Question 1

Akash Ltd. produces two products namely ‘Alpha’ & ‘ Beta’ using 3 types of
materials, 2 grades of labour & production overheads. Using the information given
below you are required to prepare following budgets for the next year.
(a) production budget (in units)
(b) material purchases budget (in Kgs & rupee value)
Note: You are required to show clearly the calculations of standard cost & selling
price for each product.
Standard cost data per each product are as follows.
Product

Alpha (Rs.) Beta(Rs.)

Direct materials
X 24 Kg @ Rs.2/- 48 -
30 Kg @ Rs.2/- - 60

Y 10 Kg @ Rs.5/- 50 -
8 Kg @ Rs.5/- - 40

Z 5 Kg @ Rs.6/- 30 -
10 Kg @ Rs.6/- - 60

Direct Wages
Skilled 6 hours @ Rs.5/- per hour 30 -
5 hours @ Rs.5/- per hour - 25

Unskilled 10 hours @ Rs.3/- per 30 -

hour
5 hours @ Rs.3/- per hour - 15
 Production overhead is absorbed on the basis of direct labour hours. Profit is calculated at
20% of sales price.
Budgeted data for the year are as follows.
Material Type

X (Rs.) Y (Rs.) Z (Rs.)

Inventory at Standard Price

1st January 60,000 125,000 72,000
31st December 70,000 135,000 75,000

Production overhead for the period is Rs.900,000 and direct labour hours are
75,000.
Product

Alpha (Rs.) Beta (Rs.)

Finished Goods Inventory at

production cost
Opening Inventory 152,000 256,000
Closing Inventory 190,000 352,000
Sales at standard sales price 1,368,000 1,536,000

Question No. 02
Joe Burns provides you with the following information for the coming months of January,
February and March.
Actual and budgeted sales and purchases details are as follows:
Nov $ Dec $ Jan $ Feb $ Mar $
Cash sales 115,000 125,000 80,000 100,000 120,000
Credit sales 128,000 138,000 94,000 114,000 132,000
Cash purchases 45,000 42,000 88,000 110,000 42,000
 Credit purchases 110,000 30,000 80,000 114,000 100,000
Weeks in the 4 5 4 4 5
month

$ $

Rent paid per week 400

Rent received per week 100

Wages per week:

Selling 6,800

Administration 1,800

Distribution 8,600 17,200

Other operating expenses per week:

Selling 1,800

Administration 500

Distribution 1600 3900

1. Accounts receivable regularly settle their accounts as follows:

*85% pay in the month following sale (these accounts take advantage of a 5% discount)
*10% pay in the 2nd month
*3% pay in the 3rd month
* The balance is written off as bad.
October accounts were paid in full in December.
2. Accounts payable are settled in the month following purchase. From 85% of
suppliers, a discount of 5% is received. For the remaining 15%, no discount is
received.
3. Other operating expenses include an amount of $800 per month for depreciation as
follows:
Selling $ 300
 Administration $ 200
Distribution $ 300
4. Capital expenditure of $55,000 will be paid in February.
5. Bank balance as at 31 December was $175,000.

REQUIREMENT:
Prepare a cash budget for January, February and March.