Atlas Exports Limited Pakistan

Managerial Accounting

Submitted by:

Muhammad Ahmed Jamil Khan

Roha Asim

Mohammad Umar

Submitted to:

Dr Nayyer Zaidi

April 2019

Section B

MBA II

Lahore School of Economics

Table of Contents
Executive Summary.........................................................................................................................2

Company Overview.........................................................................................................................3

Vision Statement..............................................................................................................................3

Mission Statement...........................................................................................................................3

"To achieve consistent growth through quality products, customer service, innovation,
commitment and human resource management".............................................................................3

Analysis of Income Statement.........................................................................................................4

Analysis of Cost of Goods Sold.......................................................................................................8

Activity Based Costing..................................................................................................................12

Break-even Analysis......................................................................................................................13

Contribution Margin Analysis...................................................................................................13

Break-even Analysis..................................................................................................................14

Budgeting.......................................................................................................................................15

Variance Analysis..........................................................................................................................20

Direct Material Cost Variances..............................................................................................20

Direct Labor Cost Variances..................................................................................................20

 Executive Summary
Enabling success from the centre of technology ATLAS EXPORTS was established in 1995. It's
a Pakistan based company incorporated under the companies Act 1984 that designs, Produces
and markets a broad range of protective and industrial safety products to several European
markets. Just over a decade since its establishment Atlas Exports stands apart as their preferred
choice for global sourcing in this high competitive arena of safety products manufacturing. Atlas
is fully aware of international market and its demand. It have ability to anticipate and identify
products that our respected buyer's wish.

Atlas Exports has been profitable but the rate of growth has been declining. It grew by 1% only
from 2017 to 2018 owing to the huge distribution costs and administrative expenses. Their sales
have increased from 2017 to 2018, so has their contribution margin from 29% in 2017 to 31% in
2018. Price variances of direct material and efficiency variance of direct labour cost was
calculated to show their favourableness or unfavourableness relative to the net income.
 Company Overview
Atlas Exports Limited is a Pakistan-based company, which is engaged in the manufacturing and
export of leather, cycle, mechanic, motor bike, cotton, synthetic gloves. The Company is also
engaged in trading and manufacturing of work wear. The focus of this project is on the gloves
segment of the company.

Atlas Exports Limited was incorporated in Pakistan in 1995 as a public limited company under
the Companies Ordinance, 1984 and is quoted on Karachi and Lahore Stock Exchanges now
known as the Pakistan Stock Exchange. There office is located at Gulistan-e-Chistian, 16- Km
Multan Road,Paka Meel Stop Lahore – Pakistan.

Managing Director: Faiq Ahmed

Vision Statement
"To be a leader and role model in safety products".

Mission Statement

"To achieve consistent growth through quality products, customer service, innovation,
commitment and human resource management".
 Analysis of Income Statement

2018 2017 2016

Sales 209,615,825 190,186,735 202,772,839
Cost of sales (141,391,374) (119,075,268) (127,473,881)
Gross Profit 68,224,451 71,111,467 75,298,958
Distribution Cost (45,886,728) (33,803,335) (23,121,602)
Administrative Expense (26,009,214) (15,285,118) (30,396,840)
Other Operating Expense (782,934) (662,900)
(72,678,876) (49,751,353) (53,518,442)
Operating Profit (Loss) (4,454,425) 21,360,114 21,780,516

Effect of fair value adjustment of long-term (23,863,002)

financing
Other Operating Income 7,247,396 2,457,251 2,509,341
2,792,971 23,817,365 426,855
Finance Cost (40,552) (42,074) (292,007)
Exchange Gain (Loss) on currency evaluation 175,792
Profit before tax 2,752,419 23,775,291 310,640
Provision for tax (818,700) (404,773)
Profit after tax 1,933,713 23,370,518 310,640
Other comprehensive income
Gratuity Scheme 1,153,200 309,013

Total Income 3,086,919 23,679,531 310,640

The vertical analysis of the FY 16 shows that the cost of goods sold was 63% of the sales. The
operating profit was about 11% of the sales for the same year. During this year the other
operating incomes for the company were only 1% of sales. Finance costs were almost 0% of
sales. The profit before and after taxation was so slow, that it was 0% of the sales. Additionally,
the total comprehensive income was also 0% of sales for the same respective financial year.

For the FY 17, there was no change in the proportion of cost of goods sold 63% and gross profit
37% as a proportion of sales. The operating profit was 11% of sales. The profit before tax for the
same year was almost 13% as a proportion of sales, which was highest among other two FY 16
and 15, if we compare it to them. This means that the company during this year was despite of
 having lower sales than other two years was able to lower the costs of other expenses such as;
administrative and other operating expenses. The profit after taxation and the total
comprehensive income were also 12% of sales respectively. FY 17 was the only year compared
to others where the total comprehensive income as a proportion of sales, was higher than the
other two financial years due to the lowering of certain expenses already mentioned above.

During FY 18 the costs of goods sold was almost 67% of the total sales. The distribution costs
and administrative expenses were 22% and 12% respectively. The operating profit was only 2%
of sales during the same financial year, which was lowest among all three years. Although the
sales figure during FY 18 was highest as compared to FY 16 and 15, but the expenses such as the
distribution costs were way too high. Thus the profits before and after taxation, therefore resulted
into a smaller proportion of sales.

Vertical Analysis
2018 % 2017 % 2016
Sales 209,615,825 100% 190,186,735 100 202,772,839
%
Cost of sales (141,391,374 -67% (119,075,268 -63% (127,473,881
) ) )
Gross Profit 68,224,451 33% 71,111,467 37% 75,298,958
Distribution Cost (45,886,728) -22% (33,803,335) -18% (23,121,602)
Administrative Expense (26,009,214) -12% (15,285,118) -8% (30,396,840)
Other Operating Expense (782,934) 0% (662,900) 0%
(72,678,876) -35% (49,751,353) -26% (53,518,442)
Operating Profit (Loss) (4,454,425) -2% 21,360,114 11% 21,780,516

Effect of fair value adjustment (23,863,002)

of long-term financing
Other Operating Income 7,247,396 3% 2,457,251 1% 2,509,341
2,792,971 1% 23,817,365 13% 426,855
Finance Cost (40,552) 0% (42,074) 0% (292,007)
Exchange Gain (Loss) on 175,792
currency evaluation
Profit before tax 2,752,419 1% 23,775,291 13% 310,640
Provision for tax (818,700) 0% (404,773) 0%
Profit after tax 1,933,713 1% 23,370,518 12% 310,640
Other comprehensive income
Gratuity Scheme 1,153,200 309,013
Total Income 3,086,919 23,679,531 310,640

Horizontal analysis is the comparison of historical financial information over a series of

reporting periods. Each item of the statement is compared to the same item in the previous year
and can be expressed as a dollar or percentage increase or reduction on a comparative financial
statement. Seeing the most current year's financial statements next to the previous year's, or
comparing interim statements, gives us a better perspective on how the company is performing.
It is also known as trend analysis. The horizontal analysis shows an improvement in sales during
FY 18 as compared to FY 17. The Costs of goods sold had increased enormously by the FY 18
and it was around 19% of increase as compared to the negative percentage value of -7% of FY
17.

The administrative expenses of the company increased by 70% in FY 18 while it decreased by

-50% in FY 17, this means that during FY 17, the company was able to efficiently manage its
expenses. The other operating expenses also increased by 18% for FY 18 which was had almost
zero percentage increase in FY15. This means that the company was not able to well manage its
expenses and couldn’t control them efficiently. The operating loss of the company for FY16
drastically to around 121%, compared to the 2% increase in loss of FY 17. Atlas Exports was
able to earn other operating income in FY 18 more than that of FY 17, as the percentage increase
was around 195% compared to the 2% decrease in FY 17.
Over the years, the company has been successfully able to decrease its finance costs from 86%
decrease in FY 17 to 4% decrease in FY 18. During FY 17 the company was able to increase its
profit before taxation to 7554% which then later on decreased by 88% in FY 18. The EPS of the
company also declined by 95% in FY 18, compared to the 6300% increase in FY 17. The
company was also able to benefit from the gratuity scheme during the year 14 and 15, which was
zero in FY 16. During FY 18 there was a 273% increase in the gratuity scheme. The total
comprehensive income decreased by 87% in FY 18, which is a matter of concern for the
management of the company. The main reason was the drastic increase in the expenses of the
company. Thus, the management of the company needs to control its expenses in order to avoid
the decline in its profits.
 Horizontal Analysis
2018 % 2017 % 2016
Sales 209,615,825 10% 190,186,735 -6% 202,772,839
Cost of sales (141,391,37 19% (119,075,26 -7% (127,473,881
4) 8) )
Gross Profit 68,224,451 -4% 71,111,467 -6% 75,298,958
Distribution Cost (45,886,728) 36% (33,803,335) 46% (23,121,602)
Administrative Expense (26,009,214) 70% (15,285,118) -50% (30,396,840)
Other Operating Expense (782,934) 18% (662,900)
(72,678,876) 46% (49,751,353) -7% (53,518,442)
Operating Profit (Loss) (4,454,425) - 21,360,114 -2% 21,780,516
121
%

Effect of fair value (23,863,002)

adjustment of long-term
financing
Other Operating Income 7,247,396 195 2,457,251 -2% 2,509,341
%
2,792,971 -88% 23,817,365 5480 426,855
%
Finance Cost (40,552) -4% (42,074) -80% (292,007)
Exchange Gain (Loss) on 175,792
currency evaluation
Profit before tax 2,752,419 -88% 23,775,291 7554 310,640
%
Provision for tax (818,700) 102 (404,773)
%
Profit after tax 1,933,713 -92% 23,370,518 7423 310,640
%
Other comprehensive income
Gratuity Scheme 1,153,200 273 309,013
%
Total Income 3,086,919 -87% 23,679,531 7523 310,640
%

Analysis of Cost of Goods Sold

 Vertical Analysis

Cost of Sales 2018 % 2017 % 2016 %

Raw Material consumed 27% 30% 30%

101,218,667 106,295,882 109,732,795
Salaries, wages & other 5% 3% 2%
benefits 18,345,287 10,671,534 6,471,405
Conveyance Expense 0% 0% 0%
751,950 194,572 63,810
Communication Expense 0% 0% 0%
25,727 21,012 57,750
Entertainment 0% 0% 0%
653,499 250,271 188,984
Freight charges 0% 0% 0%
1,206,110 1,721,870 1,408,839
Rent, rate & taxes 0% 0% 0%
390,000 180,000 180,000
Fuel and Power 0% 0% 0%
502,100 835,649 422,574
Stationary Expense 0% 0% 0%
57,526 14,411 30,278
Repairs and maintenance 0% 0% 0%
688,821 355,712 898,478
Utilities 1% 0% 0%
2,429,119 1,007,902 545,067
Depreciation 3% 2% 2%
10,197,273 8,430,928 7,726,934
Security Charges 0% 0% 0%
822,291 189,000 -
Travelling 0% 0% 0%
249,712 - -
Water Charges 0% 0% 0%
765,670 12,180 248,400
Loading/unloading 0% 0% 0%
expense 236,312 135,490 -
Miscellaneous Expense 0% 0% 0%
688,424 446,997 472,303
36% 37% 35%
139,228,488 130,763,410 128,447,617
Opening Stock WIP 38% 34% 32%
143,765,017 121,098,777 118,075,494
Closing stock WIP -11% -4% -2%
(42,546,350 (14,802,895 (8,342,753)
) )
Cost of Goods 63% 67% 65%
Manufactured 240,447,155 237,059,292 238,180,358
Opening Stock of Finished 44% 41% 39%
Goods 167,482,980 147,329,760 144,040,231
Closing stock Finished -7% -8% -5%
Goods (26,091,606 (28,254,492 (16,566,350
) ) )
37% 33% 35%
141,391,374 119,075,268 127,473,881
Cost Of Sales 100% 100 100%
381,838,529 356,134,560 % 365,654,239

Raw materials being consumed form the highest proportion of the cost of goods manufactured
throughout the years. From the year 2013 to 2017, the percentage change for the raw materials
being consumed has been positive it increased from 30.81% of cost of sales. But later it has
declined in year 2017 to 2018 to 26.76%.

The cost of goods manufactured as percentage of cost of sales has declined over the year from
65.48% in FY 16 to 62.61% in FY 17. The opening stock of finished goods as percentage of cost
of sales has increased from 42.70% in FY 16 to 44.28% in FY 17. The closing stock of finished
goods as percentage of cost of sales has inclined from 8.1% in FY 16 to 6.9% in FY 17.

Horizontal
Cost of Sales 2018 % 2017 % 2016 %

Raw Material consumed -5% -3% 30%

101,218,667 106,295,882 109,732,795
Salaries, wages & other 72% 65% 2%
benefits 18,345,287 10,671,534 6,471,405
Conveyance Expense 286% 205% 0%
751,950 194,572 63,810
Communication 22% -64% 0%
Expense 25,727 21,012 57,750
Entertainment 161% 32% 0%
653,499 250,271 188,984
Freight charges -30% 22% 0%
1,206,110 1,721,870 1,408,839
Rent, rate & taxes 117% 0% 0%
390,000 180,000 180,000
Fuel and Power -40% 98% 0%
502,100 835,649 422,574
Stationary Expense 299% -52% 0%
57,526 14,411 30,278
Repairs and 94% -60% 0%
maintenance 688,821 355,712 898,478
Utilities 141% 85% 0%
2,429,119 1,007,902 545,067
Depreciation 21% 9% 2%
10,197,273 8,430,928 7,726,934
Security Charges 335% #DIV/0 0%
822,291 189,000 ! -
Travelling #DIV/0 #DIV/0 0%
249,712 ! - ! -
Water Charges 6186% -95% 0%
765,670 12,180 248,400
Loading/unloading 74% #DIV/0 0%
expense 236,312 135,490 ! -
Miscellaneous Expense 54% -5% 0%
688,424 446,997 472,303
6% 2% 35%
139,228,488 130,763,410 128,447,617
Opening Stock WIP 19% 3% 32%
143,765,017 121,098,777 118,075,494
Closing stock WIP 187% 77% -2%
(42,546,350 (14,802,895 (8,342,753)
) )
Cost of Goods 1% 0% 65%
Manufactured 240,447,155 237,059,292 238,180,358
Opening Stock of 14% 2% 39%
Finished Goods 167,482,980 147,329,760 144,040,231
Closing stock Finished -8% 71% -5%
Goods (26,091,606 (28,254,492 (16,566,350
) ) )
19% -7% 35%
141,391,374 119,075,268 127,473,881
Cost Of Sales 7% -3% 100%
381,838,529 356,134,560 365,654,239

Cost of sales is defined as the sum of opening stock, cost of goods manufactured less the closing
stock. It is one of the components of income statement that shows the profitability of the
companies. Increase in the cost of sales cause’s gross profit margin to fall down hence showing a
decreased net profit. Whereas, decrease in the cost of sales shows a high gross profit margin and
hence an increase net profit. The cost of sales of Atlas Exports has increased by 9.6% from FY
17 to FY 18 whereas it was negatively decreasing by 5.6% from FY 16 to FY 17. This show
Atlas Exports has not been working efficiently to reduce their cost of goods sold and their
production system has caused a drastic increase in their costs. The main reason behind this
change in cost sales in FY 18 as compared to FY 17 is opening and closing stock of finished
goods. The opening stock of finished goods has increased by 13% as compared to last year
where it was only 2%. The closing stock of finished goods was a negative 7% as compared to
last year where it decreased by 70%. The opening balance of work in process inventory has
increased by 18.7% in FY 18 as compared to last year where it increased by 2.5%. The cost of
goods manufactured has increased by 9.6% in FY 17 as compared to last year FY 16 where it
was a negative 5.6%.

Raw material consumed in FY 16 has decreased by coming out negative 4% from FY 17 as

compared to negative 3% in preceding year. The Fuel and power expense has decreased by
39.9% as from last year where Fuel and power expense was increased by 97.7%. This may be
due to the factory being closed because of the unstable political and social factors in the country.
 Activity Based Costing
There are eight activities; Weighing, Grinding, Mixing, Filtration, Cooling, Filling, Capping and
Labelling/packaging. Each activity has been categorised further into cost hierarchy such as;
product-sustaining costs and batch level. In order to see the impact of budgeted indirect costs
(34,280,000) on each activity, we have assigned weights to each activity according to the indirect
cost incurred on them.

Each activity has been assigned with a cost driver depending upon its cost object. We have
assigned labour hours to weighing and mixing because when the raw material arrives, it is
weighed and designated employee notes down the quantity of each batch and inspect its quality,
in addition, proper document is maintained in which weights of each batch are recorded. Labour
hours are assigned to mixing because different raw materials are to be added time to time during
the mixing process which requires labour effort and supervision. Machine hours are assigned to
grinding, filtration, filling and capping, all of these activities require specialized procedures
which are done with the help of specific machines, whereas quantity produced is allocated to
cooling and labelling because both of these activities are done on the basis of final product
produced each day.

Activity Cost Weights Cost Overhead Cost Driver Budgeted

Driver Cost Quantity Cost rate
Weighing Product 8 Labor 2,742,400 439282 6.24
Sustaining Cost Hours
Grinding Product 18 Machine 6,170,400 564791 10.93
Sustaining Cost Hours
Mixing Batch Level 20 Labor 6,856,000 439282 15.61
Hours
Filtration Batch Level 11 Machine 3,770,800 564791 6.68
Hours
Cooling Batch Level 5 Quantity 1,714,000 1255091 1.37
Produced
Filling Batch Level 10 Machine 3,428,000 564791 6.07
Hours
Capping Batch Level 15 Machine 5,142,000 564791 9.1
Hours
Packaging Batch Level 13 Quantity 4,456,400 1255091 3.55
Produced
100% 34,280,000 59.55
 Break-even Analysis
A break-even analysis is an analysis, which enables the management to determine the point at
which the revenues received equals to the costs associated with the receiving revenue. Break-
even analysis calculates what is known as a margin of safety, which is the amount in which the
revenues exceed the margin of safety. This analysis only analyses the cost of the sales. It does
not take into consideration how demand may be affected at different price levels.

The sales of the company declined during FY15 but it increased during FY16.

Sales
209,615,825 190,186,735 202,772,839
Variable Cost
143,694,238 134,904,727 136,205,437
Contribution Margin
65,921,587 55,282,008 66,567,402
Fixed Cost
53,006,670 36,432,836 46,123,225
Operating Profit
12,914,917 18,849,172 20,444,177

Contribution Margin 31% 29% 33%

Breakeven Sales 168,549,292.70 125,339,913.95 140,497,255.35

Units
1,397,439 1,267,912 1,351,819
Variable Cost per unit
103 106 101
BE Sales
1,123,662 835,599 936,648

Contribution Margin Analysis

The contribution margin is the difference between sales of the company and their variable costs.
The Contribution margin of the company declined in FY15 but later on increased during FY16 to
PKR 65,921,587 , although the variable cost of the company had been increasing over the years
but it was increasing due increase in the convince expense, utilities expense and
loading/unloading expense, marketing, freight and handling costs . The operating profit is the
difference between contribution margin and fixed costs. A declining trend can be seen in the
operating profits of the company, due to an increase in the fixed costs of the company. The fixed
costs of the company had increased during the FY16 from PKR 36,432,836 of FY15 to PKR
53,006,670 because the machine utilization of the company had been very low or inefficient, as
well as the due to the increase in the fixed costs such as salaries, other expenses, factory rent,
repairs and maintenance. During the same FY16, additional machinery was also bought by the
company, therefore its additional fixed depreciation expense also contributed to the increase in
the fixed costs of the company.

Break-even Analysis
The break-even sales are being calculated by dividing the fixed costs of the company by the
contribution margin %. The break even sales declined during FY 17 but later on increased in FY
18. The break-even point also shows that it had decreased from FY 16 to FY 17 and later on it
increased. The company during FY 18 was required to sell at least 1123662 units in order to
break even at PKR 168,549,293. The break-even sales of the company have increased from FY
17, which was PKR 140,497,255 to PKR 168,549,293 during FY 18. The company during FY 18
needed to sell more number of units in order to break even.
 Budgeting
Budget is a quantitative expression of a propose plan of action by management for a specified
period. It helps in coordinating the implementation of the plan. The budget of Atlas Exports for
the year, 2018 is made from the data of the previous year along with information from the
management.

Sales Budget  
Budgeted Sales (units) 1,200,000
Selling price per unit 150
Total Revenues 180,000,000

Production Budget  
Sales 1,200,000
Add: Desired Ending Inventory 66,000
Total Production Required 1,266,000
Less: Beginning Inventory 10,909
Units to be Produced 1,255,091

Direct Materials Budget  

Production in units 1,255,091
Materials per unit 53
Production needs 66,519,818
Add: Desired Ending Inventory 66,000
Total needed 66,585,818
Less: Beginning Inventory 10,909
Materials to be purchased 66,574,909

Direct Labor Budget  

Production in units 1,255,091
Direct labor hours 0.35
Labor hours required 439,282
Wage rate 39
Total direct labor cost 17,131,991

Overhead Budget  
Indirect Material 21,600,000
Indirect Labor 6,000,000
Conveyance Expenses 720,000
Communication Expenses 20,000
Entertainment 600,000
Freight Charges 1,140,000
Fuel and Power 600,000
Stationary expenses 60,000
Utilities 2,340,000
Travelling Expenses 250,000
Loading and Unloading Expenses 250,000
Miscellaneous Expenses 700,000
  34,280,000

Selling & Administrative Expense Budget  

Sales in units 1,200,000
Variable S&A rate 5.2
Variable Expense 6,240,000
Fixed S&A Expense 19,912,178
Total Expenses 26,152,178
Less: Non-Cash Expenses 9,695,567
Cash Disbursements 16,456,611
Budgeted COGS  
Beginning Material Inventory 10,909
Add: Materials Purchased 66,574,909
Material available for use 66,585,818
Less: Ending material inventory 66,000
Direct material used 66,519,818
Direct labor used 17,131,991
Manufacturing Overhead 34,280,000
Total manufacturing costs 117,931,809
Add: Beginning work-in-progress inventory 145,318,532
Subtotal 263,250,341
Less: Ending work-in-progress inventory 21,168,140
Cost of Goods Manufactured 242,082,202
Add: Beginning Finished Goods Inventory 162,062,736
Cost of Goods Available for Sale 404,144,938
Less: Ending Finished Goods Inventory 29,667,217
Cost of Goods Sold 374,477,721

Budgeted Income Statement  

Sales 180,000,000
Cost of Sales -177,931,809
Gross Profit 62,068,191
Distribution Cost -42,254,169
Administrative Expenses -22,927,677
Other Operating Expenses -762,335
  -65,944,181
 Operating Loss (Income) -3,875,990
Other Operating Income 6,143,128
Profit/(Loss) from Operation 2,267,138
Finance Cost -42,074
Profit/(Loss) before Taxation 2,225,064
Taxation -404,773
Profit/(Loss) after Taxation 1,820,291

Sales Budget

As per the information provided by the company, budgeted sales units of year 2017 (1,090,909
units) were increased by 10% to find the budgeted sales of 2018. The unit cost is Rs 150, hence
the budgeted revenues comes out to be Rs. 180,000,000

Production Budget

Desired ending inventory is kept as 5% of budgeted sales of next year. Budgeted sales of 2018
equals to 1,320,000*1.05 gives the desired ending inventory value. The management told that
approximately 1% of the budgeted sales of last year come as beginning inventory. Hence
beginning inventory is calculated as 1,090,909*1.01. Total units to be produced are 1,255,091.

Direct Material Budget

Information was given that direct Material per batch equals to Rs. 26,500 and a batch consists of
500 units, through which it was calculated that material per unit equals to Rs 53. The total
materials to be purchased equals to Rs. 66,574,909.

Direct Labour Budget

As per the information provided by the management, the labour is paid Rs 39/hour, based on
double shift of sixteen hours a day and it takes 0.35 labour hours to complete 1 unit. Hence,
based on the number of units to be produced in 2017, the direct labour cost comes out to be Rs.
17,131,991.

Overhead Budget
As per the information provided by the company indirect material is calculated by multiplying
number of units sold with Rs 18, indirect labour is calculated by multiplying number of units
sold with Rs 5, freight charges are calculated by multiplying number of units sold with Rs 0.95
and utilities are calculated by multiplying number of units sold with Rs 1.95. The remaining
amounts are estimated amounts provided by the management.

Selling & Administration Budget

Variable selling and administration expenses are Rs 5.2/unit sold, fixed selling and
administration cost equals to last year's actual fixed selling and administration cost multiplied
with 1.2 (increasing 20%) and budgeted depreciation is calculated by multiplying last year actual
depreciation with 1.5 (increasing 50%), because additional machinery.

Cash Receipt and Disbursement Budget

As per the data provided by the company, cash receipts are collected:

10% in month of sale

35% two months after the sale

50% six months after the sale

5% bad debts

The monthly data was not provided hence cash receipt budget cannot be made.

As per the data provided by the company, cash disbursements are made:

30% paid in month of purchase

60% two months after the purchase

10% three months after the purchase

The monthly data was not provided hence cash disbursement budget cannot be made.

Cost of Goods Sold Budget

 All the valued in cost of goods sold budget are coming from previous budget. As per company
management policy, last year’s actual opening work in process inventory was increased by 20%,
last year’s actual closing work in process inventory increased by 43%, last year’s actual opening
finished goods inventory increased by 10% and last year’s actual closing finished goods
inventory increased by 5%.

Budgeted Income Statement

As per the company management policy, budgeted income statement in constructed on pre-set
assumptions such as; last year's actual distribution cost increased by 25%, last year's actual
administration cost increased by 50%, last year's actual other operating expenses increased by
15%, last year's actual operating income increased by 200% because of returns on investments
were expected, finance cost of the budgeted year is assumed to be same as last year's actual
finance cost and similarly, tax of the budgeted year is also assumed to be same as last year's tax.

Actual Flexible Flexible Sales Static

Budget Volume
Variance Variance
Units sold 1,497,256 - 1,497,256 297,256 1,200,000
Revenues 209,615,82 (14,972,559 224,588,38 44,588,384 180,000,000
5 ) 4
Variable costs
Direct material 71,847,119 (11,150,539 82,997,658 16,477,840 66,519,818
)
Direct 21,554,136 178,324 21,375,812 4,243,821 17,131,991
manufacturing
labor
Variable 50,292,983 7,521,373 42,771,610 8,491,610 34,280,000
Manufacturing OH
Total VC 143,694,23 (3,450,842) 147,145,08 29,213,271 117,931,809
8 0
Contribution 65,921,587 (11,521,717 77,443,304 15,375,113 62,068,191
Margin )
Fixed 53,006,670 (12,937,511 65,944,181 - 65,944,181
Manufacturing Cost )
Operating Income 12,914,917 1,415,794 11,499,123 15,375,113 (3,875,990)

Static- 16,790,907
Budget
Variance
 Variance Analysis

Direct Material Cost Variances

Static Budget Actual Budget Flexible Budget

Production 1,255,091 1,444,440 1,444,440
Direct material price 53 53.77 53
per unit (Rs.)

Total cost of direct 66,519,818 77,667,539 76,555,320

material (Rs.)

Actual Quantity x Actual Price Actual Quantity x Standard Price Standard Quantity
x Standard Price

= 1444440 * 53.77 = 1444440 * 53 = 1255091 * 53

= 77,670,357 = 76,555,303 = 66,519,818

Price Variance = (1,115,054) U Efficiency Variance = (10,035,485) U

Flexible Budget Variance = (11,150,539) U

Direct Labor Cost Variances

Static Budget Actual Budget Flexible Budget

Labor hours 439,282 435,853 435,853

Labor cost per hour 39 38.8 39

Total direct labor 17,131,991 16,911,096 16,998,267

cost
Actual Quantity x Actual Price Actual Quantity x Budgeted Price Budgeted Quantity x Budgeted Price

= 435853 * 38.8 = 435853 * 39 = 439282* 39

= 16,953,667 = 16,998,267 = 17,131,991

Price Variance = 44,600 F Efficiency Variance = 133,724 F

Flexible Budget Variance = 178,324 F