Dr.

Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Module 4: Budgeting and Budgetary Control:

Instruction for students:

1) Be ready with Pen, Pencil, and Calculator etc.
2) For Flexible Budget, student has to copy down the given problems
(Problems No. 1, 4 & 6) and format for solution on separate sheet.
3) For Cash Budget student has to copy down the given problems and format
for solution on separate sheet.

FLEXIBLE BUDGET
Problem.1 The following information relates to the productive activities of ABC
Co. Ltd. For three months ended 31st December 1998
Fixed Expenses: Rs.
Management Salaries 2,10,000
Rent and Taxes 1,40,000
Depreciation of Machinery 1,75,000
Sundry office Expenses 2,22,500
Semi- variable Expenses at 50% Capacity:
Plant Maintenance 62,500
Indirect Labour 2,47,500
Salesmen's Salaries 72,500
Sundry Expenses 65,000
Variable Expenses at 50% Capacity:
Materials 6,00,000
Labour 6,40,000
Salesmen's Commission 95,000
It is further noted that Semi-variable expenses' remain constant between 40% and
70% capacity, increase by 10% of the above figures between 70% and 85% capacity
and increase by 15% of the above figures between 85% and 100% capacity. Fixed
expenses remain constant whatever the level of activity may be. Sales at 60%
capacity are Rs. 25,50,000; at 80% capacity Rs. 34,00,000 and at 100% capacity Rs.
42,50,000. Assuming that all items produced are sold, prepare a flexible budget at
60%; 80% and 100% production capacities.
Solution:-
ABC Co. Ltd.
Statement Showing Flexible Budget At Various Capacity Level
Production Capacity Level
Particulars
50% 60% 80% 100%
A) Variable Expenses (Rs.) (Rs.) (Rs.) (Rs.)

Total Variable Expenses (A)

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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

B) Semi-variable Expenses

Total Semi-variable Expenses (B)

C) Fixed Expenses:

Total Fixed Expenses: (C)

D) Total Cost (A+B+C)
+ Profit
= Sales

Problem.2 (Home work: Difficulties will be discuss in next class) A

flexible budget at 60%, 80% and 100% production capacities is to be prepared from
the following information relating to the productive activities of XYZ Co. Ltd. For
the six months ended 31st December 1997:
Fixed Expenses:- Rs.
Management Salaries 42,000
Rent and Taxes 28,000
Depreciation on Machinery 35,000
Sundry office expenses 44,500
Semi-variable Expenses at 50%
capacity :
Plant Maintenance 12,500
Indirect Labour 49,500
Salesman salaries 14,500
Sundry Expenses 13,000
Variable Expenses at 50% capacity:-
Materials 1,20,000
Labour 1,28,000
Salesman Commission 19,000
Semi-variable expenses remain constant between 40% and 70% capacity, increases by
10% on the above figures between 70% and 80% capacity, and increase by 15% only
above figures between 80% and 100% capacity. Fixed expenses remain constant
whatever may be the activity.
Sales at 60% capacity are Rs. 5,10,000; at 80% capacity Rs. 6,80,000 and at 100%
capacity Rs.850000. It is to be assumed that all items procedure sold.

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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Problem.3 (Home work: Difficulties will be discuss in next class)

The following information at 50% capacity is given. Prepare a flexible budget and
forecast the profit or loss at 60%, 70% and 90% capacity: -
Fixed Expenses :- Rs.
Salaries 50,000
Rent and Taxes 40,000
Depredation 60,000
Administration Expenses 70,000
Variable Expenses :-
Materials 2,00,000
Labour 2,50,000
Other expenses 90,000
Semi-variable
Expenses:-
Repairs 1,00,000
Indirect Labour 1,50,000
Other expenses 90,000
It is further noted that fixed expenses will remain constant at all capacities. Semi
variable 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%.
Sales at 60% capacity are Rs.11,00,000; at 70% capacity Rs. 13,00,000 and at 90%
capacity Rs. 15,00,000
Problem.4 Draw up a flexible budget for overhead expenses on the basis of the
following data and determine the overhead rate at 70% and 90% plant capacity: -
Variable Overheads: (at 50%
Rs.
capacity).
Indirect Materials 12,000
Indirect Labour 4,000
Semi-variable Overheads:
Power (30% fixed, 70% variable) 20,000
Repairs (60% fixed, 40% variable) 2,000
Fixed Overheads :
Depreciation 11,000
Insurance 3,000
Salaries 10,000
Estimated direct labour hours 1,24,000

Solution:
_________Co. Ltd.
Statement Showing Flexible Budget At Various Capacity Level

Production Capacity Level

Particulars
50% 70% 90%

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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

A) Variable Expenses (Rs.) (Rs.) (Rs.)

Total Variable Expenses (A)

B) Semi-variable Expenses

Total Semi-variable Expenses (B)

C) Fixed Expenses:

Total Fixed Expenses: (C)

D) Total Cost (A+B+C)
+ Estimated direct labour hours
Overhead Rate Per Hour =
Total cost/ Estimated direct labour
hours
Working Note for Semi-variable expenses:

Power expenses At 50% capacity

20,000

30% Fixed 6,000 70% Variable 14,000

Problem.5 (Home work: Difficulties will be discuss in next class) 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 rate: -
Variable Overheads: Rs.
Indirect Materials 8,520
Indirect Labour 10,500
Semi-variable Overheads:
Repairs and Maintenance (70% fixed, 30%
7,000
var.)
Electricity (50% fixed, 50% variable) , 25,200
Fixed Overheads:
Office expenses 70,000
Insurance 4,000
Depreciation 20,000
Estimated direct labour hours 1,20,000

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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Problem. 6 The expenses for the production of 5,000 units in a factory are given
follows: -
Particulars Per unit Rs.
Materials 50
Labour 20
Variable Overheads 15
Fixed Overheads 10
Administrative expenses (5%
10
variable)
Selling expenses (20% fixed) 6
Distribution expenses (10% fixed) 5
Total cost 116
You are required to prepare a budget for the production of 7,000 units & 9000 units.

Solution:-

Statement Showing Flexible Budget At Various Capacity Level

Production Capacity Level

Particulars 5000 units 7000 units 9000 units
Per unit Rs. Per unit Rs. Per unit Rs.

A) Variable Expenses

Total Variable Expenses (A)

Semi-variable Expenses

Total Semi-variable Expenses (B)

C Fixed Expenses:
)

Total Fixed Expenses: (C)

Total Cost (A+B+C)

Problem.7 (Home work: Difficulties will be discuss in next class) The

expenses budgeted for the production of 10,000 units in a factory is furnished below:
Particulars Per unit (Rs.)
Materials 70
Labour 25
Variable overheads 20
Fixed overheads 10
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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Variable expenses 5
Selling expenses (10% fixed) 13
Administration expenses 5
Distribution expenses (20% fixed) 7
Total cost 155
Prepare a budget for the production of: (a) 6,000 units & (b) 8,000 units. Assume that
Administration expenses are rigid at all levels of production.

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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

CASH BUDGET
Problem.1 From the following forecast of income and expenditure, prepare a Cash
Budget for the months January to April 2019: -
Manufacturing Administratio Selling
Sales Purchases Wages
Months Expenses n Expenses. Expenses.
Rs. Rs. Rs. Rs. Rs. Rs.
Nov’18 30,000 15,000 3,000 1,150 1,060 500
Dec’18 35,000 20,000 3,000 1,225 1,040 550
Jan’19 25,000 15,000 2,500 990 1,100 600
Feb’19 30,000 20,000 3,000 1,050 1,150 620
Mar’19 35,000 22,500 2,400 1,100 1,220 570
Apr’19 40,000 25,000 2,600 1,200 1,180 710
Additional Information is as follows:-
1. The customers are allowed a credit period of 2 months.
2. A dividend of Rs. 10,000 is payable in April.
3. Capital expenditure to be incurred: Plant purchased on 15th January for Rs. 5,000;
a Building has been purchased on 1st March and the payments are to be made in
monthly instalments of Rs. 2,000 each.
4. The creditors are allowed a credit of 2 months.
5. Wages are paid on the 1st of the next month,
6 .Lag in payment of other expenses is one month
7. Balance of cash in hand on 1st January is Rs.15,000.

Solution :-
Statement showing cash budget for the period of 4 months from Jan to April
Particulars Jan. (Rs.) Feb. (Rs.) Mar. (Rs.) April (Rs.)
A Opening Balance (A)

B Receipts:-

Total Receipts (B)

C Payments

Total Payment (C)

D Closing Balance (A+B-C)

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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Problem.2 A Company expects to have Rs.25,000 in bank on 1 st May 2019 and

requires you to prepare an estimate of cash position during the three months May,
June and July 2019:
Sales Purchases Wages Office exp. Factory exp. Selling exp.
Months
Rs. Rs. Rs. Rs. Rs. Rs.
March 50,000 30,000 6,000 4,000 5,000 3,000
April 56,000 32,000 6,500 4,000 5,500 3,000
May 60,000 35,000 7,000 4,000 6,000 3,500
June 80,000 40,000 9,000 4,000 7,500 4,500
July 90,000 40,000 9,500 4,000 8,000 4,500
Other information:-
1. 20% of sales are in cash, remaining amount is collected in the month following
that of sales.
2. Suppliers supply goods at two months credit.
3. Wages and all other expenses are paid in the month following the one in
which they are incurred.
4. The company pays dividend to shareholders and bonus to workers of Rs.
10,000 and 15,000 respectively in the month of May.
5. Plant has been ordered and is expected to be received in June. It will cost
Rs.80,000 to be paid in June.
6. Income tax Rs. 25,000 is payable in July.
Solution:-
Statement showing cash budget for the period of 3 months from May to July

Particulars May (Rs.) June. (Rs.) July. (Rs.)

A Opening Balance (A)

B Receipts:-

Total Receipts (B)

C Payments

Total Payment (C)

D Closing Balance (A+B-C)

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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Working Note for Sales:

Particulars Mar April May June July

Cash sales (20%)
Credit sale (80%)

Problem 3 From the following budgeted figures prepare a cash budget in respect of
three months to 30th June 2019.
Overhead
Sales Materials Wages
Month s
Rs. Rs. Rs. Rs.
January 60,000 40,000 11,000 6,200
February 56,000 48,000 11,600 6,600
March 64,000 50,000 12,000 6,800
April 80,000 56,000 12,400 7,200
May 84,000 62,000 13,000 8,600
June 76,000 50,000 14,000 8,000
Expected cash balance on 1 April 2019is Rs. 20,000. Other Information:-
st

a) Materials and Overheads are to be paid during the month following the
month of supply.
b) Wages are to be paid during the month in which they are incurred
c) Terms of sales: The terms of credit sales are payment by the end of the month
following the month of sales; ½ of the sales are paid when due, the other half to be
paid during the next month.
d) 5% sales commission is to be paid within the month following actual sales.
e) Preference dividend of Rs. 30,000 is to be paid on 1st May.
f) Share call money for Rs. 25,000 is due on 1st April and 1st June.
g) Plant and Machinery worth Rs.10,000 is to be installed in the month of
January and the payment is to be made in the month of June.
Solution:-

Statement showing cash budget for the period of 3 months from April to June
Particulars April (Rs.) May (Rs.) June (Rs.)
A Opening Balance (A)

B Receipts:-

Total Receipts (B)

C Payments

Total Payment (C)

D Closing Balance (A+B-C)

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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Working Note for Sales

Particulars Jan Feb Mar April May June

Credit
Credit
Total

Problem 4 From the following data, forecast the cash position at the end of April,
May & June 2019:
Sales Purchases Wages Miscellaneous Exp.
Month
Rs. Rs. Rs. Rs.
Februar 1,20,00
84,000 10,000 7,000
y 0
1,30,00
March 1,00,000 12,000 8,000
0
April 80,000 1,04,000 8,000 6,000
1,16,00
May 1,06,000 10,000 12,000
0
June 83,000 80,000 8,000 6,000
Additional information:
Sales : 20% sales are in cash, discount allowed on cash sale is 5%.
Balance realised equally in two subsequent months.
Purchases : These are paid in the month following the month of supply.
Wages : 25% paid in arrears in following month.
Misc. Exp. : Paid a month in arrears.
Rent : Rs. 1,000 per month paid quarterly in advance due in April.
Income-tax : First instalment of advance tax is Rs. 25,000 due on or before
15th June.
Income from Investment: Rs. 5,000 received quarterly in April.
Cash in hand : Rs.5,000 on 1st April 2019.
Solution:

Statement showing cash budget for the period of 3 months from April to June
Particulars April (Rs.) May (Rs.) June (Rs.)
A Opening Balance (A)

B Receipts:-

Total Receipts (B)

C Payments

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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Total Payment (C)

D Closing Balance (A+B-C)

Working note for sales:

Particulars Feb Mar April May June

Working note for Wages:

Particulars Feb Mar April May June

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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Module 3
Operating Costing
Problem. No. 1 Mr. Sohan Singh has started transport business with a fleet of 10 taxies. The various
expenses incurred by him are given below:
(i) Cost of each taxi Rs. 75,000
(ii) Salary of office Staff Rs. 1,500 p.m.
(iii) Salary of Garage’s Supervisor Rs. 2,000 p.m.
(iv) Rent of Garage Rs. 1,000 p.m
(v) Drivers Salary (per taxi) Rs. 400 pm.
(vi) Road Tax and Repairs per taxi Rs. 2,160 p.a.
(vii) Insurance premium @ 4% of cost p.a.
The life of a taxi is 3,00,000 km. and at the end of which it is estimated to be sold at Rs. 15,000. A
taxi runs on an average 4,000 Km. per month of which 20% it runs empty, petrol consumption 9 Km.
per litre of petrol costing Rs. 6.30 per litre. Oil and other sundry expenses amount to Rs. 10 per 100
Km.
Calculate the effective cost of running a taxi per kilometre. If the hire charge is Rs. 1.80 per
Kilometre, find out the profit that Mr.Sohan may expect to make in the first year of operation.

Solution:
Statement of Operating cost
No.of taxi: 10 Distance travelled:4000 kms
Particulars Working Amount Amount
A Fixed Expenses
Salary of staff (1,500 p.m ÷10 Taxi) 150
Salary of garage supervisor (Rs. 2,000 p.m. ÷10 Taxi) 200
Rent of garage (Rs. 1,000 p.m ÷10 Taxi) 100
Driver Salary 400
Road tax and repairs Rs. 2,160 p.a. ÷ 12 Months 180
Insurance premium 75,000 x 4 %=3,000 ÷ 12 Months) 250
Total Fixed Expenses (A) 1,280
B Repairs & Maintenance
Total Repairs & Maintenance (B) --
C Running Expenses :-
Depreciation Cost- Scrap 800
Life in Kms X Distance travelled
75,000-15,000
3,00,000 Kms x 4000 kms
Petrol 4000 kms x Rs.6.30 2,800
9 kms
Oil & sundry expenses 4000 kms x Rs.10 400
100 kms
Total Running Expenses (C) 4,000
Total Operating Cost (A+B+C) 5,280

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Operating cost per Km = Total Operating Cost Rs. 5,280

A 1.32
Total distance travelled 4000kms

Effective Operating cost per Km = Total Operating Cost Rs. 5,280

B 1.65
Effective distance travelled 3200kms

C Profit per km per taxi (Hire charges- effective operating cost) 1.80-1.65 0.15

D Overall profit in year (0.15x 3,200 Kms x 10 taxi x 12 months) 57,600

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Problem. No. 2 The Kangaroo Transport operates a fleet of lorries. The records for lorry L-
14 reveal the following information for September, 2019:

Days maintained 30
Days operated 25
Days Idle 05
Total hours operated 300
Total Kms covered 2,500
Total tones carried 200 ( 4 tonne-load per
trip, journey empty)
The following information is made available:
1. Operating costs for the month: Petrol Rs.400, oil Rs.170, grease Rs.90, wages to driver
Rs.550,
wages to Peon Rs.350.
2. Repairs & Maintenance costs for the month: Repairs Rs.170, overhead Rs.60, Tyres
Rs.150, Garage charges Rs.100.
3. Fixed costs for the month based on the estimates for the year : Insurance Rs.50, Licence,
Tax etc.
Rs. 80, Interest Rs.40, other overheads Rs.190.
5. Capital costs: Cost of acquisition Rs.54,000, Residual value at the end of 5 years life is
Rs.36,000. Prepare a operating Cost Sheet and performance statement showing:
(a) Cost per day maintained;
(b) Cost per day operated ;
(c) Cost per kilometer;
(d) Cost per hour;
(e) Cost per commercial tonne
Solution:
Statement of Operating cost
No.of taxi: Distance
travelled:2500 kms
Particulars Working Amount Amount
A Fixed Expenses
Insurance premium 550
License , Tax etc. 80
Interest 40
Other overheads 190
Depreciation Cost- Scrap 300
Life in Years
54,000-36,000
5 years
=3,600 p.a. . ÷ 12
Months
Total Fixed Expenses (A) 660
B Repairs & Maintenance
Repairs 170
Overheads 60
Tyre 150
Garage charges 100
Total Repairs & Maintenance 480
(B)
C Running Expenses :-
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Petrol 400
Oil & sundry expenses 170
Grease 90
Wages to driver 550
Wages to peon 350
Total Running Expenses (C) 1,560
Total Operating Cost (A+B+C) 2,700

Performance Statement
(a) Cost per day maintained Rs. 2,700 ÷ 30 days 90
(b) Cost per day operated Rs. 2,700 ÷ 25 days 108
(c) Cost per kilometre Rs. 2,700 ÷ 2,500 Kms 1.08
(d) Cost per hour Rs. 2,700 ÷ 300 hrs. 9
(e) Cost per commercial tonne
Outward = 4 tonnes x 25 days x 50 kms 5000
Return = 0 tonnes x25days x 50 kms 00
Total tonne 5000
Cost per commercial tonne Rs. 2,700 ÷ 5000 tonne 0.54

Module 5
Standard Costing & Variance Analysis
Problem. No. 1 A manufacturing concern, which has adopted standard costing, furnished the

following information regarding Standard Material for 70 kg finished product: 100 kg.

Price of materials: Re. 1 per kg.

Actual Output: 2,10,000 kg.

Material used: 2,80,000 kg.

Cost of material: Rs. 2,52,000

(a) Material Cost Variance

(b) Material Price Variance

(c) Material Usage Variance

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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Solution:

1) Standard quantity for 70 kg standard output

Standard quantity of material = 100 kg.

2,10,000 kg. of finished products

(2,10,000 x 100)/70 = 3,00,000 kg

2) Actual price per kg = Rs. 2,52,000/2,80,000 = Re. 0.90

A) Material Cost Variance = (Standard quantity for actual output x standard rate) – (Actual

quantity x Actual rate)

(3,00,000x 1) – (2,80,000 x 0.90) = 3,00,000 x 2,52,000 = Rs. 48,000 (favorable)

B) Material Price Variance =Actual quantity(Standard price ‐Actual Price)

=2,80,000 (Re.1 – Re.0.90) = 2,80,000x0.10= Rs. 28,000 (favorable)

C) Material Usage Variance = Standard Rate (Standard quantity for actual output – Actual

quantity)

= Re. 1 (3,00,000 – 2,80,000) =Re. 1 x 20,000 =Rs. 20,000 (favorable)

Verification:

MCV = MPV + MUV

(a) Rs. 48,000 (F) = Rs.28,000 (F) + Rs.20,000 (F)

Problem. No. 2 A Chemical Company gives you the following standard and actual data relating to
a batch of the Chemical X – 461.
Standard Rate:
Rs.
Material A: 450 Kgs. @ Rs. 20: 9,000
Material B: 360 Kgs. @ Rs. 10: 3,600
Labour: 2,400 hours @ Rs. 2.50 per hour: 6,000
Fixed Overheads: @ Rs. 6 per hour: 14,400
33,000

Actual Rate:
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 Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Rs.
Material A: 450 Kgs. @ Rs. 19: 8,550
Material B: 360 Kgs. @ Rs. 11: 3,960
Labour: 2,500 hours @ Rs. 3 per hour: 7,500
Fixed Overheads actually spent 11,500
31,510
Actual process loss being 100 units, actual output = 710 units.

You are required to calculate:

(a) Material Cost Variance
(b) Material Price Variance
(c) Labour Cost Variance
(d) Labour Rate Variance

Solution:
Standard Actual
Material Quantity Kg. Rate Kg Amount Rs. Quantity Kg. Rate Kg Amount Rs.
A 450 20 9,000 450 19 8,550
B 360 10 3,600 360 11 3,960
810 12,600 12,510

Material Variances:
(a) Material Cost Variance:
MCV = SC for Actual Output – Actual Output
= 12,600 – 12,510
= Rs. 90 (F)
(b) Material Price Variance:
MPV = AQ (SR – AR)
Material A= 450 (20 -19) = Rs. 450 (F)
Material B= 360 (10 -11) = Rs. 360 (A)
Rs. 90 (A)

Labour Variances:
(d) Labour Cost Variance:
LCV = SC of Labour for Actual Output – Actual Cost of Labour
= 6,000 – 7,500
= Rs. 1,500 (A)
(e) Labour Rate Variance:
LRV = AT (SR – AR)
= 2,500 (2.50 – 3)
= Rs. 1,250 (A)

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