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Flexible Budget
1. Draw up a flexible budget for overhead expenses based on the following data and determine the
overhead rates at 70%, 80% and 90% plant capacity
At 70% At 80% At 90%
Particulars Capacity Capacity Capacity
Rs. Rs. Rs.
Variable Overheads:
Indirect labour --- 12,000 ---
Stores including spares --- 4,000 ---
Semi-variable Overheads:
Power
--- 20,000 ---
(30% fixed, 70% Variable)
Repairs and maintenance
--- 2,000 ---
(60% fixed , 40% variable)
Fixed Overheads:
Depreciation --- 11,000 ---
Insurance --- 3,000 ---
Salaries --- 10,000 ---
Total Overheads --- 62,000 ---

Estimated direct labour hours 1,24,000 hours

2. The expenses for budgeted production of 10,000 units in a factory are furnished below
Per Unit
Particulars
(Rs.)
Material 70
Labour 25
Variable Overheads 20
Fixed overheads (Rs. 1,00,000) 10
Variable Expenses (Direct) 5
Selling Expenses (10% Fixed) 13
Distribution Expenses (20% Fixed) 7
Administration Expenses 5
Total cost per unit 155
Prepare a budget for production of
(a) 8,000 units
(b) 6,000 units
(c) Indicate cost per unit at both the levels
Assume that administration expenses are fixed for all levels of production

3. The cost of an article at a capacity level of 5,000 units is given under A below. For a variation of
25% in capacity above or below this level the individual expenses vary as indicated under B below
A
Particulars B
(Rs.)
Material Cost 25,000 100% varying
Labour Cost 15,000 100% varying
Power 1,250 80% varying
Repairs and Maintenance 2,000 75% varying
Stores 1,000 100% varying
Inspection 500 20% varying
Depreciation 10,000 100% varying
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Adm. Overheads 5,000 25% varying
Selling Overheads 3,000 25% varying
Total 62,750
Cost per unit Rs. 12.55
Find the unit cost of the product at production levels of 4,000 units and 6,000 units

4. The following data are available in a manufacturing company for the year 1998
Particulars Rs. Lakhs
Fixed expenses:
Wages and Salaries 9.5
Rent, rates and taxes 6.6
Depreciation 7.4
Sundry administration expenses 6.5
Semi-variable expenses (At 50% of capacity):
Maintenance and repairs 3.5
Indirect labour 7.9
Sales department salaries etc., 3.8
Sundry administration salaries 2.8
Variable expenses (At 50% of capacity):
Materials 21.7
Labour 20.4
Other expenses 7.9
Total Cost 98.0
Assuming that the fixed expenses remain constant for all levels of production; Semi-variable
expenses remain constant between 45% and 65% of capacity increasing by 10% between 65% and
80% capacity and by 20% between 80% and 100% capacity
Sales at various levels are Rs. lakhs
50% Capacity 100
60% Capacity 120
75% Capacity 150
90% Capacity 180
100% Capacity 200
Prepare a flexible budget for the year 1999 and forecast the profit at 60%, 75%, 90% and
100% capacity.

5. The following information relates to the productive activities of G Ltd., for three months
ended 31st December 1999
Particulars Rs.
Fixed expenses
Management expenses 2,10,000
Rent and taxes 1,40,000
Depreciation of machinery 1,75,000
Sundry office expenses 2,22,000
7,47,500
Semi-variable expenses at 50% capacity
Plant maintenance 62,500
Indirect labour 2,47,500
Salesmen’s salaries 72,500
Sundry expenses 65,000
4,47,500
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Variable expenses at 50% capacity
Materials 6,00,000
Labour 6,40,000
Salesmen’s commission 95,000
Total 13,35,000
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 100% capacity Rs. 42,50,000. Assuming
that all items produced are sold, prepare a flexible budget at 60%, 80% and 100%
production capacity.

Production Budget
1. Prepare a production budget for three months ending March 31 st 2007 for a factory
producing four products, based on the following information

Estimated Sales during

Type of Estimated Stock on Desired Closing stock
January – March 2007
Product January 1 2007 Units March 31st 2007 Units
Units
A 2,000 10,000 5,000
B 3,000 15,000 4,000
C 4,000 13,000 3,000
D 5,000 12,000 2,000

2. Larsen Ltd., plans to sell 1,10,000 units of a certain product line in the first fiscal quarter,
1,20,000 units in the second quarter, 1,30,000 units in the third quarter and 1,50,000 units
in the fourth quarter and 1,40,000 units in the first quarter of the following year. At beginning
of the first quarter of the current year, there are 14,000 units of product in stock. At the end
of each quarter, the company plans to have an inventory equal to one-fifth of the sales for
the next fiscal quarter.
How many units must be manufactured in each quarter if the current year?

3. From the following data, prepare a Production Budget for Bajaj Ltd.,
Requirement to
st th Normal loss in
Products As on 1 Jan As on 30 June fulfill
production
Sales programme
R 8,000 10,000 60,000 units 4%
S 9,000 8,000 50,000 units 2%
T 12,000 14,000 80,000 units 6%

4. Your company manufactures two products A and B. A forecast of the number of units to be sold in
the first seven months of the year is given below
Months Product A Product B
January 1,000 2,800
February 1,200 2,800
March 1,600 2,400
April 2,000 2,000
May 2,400 1,600
June 2,400 1,600
July 2,400 1,800
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It is anticipated that (i) there will be no work-in-progress at the end of any month (ii)
finished units equal to half of the sales for the next month will be in stock at the end of each
month (including the previous December)
Budgeted production and production costs for the whole year are as follows
Particulars Product A Product B
Production (Units) 22,000 24,000
Rs. Rs.
Per Unit: Direct Material 10.00 15.00
Direct labour 5.00 10.00
Total factory overhead apportioned 88,000 72,000

Purchase Budget
5. The sales Director of a manufacturing company reports that next year he expects to sell
50,000 units of a particular product.
The production manage consults the Storekeeper and casts his figures as follows
Two kings of raw materials A and B are required for manufacturing the product. Each
unit of the product requires 2 units of A and 3 units of B. The estimated opening balances at
the commencement of the next year are
Finished Product : 10,000 units
Raw Materials A : 12,000 units; B : 15,000 units
The desired closing balances at the end of the next year are
Finished product : 14,000 units, A : 13,000 units
B : 16,000 units
Prepare production budget and Materials Purchase Budget for the next year

6. Draw a Material Procurement Budget (Quantitative) from the following information

Estimated sales of a product 40,000 units; each unit of the product requires 3 units of
material A and 5 units of material B
Estimated opening balance at the commencement of the next year

Finished product 5,000 units

Material A 12,000 units
Material B 20,000 units
Material on Order
Material A 7,000 units
Material B 11,000 units
The desirable closing balances at the end of the next year
Finished product 7,000 units
Material A 15,000 units
Material B 25,000 units
Material on Order
Material A 8,000 units
Material B 10,000 units

7. Parker Ltd., manufactures two brands of pen Hero & Zero. The sales department of the
company has three departments in different areas of the country.
The sales budget for the year ending 31st December 2006 were as follows
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Hero-Department I 3,00,000; Department II 5,62,500 and 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 enable 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 estimated by 20%.
Prepare a Sales Budget for the year 2007

8. Kailash Bros. submits the following figures of product X for the first quarter of 2007

January 10,000

Sales (Units) February 8,000

March 12,000
Selling price per unit Rs. 10 it is estimated that by reducing the selling price by 10% and by
intensive sales promotion measures, the sale of product X in the first quarter of 2008 will
increase by 20%
A study of the experience reveals that Kailash Bros. has lost about 3% if its billed
revenue in each quarter because of returns (consisting 2% of loss of revenue) llowances
and bad debts (1% loss).
Prepare a sales budget incorporating the above information.

9. According to the sales of your company the sales is slacking and the budgeted sales of
1,50,000 units per year can only be met if the trade discount is raised from 25% to 30%. If
the discount is raised to 35%, the sales will increase by 20% over the budget, for which
production capacity exists. Indicate which of the two alternatives is more profitable. The
retail price of the product is Rs. 10 each. The cost of production is Rs. 6 of which Rs. 4 is
variable.

Cash Budget
10. From the particulars given below, prepare a Cash budget for the month of June 1999
a. Expected Sales
April 99 – Rs. 2,00,000; May – Rs. 2,20,000; June – Rs. 1,90,000
Credit allowed to customers is two months and 50% of the sales of every month are
on cash basis.
b. Estimated Purchases
May 99 – Rs. 1,20,000; June – Rs. 1,10,000
40% of the purchase of every month is o cash basis and the balance is payable next
month
c. Rs. 2,000 is payable as rent every month
d. Time lag in payment of overhead is ½ month.
Overhead: For May Rs. 12,000; For June Rs. 11,000
e. Depreciation for the year is Rs. 12,000
f. Interest receivable on investment during June and December Rs. 3,000 each
g. Tax payable during April 99 Rs. 10,000
h. Estimated Cash Balance, as on 1-6-99 is Rs. 42,500

11. BPL Ltd., wishes to arrange overdraft facilities with its bankers during the period April to
June 2000 when it will be manufacturing mostly for stock. Prepare Cash Budget for the
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above period from the following data, indicating the extent of the bank facilities the
company will require at the end of the month
(a)
Credit Sales Purchases Wages
Months
(Rs.) (Rs.) (Rs.)

February 1,80,000 1,24,000 12,000

March 1,92,000 1,44,000 14,000
April 1,08,000 2,43,000 11,000
May 1,74,000 2,46,000 10,000
June 1,26,000 2,68,000 15,000
(b) 50% of credit sales are realized in the month following the sales and the remaining 50%
in the second month following
Creditors are paid in the month following the month of purchase
(c) Cash at bank on 1-4-2000 (estimated) Rs. 25,000

12. ABC Company Ltd., has given the following particulars. You are required to prepare a
cash budget for the three months ending 31 st December 1999
(a)
Sales Materials Wages Overheads
Months
(Rs.) (Rs.) (Rs.) (Rs.)
August 20,000 10,200 3,800 1,900
September 21,000 10,000 3,800 2,100
October 23,000 9,800 4,000 2,300
November 25,000 10,000 4,200 2,400
December 30,000 10,800 4,500 2,500
(b) Credit terms are
Sales / Debtors – 10% sales are on cash basis , 50% of the credit sales are collected next
month and the balance in the following month
Creditors: Materials 2 months
Wages 1/5 month
Overheads ½ month
(c) Cash balance on 1st October 1999 is expected to be Rs. 8,000
(d) A machinery will be installed in August 1999 at a cost of Rs. 1,00,000. the monthly
installment of Rs. 5,000 is payable from October onwards

(e) Dividend at 10% on preference share capital of Rs. 3,00,000 will be paid on 1 st
December 1999
(f) Advance to be received for sale of vehicle Rs. 20,000 in December
(g) Income-tax (advance) to be paid in December Rs. 5,000

13. Summarized below are the Income and Expenditure forecasts of Gemini Ltd., for the
month of March to August 2000

Sales Purchases Expenses

Wages
Months (all credit) (all credit) Manufa. Office Selling
Rs.
Rs. Rs. Rs. Rs. Rs.
March 60,000 36,000 9,000 4,000 2,000 4,000
April 62,000 38,000 8,000 3,000 1,500 5,000
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May 64,000 33,000 10,000 4,500 2,500 4,500
June 58,000 35,000 8,500 3,500 2,000 3,500
July 56,000 39,000 9,500 4,000 1,000 4,500
August 60,000 34,000 8,000 3,000 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 three months
(b) Advance Tax of Rs. 8,000 is payable in March and June each
(c) Period of credit allowed (i) by supplier 2 months and (ii) to customers 1 month
(d) Lag in payment of manufacturing expenses ½ month
(e) Lag in payment of all other expenses 1 month
You are required to prepare a cash budget for three months starting on 1 May 2000 when
there was a cash balance of Rs. 8,000.
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