800
1,06,800
1,22,800
1,39,200
1,40,400
34,800
37,600
32,400
5,867
17,600
53,200
PAYMENTS
Expenses
Closing balance :
AB
Debit ( + ) Credit
()
QUESTION
34). DR wish to approach his Bankers for temporary overdraft facility for the period from June 1 to
August 30th, 2007. During the period of these three months, DR will be manufacturing mostly for stock.
Prepare a cash budget for the above period.
Sales
April
Purchases Wages
3.60,000 2,49,600
24,000
May
3,84,000 2,88,000
28,000
June
2,.16,000 4,.86,000
22,000
July
3,.48,000 4,.92,000
20,000
Aug
2,.52,000 5,.36,000 30,000
(a) 50 % of credit sales are realized in the month following the sales and remaining in the second
following month.
(b) Creditors are paid in the month following the month of purchase
(c) Estimated cash as on June 1 is Rs.50,000
Solution
Cash budget for the period ending 20th august
63
Particulars
JUNE
JULY
AUGUST
Opening balance
50,000
1,12,000
94,000
3,72,000
3,00,000
2.82,000
Total, say A
4,22,000
4,12,000
1,88,000
2,88,000
4,86,000
4,92,000
Wages
22,000
20,000
30,000
Total, say B
3,10,000
5,06,000
5,22,000
Closing Balance A B
1,12,000
94,000
3,34,000
Overdraft needed
NIL
94,000
2,40,000
RECEIPTS
PAYMENTS
QUESTION
35).Bombay Textiles Ltd. wishes to arrange overdraft facilities with its bankers during the period AprilJune 2010 when it will be manufacturing mostly for stocks. Prepare a cash budget for the above
period from the following data indicating the extent of the bank facilities the company will require
at the end of each month.
a) Period
Sales
Purchases
Wages
February
1, 80, 000
1, 24, 000
12, 000
March
1, 92, 000
1, 44, 000
14, 000
April
1, 08, 000
2, 43, 000
11, 000
May
1, 74, 000
2, 46, 000
10, 000
June
1, 26, 000
2, 68, 000
15, 000
b) 50% of the credit sales are realized in the following month following the sales and the remaining
50% in the second month following. Creditors are paid in the month following the month of
purchase.
c) Cash at bank on 1st April is Rs.25000.
64
Solution
Cash Budget
For the three months ending June 2010
April (Rs.)
May (Rs.)
June (Rs.)
A) Opening Balance
25, 000
53, 000
(51000)
Receipts
90, 000
96, 000
54, 000
Sales Realizations (WN: 3)
96, 000
54, 000
87, 000
B) Total Receipts
1, 50, 000
1, 41, 000
2, 11, 000
2, 03, 000
90, 000
Purchases
1, 44, 000
2, 43, 000
2, 46, 000
Wages
14, 000
C) Total Cash Available(A+B)
1, 86, 000
Payments
D) Total Payments
11, 000
1, 58, 000
2, 54, 000
53, 000
(51, 000)
E) Closing Balance(C-D)
10, 000
2, 56, 000
(1, 66, 000)
Working Notes
1. It has been assumed that wages are paid on the 1st of following month
2. The company will require overdraft facilities to the extent of Rs. 51, 000 at the end of May and
Rs. 1, 66, 000 at the end of June.
3. Sales Realization
For April Month, Sales of March
= Rs.1, 92, 000
=50% of the sales
= 50% * (1, 92, 000)
65
= Rs. 96, 000
For May Month, Sales of April
= Rs. 1, 08, 000
=50% of sales
=50% *(1, 08, 000)
=Rs. 54, 000
QUESTION
36).From the following data prepare a cash budget for the quarter Oct-Dec 2010. Draft a note from the
Management Accountant and a Financial Controller to accompany this statement.
a)
Sales:
Rs.
August
20, 000
September
25, 000
October
30, 000
November
30, 000
December
32, 000
All the sales are on credit. Half of the dues are collected in the month of sale on which a cash
discount of 20% is allowed and the other half is realized in the next month.
b)
Materials are purchased for cash on which a rebate of 5% offered by the supplier. If the
company buys on credit, payment can be deferred by 1 month by foregoing the rebate. The
purchase- budget for the next quarter was: October- Rs.12, 500, November Rs.15, 000 and
December Rs.18, 000
c)
The Direct Labour Budget under--Department A
Department B
(Rs.)
October
3, 000
4, 000
November
3, 000
4, 000
December
3, 200
3, 800
d)
The Manufacturing overheads budget is given under

Department A
Rs.
66
(Rs.)
Department B
Rs.
Department C
Rs.
October
2, 400
1, 550
800
November
2, 400
1, 550
800
December
2, 500
1, 650
900
The above estimates include the quarters provisions for department amounting to Rs. 900 for
Department A and Rs.750 for Department B.
e)
The General Overhead Budget for the quarter was Rs.3, 500 (out of which Rs.200 was
Depreciation and Reserve and Rs.300 for Bad Debts Reserve).
f)
An old machine was to be replaced with an additional cash outlay of Rs.7, 000 in the month of
December.
g)
The cash balance on 1-10-2010 may be taken as Rs.15, 000.
Solution
Cash Budget
Period three months ending December 31st, 2010
Details
Months
October November December
Rs
Rs.
Rs.
Balance b/d
15, 000
15, 425
15, 975
Collection from customers
24, 500
27, 000
27, 800
Total Cash Available
39, 500
42, 425
43, 775
11, 875
14, 250
17, 100
Wages
7, 000
7, 000
7, 000
Manufacturing Overheads
4, 200
4, 200
4, 200
General Overheads
1, 000
1, 000
1, 000
Machine Purchased
---
---
7, 000
Cash Receipts
Cash Disbursement:
Accounts Payable- Purchase Of Materials
Total Disbursements
67
24, 075
26, 450
36, 600
Budgeted Cash Balance C/D
15, 425
15, 975
7, 175
Notes:
1. Collection from Customers: October
November
Rs.
Rs.
December
Rs.
Collection on current
Months sale (1/2 of sale)
15, 000
15, 000
16, 000
Less Cash Discount (20%)
3, 000
3, 000
3, 200
12, 000
12, 000
12, 800
12, 500
15, 000
15, 000
24, 500
27, 000
27, 800
Add other collections

(1/2 of previous months sale)
Total
2. Accounts Payable: As sufficient cash is available materials will be purchased for cash to avail of
the rebate of 5%.
3. Payrolls:
October
November
December
Direct Labour:
Department A
3, 000
3, 000
3, 200
Department B
4, 000
4, 000
3, 800
7, 000
7, 000
7, 000
Total
4. Manufacturing Overheads:
68
November
December
Rs.
Rs.
Department A
2, 400
2, 400
2, 500
Department B
1, 550
1, 550
1, 650
800
800
900
4, 750
4, 750
Factory
Total
October
Rs.
4, 750
Less Depreciation:
Department A
300
300
4, 450
Department B
300
4, 450
250
250
4, 200
4, 450
250
4, 200
4, 500
5. General Overheads
For the quarter
Rs.3, 500
Less: Depreciation Reserve

Bad Debts Reserve
200
300
500
General Overheads for 3 months
3, 000
Monthly Overheads
1, 000
QUESTION
36). A factory is running at 50% capacity and produces 5000 UNITS at a cost of rs 90 per unit as per
details given below
Material
50
Labour
15
Factory overhead
15(Rs 6 fixed)
Admin overheads
10(Rs 5 fixed)
The current selling price is Rs 100 per unit. At 60% working, material cost per unit increases by 2% and
selling price per unit falls by 2%. At 80% working, material cost per unit increases by 5 percent and
selling price per unit falls by 2.5%. Prepare a flexible budget showing profits of the factory at 60% and
80 % working.
Solution:
69
50% capacity, 5000 units
60% capacity, 6000
80% capacity, 8000
units
units
per unit
Total(lakhs)
per unit
Total(lakhs) per unit
Total(lakhs)
Raw material
50
2.50
51
3.06
52.50
4.20
Labour
15
0.75
15
0.90
15.00
1.20
Factory
09
0.54
09.00
0.72
0.30
05.00
0.40
overhead(Rs
0.45
9 variable)
Admn
overheads(Rs
0.25
5 variable)
1) Total
79
3.95
80
4.80
81.50
6.52
0.30
----
0.30
-----
0.30
0.25
----
0.25
-----
0.25
11
0.55
09
0.55
07.00
0.55
90
4.50
89
5.35
88.50
7.07
4) Profit
10
0.50
09
0.53
09.00
0.73
5) Sales
100
5.00
98
5.88
97.50
7.80
variable
cost
Factory
overhead (Rs
6 fixed)
Admn
overheads(Rs
5 fixed)
2) Total
fixed cost
3) Total
cost(1+2
)
1. G.S.Ltd manufactures a single product for which market demand exists for additional quantity.
Present sales of R.s 60,000 p.m utilizes only 60% capacity of the plant. Marketing manger assures
that with the reduction of 10% in the price he would be in a position to increase the sale by
about 25% to 30%.The following data are available:
1) Selling price
70
Rs 10 per unit
2) Variable cost
Rs 3 per unit
3) Semi-variable cost
Rs 6000 fixed+5o paise per unit
4) Fixed cost
Rs 20,000 at present level estimated to be Rs 24000 at 80% output.
You are required to prepare

1) The operating profits at 60%, 70% and 80% levels at current selling price and
2) The operating profits at proposed selling price at the above levels.
Sol:
Statement of cost and profit (at current price)
60% capacity 6000
70% capacity 7000
80% capacity 8000
units
units
units
Fixed cost
20000
20000
20000
Semi variable cost:
6000
6000
6000
fixed
3000
3500
4000
Variable @50ps
18000
21000
24000
perunit
47000
50500
54000
60000
70000
80000
13000
19500
26000
Total cost
Sales
Profit
Statement of cost and profit (at proposed profit)
60% capacity 6000
70% capacity 7000
80% capacity 8000
units
units
units
Total cost
47000
50500
54000
Sales@ Rs 9 per unit
54000
63000
72000
Profit
7000
12500
18000
QUESTION
71
37). Prepare a cash budget for three months ending 30th june 2005from the information given below:(a) Month
Sales
Materials
Wages
Overheads
February
14000
9600
3000
1700
March
15000
9000
3000
1900
April
16000
9200
3200
2000
May
17000
10000
3600
2200
June
18000
10400
4000
2300
(b) Credit terms are:

Sales and debtors 10% of sales are on cash, 50 % of credit sales are collected next month and balance
in the following month:
Creditors -
materials
2 months
Wages
month
Overheads
month
(c) Cash and bank balances on 1st April, 2005 is expected to be Rs 6000.
(d) Other relevant information are :
(1) Plant and machinery will be installed in February 2005 at a cost of Rs 96000.the monthly
instalment Rs 2000 is payable from april onwards.
(2) Dividend @ 5 % on preference share capital of Rs 200000 will be paid on 1st june.
(3) Advance to be received for sale of vehicles Rs 9000 in June
(4) Dividend from investment amounting to Rs 1000 are expected to be received in june
(5) Income tax to be paid in june is Rs 2000.
Solution:
CASH BUDGET
For three months ending 30th june, 2005
April
May
June
Total
Rs
Rs
Rs
Rs
6000
3950
3000
6000
Sales*
14650
15650
16650
49950
Dividend
1000
1000
Balance B/F
Receipts-:
72
Adv against vehicle
9000
9000
Total
20650
19600
29650
62950
Creditors
9600
9000
9200
27800
Wages
3150
3500
3900
10550
Overheads
1950
2100
2250
6300
Instalment for plant
2000
2000
2000
6000
Pref. Dividend
10000
10000
Income tax advance
2000
2000
Total
16700
16600
29350
62650
Closing balance
3950
3000
300
300
Payments-:
Working notes:1) Calculation of collection from debtors:February
March
April
May
June
Sales
14000
15000
16000
17000
18000
Cash sales
1400
1500
1600
1700
1800
Credit sales
12600
13500
14400
15300
16200
50% collection in
6750
7200
7650
6300
6750
7200
Total collection
13050
13950
14850
Cash sales
1600
1700
1800
Cash receipts
14650
15650
16650
next month
50% collection in
following month
from sales
QUESTION
38). A department of Tek India co. Attains a sales of Rs 600000 @ 80% of its normal capacity.
Its expenses are given below:-
73
Office salaries
90000
General expenses
2% of sales
Depreciation
7500
Rent and rates
8750
Selling cost:
Salaries
8% of sales
Travelling expenses
2% of sales
Sales office
1% of sales
General expenses
1% of sales
Distribution cost:
Wages
15000
Rent
1% of sales
Other expenses
4% of sales
Draw up flexible administration selling & distribution cost budget, operating at 90%, 100%, &
110% of its normal capacity.
Solution
80%
90%
100%
110%
Rs
Rs
Rs
Rs
600000 675000
750000
825000
Office salaries
90000
90000
90000
90000
General expense
12000
13500
15000
16500
Depreciation
7500
7500
7500
7500
Sales
Administration cost:
74
Rent and rates
8750
8750
8750
118250 119750
121250
122750
Salaries
48000
54000
60000
66000
Travelling expenses
12000
13500
15000
16500
Sales office
6000
6750
7500
8250
General expenses
6000
6750
7500
8250
72000
81000
90000
99000
Wages
15000
15000
15000
15000
Rent
6000
6750
7500
8250
Other expenses
24000
27000
30000
33000
45000
48750
52500
56250
263750
278000
(A) Total admin. cost
8750
Selling cost:
(B) Total selling cost

Distribution cost:
(C) Total dist. Cost

Total cost (A+B+C)
235250 249500
QUESTION
39). The manager of repairs and maintenance department in response to a request submitted
the following budget estimate for his dept. That are to be used to construct a flexible budget
to be used during the coming budget year:
Details of cost
Employee salary
planned at 6000
planned at 90000
Direct repair hours
direct repair hours
30000
30000
Indirect repair material

Misc. Cost etc.
40200
13200
60300
16800
(a) Prepare a flexible budget for department up to the activity level of 10000 repair hours
(b) What would be the budget allowance at 8500 direct repair hours
75
(a)
Flexible budget for the period
Direct repair hours
6000
7000
8000
9000
10000
Rs
Rs
Rs
Rs
Rs
Employee salary
30000
30000
30000
30000
30000
Indirect material
40200
46900
53600
60300
67000
Misc. Cost : fixed
6000
6000
6000
6000
6000
7200
8400
9600
10800
12000
83400
91300
99200
107100
115000
Variable
Total
(b) Budget allowance for 8500 repair hours

= fixed cost + variable cost for 8500 repair hours
= 36000 + (8500 hrs * 7.90)*
= Rs 103150
Working note:(1) Employee salary is fixed cost and thus same at all levels
(2) Indirect repair material is variable cost @ 6.70 per hour
(3) Misc. Cost is semi variable. It is separate into fixed and variable components as follows:
Variable
=difference in cost/ difference in hours
= 16800-13200/9000-6000
= Rs 1.20 per repair hours
Fixed
76
= 13200-(6000 * 1.20)
= 6000
Total fixed cost
= employee salary + Misc. Cost

= 30000+6000
=36000
Total variable cost
= indirect material + Misc. Cost

= 6.70 + 1.20
= 7.90 per hour
QUESTION
40). Abc company wishes to arrange overdraft facilities with its bankers during the period of
april to june of a particular year when it will be manufacturing mostly for stock. Prepare a
cash budget for the above period from the following data, indicating the extent of banking
facilities.
a. Month
Sales
Purchases
Wages
February
180000
124000
12000
March
192000
144000
14000
April
108000
243000
May
June
174000
126000
246000
268000
11000
10000
15000
b. 50% of the credit sales are realized in thr month following the sales and the remaining
sales in the following second month, creditors are paid in the following month of
purchase
c. Cash at bank on 1 april estimated at rs.25000
Soln
Cash budget of ABC company
77
Particulars
April
May
june
During month of sale
During second
month 50%
90000
96000
54000
During third month

50%
96000
54000
87000
Total
186000
150000
141000
Purchases 1 month
lag
144000
243000
246000
Wages paid same

month
11000
10000
15000
Total
155000
253000
261000
Net cash balance
31000
-103000
-120000
Cash at start of
month
25000
56000
-47000
Cash balance
56000
-47000
-167000
Overdraft facilities
req
-47000
-120000
a. Cash inflows
Collections
b. Cash outflows
QUESTION
41). From the following info prepare cash budget of a business firm for the month of april
78
a. The firm makes 20%cash sales. Credit sales are collected 40%, 30%, 25% in the month of
sales, month after and second month after sales. The remaining 5% becomes bad debts.
b. The firm has a policy of buying enough goods each month to maintain its inventory at 2
and 1 and half times the following months budgeted sales
c. The firm is entitled to 2% discount on all its purchases if bills are paid within 15 days
and the firm avails of all such discounts.
d. Cost of goods sold without considering the 2% discount is 50% of the selling price. The
firm record inventory net of discounts.
Sales
January actual 100000, February actual- 120000, march actual 150000, april budgeted170000, may budgeted- 140000
Inventory on march 31st is rs. 225400, cash on march 31st rs. 30000, gross purchases in march
rs. 100000. Selling, general and admin expenses budgeted for april rs. 45000 includes
rs.10000 depreciation.
Soln
Cash budget for april
Particulars
a. Cash inflows
Amount
30000
Balance in beginning
34000
Cash sales 20% of 170000
24000
36000
Feb 25% of 96000
54400
March 30% of 120000
178400
April 40% of 136000
49000
14700
Total cash receipts
35000
98700
79
b. Cash outflows
79700
Payment for purchases

March 100000*98%*1/2
April 29400*1/2
Selling expenses 45000- 10000
Total cash outflows
c. Budgeted cash balance in april
Working notes
Purchase budget for april
Gross
Net
Desired ending inventory
175000
171500
Add cost of sales in april
85000
83300
Total reqs
260000
254800
Less beginning inventory
230000
225400
Required purchases
30000
29400
QUESTION
42). A large retail store makes 25% of its sales for cash and the remainder on 30days terms. Due
to faculty collection practice there have been losses from bad debts to the extent of 1% of
80
credit sales on an average in the past. The experience of the company tells that normally
60% of credit sales are collected in the month following the sales, 25% in the second
following month and 14% in the third following month. Sales for jan is rs. 80000, feb rs.
100000, march rs. 140000. Sales for april, may, june are estimated as 150000, 110000 and
100000.
Prepare a schedule of expected cash collections during april, may, june.
Soln
Schedule of cash receipts
81
Particulars
jan
Feb
mar
april
May
June
Total sales
80000
100000
140000
150000
110000
100000
Cash sales
25%
20000
25000
35000
37500
27500
25000
Credit sales
75%
60000
75000
105000
112000
82500
75000
Cash sales
37500
27500
25000
First month
following
sales
63000
67500
49500
Second month
18750
26250
28125
Third month
8400
10500
14700
Cash inflows
37500
27500
25000
First
63000
67500
49500
Second
18750
26250
28125
Third
9000
11250
15750
Total
128250
132500
118375
QUESTION
43). The Baja company ltd operates a system of flexible budgetary control and you are required
to prepare level of activity at 70% 80% and 90%
a. sales based on normal level activity of 70% (350000 units) at rs 200 each. If output is
increased to 80% and 90% selling prices are to be reduced by 2.5% and 5% of the original
b. Variable cost are rs 100 per unit (70% is the cost of raw materials). In case output reaches
80% level of activity or above , the effective purchase of raw material will be reduced by 5%
c. Variable overheads : salesmens commission is 2% of sales value
d. Semi variable overheads ( total) at 350000 units are rs 1200000: they are expected to
increase by 5 % if output reaches a level of activity of 80% and by further 10 % if it reaches the
90% level.
e. total fixed overheads are rs 20000000 which are likely to remain unchanged up to 100%
capacity.
The preliminary budget for a company with four departments is as under :

Department
Direct ohds
allocation
Apportioned ohds
%
Direct labour hours
14200
10
60000
7200
30
200000
16400
20
120000
22600
40
150000
It was decided to establish a new department (5) and to re organize the existing departments.
The following alterations were agreed to in making a revised budget :
a. A sum of Rs 15000 being additional overheads, will be allocated directly to department
(5)
82
b. Am amount of rs 6600 being overheads will be allocated directly to department (3) will
now be transferred to department to department (5)
c. Rs 30000 additional overheads expected to be incurred due to re organization will be
apportioned as follows :
Department
Proportion %
10
20
10
5
60
d. Revised direct labour hours are expected to be :
Departments
Hours
69600
200000
100000
160000
90000
You are required to calculate :

a. The department direct labour hour rates of overheads based on the preliminary
budget
b. The department direct labour hour rates of overheads based on the received
budget.
c. The overheads chargeable at the revised rates to one unit of product X for which
the following hours are spent in each department
Department
4 5
Hours
8 3
83
A new company commences business on July 1st and deposits rs 10000 in the bank. This
sum will be insufficient to finance its operations over a period of six months, and you are
asked to prepare a cash budget from July to December to determine the monthly
overdraft limits to seek from company bankers.
Data supplied
a. Sales are made to one distributor only on 30 days term. 3% discount and cheques are
received on the first date of the month following the due date.
b. Plant purchases totalling Rs 5000 are to be made in July
c. Budget figures are :
July
august
september October
november
December
Purchases
5000
4000
3000
4000
4000
5000
Wages
4000
5000
4000
4000
5000
4000
Cash exp
400
500
400
400
500
400
Sales
60000
7000
8000
8000
9000
12000
All purchases are made on net 30 days terms and cheques are posted to creditors on the last
day.
draw up a production cost budget.
Solution
a. Direct labour hour rates of overheads o9f departments based on the preliminary budget
84
Departments
overheads
Direct
Labour
Direct
Labour 4 / 5
Direct
allocation
Apportioned Total (2 +3)
14200
17600
31800
60000
.53
7200
52800
60000
200000
.30
16400
35200
51600
120000
.43
22600
70400
93000
150000
.62
60400
176000
236400
530000
b. departmental overheads rates of departments 1-5 based on the revised budget

departments Total
overheads
Adjustments
Revised
budgets (2
+3)
Revised
direct
labour
Revised
labour hour
rates
31800
+3000
34800
69600
.5
60000
+6000
66000
200000
.33
51600
-6600
45000
100000
.45
93000
+3000
96000
160000
.6
39600*
39600
90000
.44
45000
281400
619600
5
6
236400
*(15000+ 6600+18000)
c. overheads chargeable at the revised rates to one unit of product X
85
Department
Direct labour- hr
rate
Direct labour hrs

needed
Overheads
chargeable (2*3)
.5
3.00
.45
1.80
.60
4.80
.44
1.32
10.92
d. total costs (a+b+c)
55.40
budgeted loss
5.5
63.15
70.8
3.15
14.2
flexible Budget of Bajaj Company ltd

Particulars
Amount in lakhs
Percentage of
capacity
70%
80%
90%
700
780
855
Material
245
266
299.25
Other vc @30/unit
105
120
135
Salesman
commission2%.
14
15.16
17.10
364
401
Sales
Less expenses
A variable cost
86
451.35
Semi variable
120
126
132
Fixed overhead
expenses
200
200
200
Total cost
684
727.6
783.35
Budgetary profit
16
52.4
71.6
QUESTION
44). The royal industries has prepared its annual sales forecast ,expecting to achieve sales of Rs
3000000 next year .the controller is uncertain about the pattern of sales to be expected by the
month and asks you to prepare a monthly budget of sales.
The following sales data pertain to the year ,which is considered to be representative of a
normal year.
87
Month
Sales
Month
Sales
January
132000
July
260000
February
115000
August
330000
March
100000
September
340000
April
140000
October
350000
May
180000
November
200000
June
225000
December
150000
Prepare a monthly sales budget for the coming year on the basis of the above data.
Solution
Total sales
2500000
Budgeted sales(next year )
3000000
Budgeted increase in sales
500000
Percentage increase in sales

(Rs 500000/2500000) * 100
20%
Based on this rate of increase ,the monthly sales can be forecast as being 20% higher than for
the previous year.
Month
Sales forecast
Month
Sales forecasts
January
132000
July
312000
February
138000
August
396000
March
120000
September
408000
April
168000
October
420000
May
216000
November
240000
June
270000
December
180000
QUESTION
45).Readymade textiles ltd makes and sells baby suits .it has brisk sales in the oct-dec period as
shown by the following sales budget( in units)
88
July
5000
oct
August
5000
nov
September
5500
8000
10000
dec
12500
The firms normal inventory policy has been to have a 2 month supply of finished product on
the hand .the production manager has criticized the policy because it requires wide swings in
production ,which ads to costs. he estimates that unit-variable manufacturing cost is Rs 2 higher
than normal for each unit produced in excess of 9000 units per month .the finance manager also
supports the production manager on this. He estimates that it costs the firm Rs 1.00 per unit per
month in ending inventory ,consisting of insurance ,financing, and handling costs. He stresses
that these costs are variable.
All the managers agree that the firm should have 22500units on hand by the end of oct. the
production manager wants to spread the required production over the four months
1) prepare a production budget for the july-oct following the firms current policy .inventory
on the 1st july is 10000 units
2) prepare a production budget using the production managers preference.
3) Determine which budget gives lower costs
Solution
9.10) production budget current policy (jul-oct)(units)
Month
Planned inventory
Desired
production
Closing
opening
(col.2+3-4)
July
5000
10500
10000
5500
August
5000
13500
10500
8000
September
5500
18000
13500
10000
Oct
8000
22500
18000
12500
Total
89
Sales
36000
2) the total production for the four months is 36000 units .the production manager wishes to
produce an equal amt each month ,so the required monthly production would be 9000
units(36000/4)
3) determination of additional carrying cost due to additional inventory-current policy
July
August
Sept
Oct
Opening inventory
10000
14000
18000
21500
Add production
9000
9000
9000
9000
Total units
available
19000
23000
27000
30500
Less sales
5000
5000
5500
8000
Ending inventory
14000
18000
21500
22500
Ending
inventory(current
policy)
10500
13500
18000
22500
Change in inventory 3500

increase/(decrease)
4500
(3500)
Total carrying cost

at the rate of Rs 1
per unit
4500
(3500)
3500
Net increase in carrying cost Rs 4500

Calculation of savings in production cost using production managers preference
Production for which additional costs are incurred:
Sept-current policy
-revised policy
Oct current policy
-revised policy
10000
9000
12500
9000
Total
Savings in production cost from revised policy (4500*2)
90
1000
3500
4500
9000
Net savings (9000-4500)
4500
QUESTION
45) Productions of a factory for the year are as follows
Direct wages
80000
Direct material
1,20000
Product overhead: fixed
40000
Variable
60000
During the forthcoming year it is anticipated that:

a) the average rate of direct labour remuneration will fall from Re 0.80 per hour to Re 0.75
per hour,
b) production efficiency will be reduced by 5%
c) price per unit of direct material and of the other materials and services which comprise
overheads will remain unchanged and
d) production in the coming year will increase by 33 1/3 %
Solution
Production cost budget for the next year
Amount
Direct
wages(140000*0.75)
91
105000
Direct material : present
120000
Add additional
expenses (increase in 1/3
capacity)
40000
160000
Production overhead :
fixed
40000
Variable(140000*0.60)
84000
Total production cost
124000
389000
Working notes
determination of direct wages
Direct labour hours (last year) (total wage bill /labour rate per hour )=(Rs 80000 / Re 0.80)
=100000.due to decline in efficiency, labor hours to carry out the present volume of production
will be more by the 5%,i.e. 105000hours. Since there is an increase in capacity by the one third,
Total direct labour hours required during the year would be 105000 + 33 1/3 =140000 hours
determination of variable overheads
Existing variable overheads rate per hour (total variable overheads /no of hours)
= (60000 / 100000) =Re 0.60 per hour
QUESTION
46). In a year, 15 workers are working in a dept. on a single shift basis. Statutory holidays in
that year are 18. Normal maintenance requires 250 hrs./ p.m. The capacity utilization
during last 5 years.
Labour hour (LHR)
2001: 38,000
2002 : 31,000
2003: 30,900
2004: 26,000
Solution
Maximum capacity = 365 days 15 workers 8 hrs p.day = 43,800 LHR
92
Practical capacity = { 365- (52+18) days } 15 workers 8 hrs. p. day - 250 hrs p.m. 12
= 32,400 LHR
The capacity utilization during last 5 years.
Years
2000
30,000 LHR
2001
38,000 (too high)
2002
31,000
2003
30,900
2004
26,000 (too low)
Normal capacity of 2005 = (30,000 + 31,000 + 30,900 )/ 3 = 30,633 LHR

*While preparing the budget we consider the normal capacity as budgeted production level
*100% of budgeted capacity always implies the normal capacity.
QUESTION
47).The following overheads expenses relate to a cost center operating at 50% of normal
capacity. Draw up a flexible budget for the cost center for operating at 75%,100% and
125% of normal capacity. Indicate the basis upon which you have estimated each item of
expense for the different operating levels.
Foremen
60
93
Assistant foremen
40
Inspector
65
Shop labourers
40
Machinery repairs
100
Defective work
25
Consumable stores
20
Over time bonus
Machinery depreciation
110
Total
460
Solution:
Flexible budget for cost center
Expenses
50%
75%
100%
125%
Machinery depreciation
110
110
110
110
Foremen salaries
60
60
60
60
Inspectors
65
65
65
65
Total
235
235
235
235
Machinery repairs
100
150
200
250
Defective work
25
37.5
50
62.5
Shop labour
40
60
80
100
Consumable stores
20
30
40
50
Total
185
277.5
370
462.5
Grand total
530
512.5
605
697.5
Fixed expenses
Variable expenses
Note: by assuming and segregating the cost according to fixed and variable and there is no semi
variable expenses are given.
1. Fixed is always constant amount.
94
QUESTION
49).The cost of an article at a capacity level of 5000 units is given below. For a variation of 20%
in capacity above or below this level, the individual expenses vary as indicated.
Material cost
25000
100% variable
Labour cost
15000
100% variable
Power
1250
80% variable
2000
75% variable
Stores
1000
100% variable
Inspection
500
20% variable
Depreciation
10000
100% variable
Administration overheads
5000
25% variable
Selling overheads
3000
50% variable
Total
62750
Cost per unit
12.55
Find the unit cost of the product at production levels of 4000 and 6000 units.
Solution:
Estimated cost of production under the following unit capacity
capacity
4000 units [-20%]
5000
6000[+20%]
materials
20000
25000
30000
labour
12000
15000
18000
Variable expenses
95
stores
800
1000
1200
10000
10000
10000
Power 20% fix
250
250
250
Power 80% vary
800
1000
1200
Repair&maintanance 500
25% fix
500
500
Repair&maintanance 1200
75% var
1500
1800
Inspection 80% fix
400
400
400
Inspection 20% vary
80
100
120
Administration 75% 3750

fix
3750
3750
Administration 25% 1000

va
1250
1500
Selling .O.H 50% fix
1500
1500
1500
Selling O.H 50% vary
1200
1500
1800
Total
53480
62750
72020
Cost per unit
13.37
12.55
12
Fixed expenses
depreciation
Semi
expense
96
variable
QUESTION
50).Gemini steel ltd manufactures a single product for which market demand exists for
additional quantity present sales of Rs 60000 per month utilizes only 60% capacity of the
plant. Marketing manager assures that with the reduction of 10% in the price, he would be
in a position to increase the sales by about 25% to 30%.
The following data are available:
Selling price 10Rs /unit
Variable cost 3Rs/unit
Semi-variable cost Rs 6000 fixed + 50 paise per unit
Fixed cost Rs 2000 at present level estimated to be Rs 24000 at 80% output.
You are required to prepare the following statement showing:
a. Operating profits at 60% 70% and 80% levels at current selling price and
b. The operating profits at proposed selling price at the above levels
Solution:
Capacity utilized
60%
70%
80%
Number of units
6000
7000
8000
60000
70000
80000
18000
21000
24000
6000
6000
6000
-[v]0.5*no of units
3000
3500
4000
-Fixed cost
20000
20000
24000
Profit
13000
19500
22000
2.Proposed selling price
54000
63000
72000
Expected profit
7000
12500
14000
1. -Selling price
-
Variable
cost[3pu]
Semi variable [f]
Note: 1. Selling price = no of units * selling price of each product
97
2. Proposed selling price=[ no of units * actual selling price-10% which is expected]
98

Accounts CIA 2 Budget

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Accounts CIA 2 Budget

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CUIM_MBA_G

BUDGETING AND BUDGETARY CONTROL

1) ON THE BASIS OF FUNCTION AND SCOPE:

2)ON THE BASIS OF FLEIBILITY:

3) PRODUCTION COST BUDGET:

3) RAW MATERIAL BUDGET:

6) PRODUCTION OVERHEAD BUDGET:

8) THE SELLING AND DISTRIBUTION COST BUDGET :

FIXED AND FLEXIBLE BUDGET:

ZERO BASED BUDGETING (ZBB)

4) Departmental objectives are linked to corporate goals.

4) Accounting system generates correct and dependable information for each

Bent Toughened Glass

Factory over head:

Production cost budget:

During the forthcoming year it is anticipated that;

SALES OFFICE EXPENSES

Rates and taxes

TOTAL ADMIN. EXPENSES

Sales office expenses

Creditors raw materials

Salaries and fixed expenses

Issue of equity shares

Budgeted material consumption per

(standard cost =Rs 12 per kg)

Sales (for 12*5=60 days)

Add: closing stock (for 15 and 20

Less: opening stock

Budgeted raw materials usage

Direct labour hrs required per unit

Standard hrs for budgeted

Salaries of sales department

Expenses of sales department

Counter salesmans salaries and dearness allowance Rs.6,000

Travelling salesmans sales

Expenses of sales dept.

Total sales overhead (A

10% of the purchases and 20% of sales are in cash

Collection from Debtors

10% of the purchases and 20% of sales are in cash

Collection from Debtors

CLOSING CASH BALANCE, A B

Collection from Debtors

Period of credit allowed by suppliers 2 months

Receipts: o/p bal

Cash sales [20% of 18000

Repairs and maintenance

3200 units 2400 units

Direct wages [@ Rs. 4 per hour for 10 units]

Repairs and maintenance

Cost per unit (Total cost /units)

Calculation of overhead absorption rate per unit at 80% capacity

Less: direct material and wages

Overhead rate per unit = 7450 /3200 units

Raw material cost per unit

Direct wages per unit

Fixed overhead per unit

Selling price per unit

Production and sales units

(C) Profit (A-B)

Selling price per unit

Less: 5% and 10%

= 9000 units * Rs. 13.50

April = (30001/4) + (32003/4) = Rs. 3150