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Unit II Budgetary Control

Coverage:
1.
2.
3.
4.
5.

Budget & Budgetary Control


Various functional Budgets
Flexible & Cash Budgets
Zero based Budgeting
Master Budget

Sales Budget:
1. P. Ltd. Manufactures two brands of Pen Hero & Zero. The sales division of the company
has three departments in different areas of the country.
The sales budgets for the year ending 31st December 2009 were:
Hero Department I 3,00,000; Department II 5,62,500; Department III 1,80,000
and Zero Department I 4,00,000; Department II 6,00,000; and Department III
20,000. Sales prices are Rs. 3 and Rs. 1.20 in all departments.
It is estimated that by forced sales promotion, the sale of Zero in department I will
increase by 1,75,000. It is also expected that by increasing production and arranging
extensive advertisement, Department III will be enabled to increase the sale of Zero by
50,000.
It is recognized that the estimated sales by Department II represent an unsatisfactory
target. It is agreed to increase both estimates by 20%.
Prepare a sales budget for the year 2009.
Production Budget & Production Cost Budget:
1. Prepare a production budget for each month and a summarized production cost budget for
the six months period ending 31st December 2009 from the following data of product X.
(i)

The units to be sold for different months are as follows:


July, 2009
1,100
August
1,100
September
1,700
October
1,900
November
2,500
December
2,300
January, 2010
2,000
(ii)
There will be no work in progress at the end of any month.
(iii)
Finished units equal to half the sales for the next month will be in stock at the end of
each month (including June, 2009)
(iv)
Budgeted production and production cost for the year ending 31st December, 2009 are
as follows:
Production (units)
22,000
Direct materials (per unit)
Rs. 10

Direct wages (per unit)


Rs. 4
Total factory overheads apportioned to products Rs. 88,000.
It is required to prepare:
(a) Production Budget for the last six months of 2009; and
(b) Production Cost Budget for the same period.
Ans: 11,050 units; (b) Rs. 1,98,900.
2. Prepare a production budget for each month and a summarized production cost budget for
the six months period ending 31st December 2009 from the following data of product
Fish plate X. (HW)
(i)

The units to be sold for different months are as follows:


July, 2009
2,200
August
2,200
September
3,400
October
3,800
November
5,000
December
4,600
January, 2010
4,000
(ii)
There will be no work in progress at the end of any month.
(iii)
Finished units equal to half the sales for the next month will be in stock at the end of
each month (including June, 2009)
(iv)
Budgeted production and production cost for the year ending 31st December, 2009 are
as follows:
Production (units)
44,000
Direct materials (per unit)
Rs. 10
Direct wages (per unit)
Rs. 4
Total factory overheads apportioned to products Rs. 88,000.
It is required to prepare:
(c) Production Budget for the last six months of 2009; and
(d) Production Cost Budget for the same period.
Ans: 22,100 units; (b) Rs. 3,53,600.
Material cost Budget:
1. The sales director of a manufacturing company reports that next year he expects to sell
40,000 units of a particular product. The production department gives the following
figures:
Two kinds of raw materials A and B are required for manufacturing the product.
Each product requires 3 units of material A and 2 units of material B. The estimated
opening balances next year will be:
Finished product - 10,000 units, material A 12,000 units, material B 15,000 units.
The desirable closing balances at the end of the year are:
Finished product 16,000 units, material A 14,000 units, material B 15,000 units.
Draw up a material purchase budget.
Ans: A 1,40,000; B 92,000
2. From the following figures prepare Raw materials purchase Budget for Jan. 2009:

Materials (units)
A
B
C
D
E
Estimated stock on January 1
16,000
6,000 24,000 2,000 14,000
Estimated stock on January 31
20,000
8,000 28,000 4,000 16,000
Estimated consumption
1,20,000 44,000 1,32,000 36,000 88,000
Standard price per unit
25 P.
5 P.
15 P.
10 P. 20 P.
Ans: A 31,000; B 2,300; C 20,400; D 3,800; E 18,000; F 52,000

F
28,000
32,000
1,72,000
30 P.

Direct Labour Budget:


1. A factory works 8 hours a day, 6 days in a week and budget period is one year and during
each quarter, lost hours due to live, holidays etc. estimated to be 124 hours.
Particulars
Product A
Product B
Direct Labour per unit:
In Department P
2 hours @ Re. 1 per hour
1 hour @ Rs. 2 per hour
In Department Q
1 hour @ Rs. 3 per hour
1 hour @ Rs. 3 per hour
Units to be produced as
Per production budget
10,000 units
4,000 units
Required:
a. Prepare manpower Budget showing Direct labour hours and no. of works.
b. Prepare Manpower budget showing labour cost.
Manufacturing overhead cost Budget:
1. From the information given below, prepare a manufacturing overhead budget for the
quarter ending December 31, 2009:
Budgeted output during the quarter
5,000 units
Fixed overheads
Rs. 30,000
Variable overheads (@ Rs. 5 per unit)
Rs. 15,000
Semi-variable overheads
(40% fixed and 60% varying @ Rs. 3 per unit)
Ans: Rs. 76,000
Selling and Administration Budget:
1. You are required to prepare a sales overhead budget from the estimates given below:
Rs.
Advertisement
2,500
Salaries of the sales department
5,000
Expenses of sales department
1,500
Counter salesmens salaries and dearness allowance 6,000
Travelling salesmens commission at 10% on their sales and expenses at 5% on their
sales.
Sales during the period were estimated as follows:
Counter sales (Rs.)
Travelling Salesmens (Rs.)
80,000
10,000

1,20,000
1,40,000
Ans: 17,300; 18,450; 19,400

15,000
20,000

Flexible Budget:
1. The expenses for the production of 5,000 units in a factory are given as follows:
Per unit Rs.
Materials
2,50,000
Labour
1,00,000
Variable overhead
75,000
Fixed overhead
50,000
Administrative expenses (5% variable)
50,000
Selling expenses (20% fixed)
50,000
You are required to prepare a budget for the production of 7,000 units.
2. The following information relates to a flexible budget at 60% capacity. Find out the
overhead costs at 50% and 70% capacity and also determine the overhead rates:
Expenses at 60% capacity
Variable overheads:
Rs.
Indirect labour
10,500
Indirect materials
8,400
Semi-variable overheads:
Repairs and Maintenance (70% fixed, 30% variable)
7,000
Electricity (50% fixed, 50% variable)
25,200
Fixed overheads:
Office expenses including salaries
70,000
Insurance
4,000
Depreciation
20,000
Estimated direct labour hours
1,20,000
3. With the following data for a 60% activity, prepare a budget for production at 80% and
100% capacity:
Production at 60% activity
600 units
Materials
Rs. 100 per unit
Labour
Rs. 40 per unit
Direct expenses
Rs. 10 per unit
Factory overheads
Rs. 40,000 (40% fixed)
Administrative expenses
Rs. 30,000 (60% fixed)
4. Draw a flexible Budget for a overhead expenses on bases of the following data and
determined overhead rates at 70%, 80% and 90% plant capacity
Element Cost
70%Capacity
80% Capacity
90% Capacity
Variable overheads:
Indirect labour
---12,000
---Stores and spares
---4,000
---Semi-variable overheads:
Power (30% fixed)
---20,000
---Repairs and Maintenance

(40% variable)
Fixed overheads:
Depreciation
Insurance
Salaries
Total overheads
Direct labour hours

----

2,000

----

----------------

11,000
3,000
10,000
62,000
1,24,000 hours

----------------

5. The following information at 50% capacity is given. Prepare a flexible budget and
forecast the profit or loss at 60%, 70% and 90%.
Expenses at 50% capacity
Fixed expenses:
Rs.
Salaries
50,000
Rent and taxes
40,000
Depreciation
60,000
Administrative expenses
70,000
Variable expenses:
Materials
2,00,000
Labour
2,50,000
Others
40,000
Semi-variable expenses
:
Repairs
1,00,000
Indirect labour
1,50,000
Others
90,000
It is estimated that fixed expenses will remain constant at all capacities. Semivariable expenses will not change between 45% and 60% capacity, will rise by 10%
between 60% and 75% capacity, a further increase of 5% when capacity crosses 75%.
Estimated sales at various levels of capacity are:
Capacity
Sales (Rs.)
60%
11,00,000
70%
13,00,000
90%
15,00,000
Cash budget:
1. The income and expenditure forecasts for months of March to August, 2009 are given as
follows:
Months
Sales
Purchases
Wages
Manufacturing Office
Selling
(Credit)
(Credit) Rs.
Expenses
expenses
expenses
Rs.
Rs.
Rs.
Rs.
Rs.
March
60,000
36,000
9,000
3,500
2,000
4,000
April
62,000
38,000
8,000
3,750
1,500
5,000
May
64,000
33,000
10,000
4,000
2,500
4,500
June
58,000
35,000
8,500
3,750
2,000
3,500
July
56,000
39,000
9,500
5,000
1,000
3,500
August
60,000
34,000
8,000
5,200
1,500
4,500

You are given the following further information:


(a) Plant costing Rs. 16,000 is due for delivery in July payable 10% on delivery and the
balance after 3 months.
(b) Advance tax of Rs. 8,000 is payable in March and June each.
(c) Creditors allow 2 months credit and debtors are paying one month late.
(d) Opening Balance of Cash Rs. 8,000.
(e) Lag of one month in expenses.
Prepare a cash budget for the months May to July.
Ans: May Rs. 15,750; June Rs. 12,750; July Rs. 18,400