Unit V Budget and Budgetary Control

Sales Budget:

1. Shri Ram Company Ltd. Manufactures two products X and Y. Its sales department has
three divisions: East, West, North. Preliminary sales budgets for the year ending 31 st
December 1999 based on the assessment of the divisional managers were:

Product X : East 3,00,000 units: West 6,00,000 units and North 1,50,000 units.

Product Y : East 4,00,000 units: West 5,00,000 units and Nort Nil

Sales Price = X : Rs.5 and Y : Rs.4 in all areas.

Arrangements are made for the extensive advertising of products X and Y and its
estimated that East division sales will increase by 1,50,000 units. Arrangements are also made
to advertise and distribute product Y in the Northern area in the Second half of 1999 when
sales are expected to be 6,00,000 units.

Since the estimated sales of the West division represented an unsatisfactory target, it is
agreed to increase both the estimates by 20%.

Prepare a sales budget for the year to 31st Dec 1999.

Production Budget:

1. From the following particulars, prepare a production budget of Arun Sales Corporation for
the year ended June 30, 1987.

Product Sales (Units) Estimated stock (units)

(as per sales budget) July 1, 1986 June 30,
1987

A 1,50,000 14,000 15,000

B 1,00,000 5,000 4,500
C 70,000 8,000 8,000
Cash Budget:
1. Prepare a cash budget for 3 months ending 30th June

Month March April May June

Rs. Rs. Rs. Rs.
Sales 60,000 70,000 80,000 90,000
Purchases 35,000 40,000 55,000 60,000
General Expenses 5,000 6,000 7,000 8,000

a. 20% of the sales are on cash basis and the balance on credit.
b. 3% of credit sales are returned by the customers, 2% of the total debtors constitute bad
debts. 50% of the good debtors are collected in the month of sales and the rest in the next.
c. Creditors are paid in the month following the month of purchase.
d. No time lag applies to the payment of general expenses.
e. Salaries of Rs.5000 p.m. payable for the month of April & May and Rs.6000 thereafter.
f. Rent of Rs.1000 p.m. is paid in addition to general expenses.
g. Cash in hand estimated on 1st April Rs.10,000. This is the minimum desired cash balance at
the end of each month. Any excess balance being put in bank fixed deposits.
Flexible Budget:
1. A factory is currently working at 50% capacity and produces 10,000 units at a cost of
Rs.180 per unit as per details below:
Rs.
Materials 100
Labour 30
Factory Overheads 30 (Rs. 12 fixed)
Administrative Overheads 20 ( Rs.10 fixed)
Total 180
The current selling price is Rs. 200 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% and selling price per unit falls by 5%
Estimate profits of the factory at 60% ad 80% working and offer your comments.