-------------Problem Set on Budgetary Control ------------

Problem 2 – (ICWA) Prepare Production Budget for each month and summarized Production Cost Budget
for six months period ending 31st December 2003 from the following data of product X.
a) Units to be sold for different periods are as follows
July 2003 1100
August 1100
September 1700
October 1900
November 2500
December 2300
January2004 2000
b) There will be no work in progress at the end of the month
c) Finished goods equal to half the sales for the nest month will be in stock at the end of each month
(including June 2003)
d) Budgeted production and production cost for the year ending 31st December 2003 are as under
Production Units 22000
Direct material Cost Rs.10
Direct Wages per unit Rs.4
Total Factory Overheads 88000
(Apportioned to the product)
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Problem 3 – A factory is currently working at 50% capacity and produces 10,000 units at cost of Rs.180
per unit as per following details.
Rs.
Material 100
Labor 30
Factory Overheads 30 (40% Fixed)
Administrative Overheads 20 (50% Fixed)
Total 180
The selling price at present is Rs. 200 per unit. At 60% capacity working material cost per unit increases by
2% and selling price per unit falls by 2%. At 80% working material cost increases by 5% and selling price
falls by 5%.
Prepare flexible budget to show the profits and losses at 60 % & 80% capacity utilization.
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Problem 4 – The Nikko Ltd. allocates resources to its R&D activities based on the profit performance of the firm.
The pattern set by the company for this is as under
Basic/Initial Allocation – Rs 300000
If profits increase by 5% Plus 100000
If profits increase by 25 % Plus 300000
If profits increase by 40 % Plus 400000

The capacity of the company is 200000 units pa

The normal capacity to produce/sale is 50% i.e. 100000 units, fixed cost is 300000, the variable cost pu is 12
and selling price is Rs.20
Further given that
For capacity utilization from 51-70% selling price will drop to Rs.19
For capacity utilization from 71-80% selling price will drop to Rs.18.50
Based on above data prepare flexible sales budget for the company and then compute the probable allocation
for R&D center under various options.
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Problem –5 The Delhi Electric Supply Co Ltd. Has a business of supplying electrical goods to various
Government and non-government companies. The controller in collaboration with the economist, has
developed the following equation that , he says, will forecast sales quite well, based on past pattern of
behavior:
Monthly sales (Amount) = Rs. 1,00,000 + (Rs 2000 * Orders Received in prior Month)
The sales manager is confused and seeks your advice. He presents you with the following data regarding
actual and forecast numbers of orders. The forecasts have been quite accurate.
August (Actual ) 200
September (Forecast) 300
October 450
 November 700
December 650
The sales manager wants sales and income budget for months Sep-Jan. The cost accountant informs you that
the cost of goods sold ids 60% of sales and fixed cost is 2,00,000 per month. You are required to help the
sales manager.
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Problem 1. Sales Budget
A manufacturing company submits the following figures for the first quarter of 2003 and targets
for next quarter.
a.Prepare sales budget for first quarter of 2004.

Particulars Product X Product Y Product Z

Sales (Units)
Jan 35000 40000 20000
Feb 30000 35000 20000
Mar 40000 45000 20000
Selling Price per Unit 15 25 45
Target for Ist Quater
Increase in Quantity 25% 15% 15%
Sales Price Increase 5% 15% 30%

b. Given 8 hours a shift and company runs in two shifts Company is carrying stock of 120000 units
of material A and 110000 of material B and expects to keep closing stock of 10% of current
quarters requirement Prepare the purchase and labor budget
Material & labor requirement of the products are given as under

Prod X Prod Y Prod Z Price/Rate

Material A 2 5 2 Rs.1 p.u.
Material B 3 1 4 Rs.2 p.u.

Labor Hrs 0.5 0.3 0.25 Rs.20 per Hr

Solution –

Sales Budget for Ist Quarter of 2004

Month Prod.X Prod.Y Prod.Z
Quantity Price Quantity Price Quantity Price
25% Up 5% Up Amount 15% Up 15% Up Amount 15% Up 30% Up Amount
Jan 43750 15.75 689063 46000 28.75 1322500 23000 58.5 1345500
Feb 37500 15.75 590625 40250 28.75 1157188 23000 58.5 1345500
Mar 50000 15.75 787500 51750 28.75 1487813 23000 58.5 1345500

Total 131250 15.75 2067188 138000 28.75 3967500 69000 58.5 4036500

Added problem – (Self Structured) Material Purchase and Labor Budget

Material & labor requirement of the products are given as under

Prod X Prod Y Prod Z Price/Rate

 Material A 2 5 2 Rs.1 p.u.
Material B 3 1 4 Rs.2 p.u.

Labor Hrs 30 min 20 min 15 min Rs.20 per Hr

Given 8 hours a shift and company runs in two shifts for 25 days in a month. Company is
carrying stock of 120000 units of material A and 110000 of material B and expects to keep
closing stock of 10% of current quarters requirement Prepare the purchase and labor budget

Purchase Budget for Ist Quarter Labor Budget

Total Prodn. Material A Material B Labor Hrs
Product X 131250 262500 393750 65625

Product Y 138000 690000 138000 46000

Product Z 69000 138000 276000 17250

Requirement 1090500 807750 Total Hrs 128875

Less Opening Stock 120000 110000 Amount 2485500

Add Closing Stock 109050 80775

Total Requirement 1079550 778525

Rate 1 2
Total Value 1079550 1557050

A labor can put number of hours in a quarter = Hrs in day * days in a Month * Mths in a Quater
= 8 * 25 * 3
= 600
Total man Hours Required for the Quarter are = 128875
Total Labor force required = 128875/600 = 214

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Problem 2 – (ICWA-Inter)
Prepare Production Budget for each month and summarized Production Cost Budget for six
months period ending 31st December 2003 from the following data of product X.
e) Units to be sold for different periods are as follows
July 2003 1100
August 1100
September 1700
October 1900
November 2500
December 2300
January2004 2000
f) There will be no work in progress at the end of the month
g) Finished goods equal to half the sales for the nest month will be in stock at the end of
each month (including June 2003)
 h) Budgeted production and production cost for the year ending 31st December 2003 are as
under
Production Units 22000
Direct material Cost Rs.10
Direct Wages per unit Rs.4
Total Factory Overheads 88000
(Apportioned to the product)
Solution –
Monthly Production Budget July- Dec 2003
Particulars July August September October November December Total
Expected sales 1100 1100 1700 1900 2500 2300 10600
Add
Closing Stock 550 850 950 1250 1150 1000 5750
Less
Opening Stock *550 550 850 950 1250 1150 5300

Net Production 1100 1400 1800 2200 2400 2150 11050

* 50% of July sales is closing stock for JUNE = Opening Stock for July

Summarized Production Cost Budget For production of 11050 units

Total Production Required 11050 Units
Direct Material Cost @ Rs 10 Rs 110500
Direct labor Cost @ Rs. 4 44200
Factory Overheads** 44200
Total Production Cost 198900

** Factory O/H for full year production of 22000 units are Rs. 88000
Share of O/H = (11050/22000)*88000= 44200 (Treating them as variable else if we treat as fixed
then exactly HALF will be taken for this six months)

Problem 3 –
A factory is currently working at 50% capacity and produces 10,000 units at cost of Rs.180 per
unit as per following details.
Rs.
Material 100
Labor 30
Factory Overheads 30 (40% Fixed)
Administrative Overheads 20 (50% Fixed)
Total 180
The selling price at present is Rs. 200 per unit. At 60% capacity working material cost per
unit increases by 2% and selling price per unit falls by 2%. At 80% working material cost increases
by 5% and selling price falls by 5%.
Prepare flexible budget to show the profits and losses at 60 % & 80% capacity utilization.
Solution –

FLEXIBLE BUDGET – Income Budget

Particulars Capacity Utilization
50% 60% 80%
A. No of Units 10000 12000 16000
B. Selling Price p.u. 200 196 190
C. Variable Cost p.u.
I) Direct material 100 102 105
ii) Direct wages 30 30 30
iii) Factory O/H (60% of 30) 18 18 18
iv) Admn. O/H (50% of 20) 10 10 10
Total (C ) 158 160 163

D. Total V.C.( C * A) 1580000 1920000 2608000

E. Fixed Cost
iii) Factory O/H (40% of 30)=12
iv) Admn. O/H (50% of 20)=10
Rs 22 p.u. at current level 220000 220000 220000

F. Total Cost 1800000 2140000 2828000

G. Sales Revenue 2000000 2352000 3040000
H. Profit 200000 212000 212000

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Problem 4 – (Self Set Problem)

The Nikko Ltd. allocates resources to its R&D activities based on the profit
performance of the firm. The pattern set by the company for this is as under
Basic/Initial Allocation – Rs 300000
If profits increase by 5% Plus 100000
If profits increase by 25 % Plus 300000
If profits increase by 40 % Plus 400000

The capacity of the company is 200000 units pa

The normal capacity to produce/sale is 50% i.e. 100000 units, fixed cost is 300000, the
variable cost pu is 12 and selling price is Rs.20
Further given that
For capacity utilization from 51-70% selling price will drop to Rs.19
For capacity utilization from 71-80% selling price will drop to Rs.18.50
 Based on above data prepare flexible sales budget for the company and then compute the
probable allocation for R&D center under various options.

Solution – Income Budget and R&D Budget

Total capacity 200000

Normal Capacity Fixed Cost 100000
50% 60% 70% 80%
Sales Units 100000 120000 140000 160000
Selling Price 20 19 19 18.5

Sales Rs. 2000000 2280000 2660000 2960000

VC 12 12 12 12
Total VC 1200000 1440000 1680000 1920000
Fixed Cost 300000 300000 300000 300000
Profits 500000 540000 680000 740000
% increase in
Profit 8 36 48
R&D Allocation Basic Up by 5% Up by 25% Up by 5%
300000 100000 300000 400000
R&D Allocation 300000 400000 600000 700000

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Problem –5 (KJ16.24)
The Delhi Electric Supply Co Ltd. Has a business of supplying electrical goods to various
Government and non-government companies. The controller in collaboration with the economist,
has developed the following equation that , he says, will forecast sales quite well, based on past
pattern of behavior:
Monthly sales (Amount) = Rs. 1,00,000 + (Rs 2000 * Orders Received in prior Month)
The sales manager is confused and seeks your advice. He presents you with the following data
regarding actual and forecast numbers of orders. The forecasts have been quite accurate.
August (Actual ) 200
(Forecast
September ) 300
October 450
November 700
December 650
The sales manager wants sales and income budget for months Sep-Jan. The cost accountant
informs you that the cost of goods sold ids 60% of sales and fixed cost is 2,00,000 per month. You
are required to help the sales manager.

Solution –

Budgeted Income Statement for DESCL

Particular September October November December January
Sales Fixed Component 100000 100000 100000 100000 100000
Variable Compon. 400000 600000 900000 1400000 1300000
(Rs 2000 * Orders of Last Mth)
Total Sales 500000 700000 1000000 1500000 1400000
Less Cost Of Goods Sold
0.60 % of sales 300000 420000 600000 900000 840000

Contribution 200000 280000 400000 600000 560000

Less Fixed Cost 200000 200000 200000 200000 200000
Income 0 80000 200000 400000 360000

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