Kid World - Exercise on Financial Forecasting

Kid World is toys manufacturing company that has been in business for several years. In the
coming year, the company estimates the annual sales of 900000 toys, spread equally for four quarters.
Using the information given in the last year’s balance sheet and production and financial policies
of the company, complete the budget process and prepare a budget for the first quarter.

Kid World Company

Balance Sheet as on the last day of Previous Year

Equity 1800000 Fixed Assets 3700000

Reserves 1016220 Less: Depreciation 900000 2800000
Current Liabilities Current Assets
Accounts Payable 43300 Cash 60000

Dividends payable 250000 Accounts Receivable 240000

(due at the end of first Less:Bad Debts Prov. 4320 235680
quarter of the next year) Inventories
Raw Materials 6360
Finished Goods 7480 13840

3109520 3109520
Closing Stock
Sales Forecast for the Quarter Raw Material 3000 Kgs.
Finished Goods 2000 toys
Sales Price per unit 5.00

January February March Total for the Quarter April

Sales Quantity 80000 70000 75000 225000 64000

Production Policy

Finished Goods Inventory Policy: 5.00% of the next month's sales

Material Requirement, Rate and Purchase Policy

Material per unit 0.4 k.g. of plastic and other materials
Material Cost (Rs.) 2 per k.g.
Policy: Material worth of 10.00% of the next months production to be to stored
Assume April Production is 64500 units.

Labour Time & Cost

Labour Time Required: 10 units per hour
Labour Cost per hour Rs. 6.00 per hour

Overhead Estimates January February March Total for the Quarter

(All Figures are estimated by the respective departments)
Depreciation 6000 6000 6000 18000
Indirect Material 2650 2340 2480 7470
Indirect Labour 16630 15850 16200 48680
Utililties 3650 3340 3480 10470
Property Tax 1000 1000 1000 3000
Insurance 500 500 500 1500
Maintenance 5730 5260 5470 16460
Total Cost 36160 34290 35130 105580
OH net of Depreciation 30160 28290 29130 87580

Estimated Machine hours 1325 1171 1240 3736

Selling and Administration Overhead Estimates

Total (including depre. January February March Total for the Quarter
of fixed assets) 53400 50850 52130 156380
Depreciation 2000 2000 2000 6000
Total net of Depreciation 51400 48850 50130 150380

Capital Expenditure Forecast

January February March Total for the Quarter
Acquisition: Computer 0 230000 0 230000
Cash Payment 0 230000 0 230000

Credit, Collection and Payment policy

Sales 20% Cash (small irregular traders who are not eligible for any credit terms)
Credit (Dealers and wholesale firms; credit term
80%
varies from 1 month to 3 months)
Credit Sales 40% takes 2% discount and pays within 3 days
60% not taking discount
Collection Pattern 20% at the end of the month of sale
50% at the end of following month
29% at the end of second month
1% uncollectible
Last two months sales Dec. Nov.
of the previous year 460000 440000

Payment Policy 100% on credit

40% paid on the same month to get discount of 2%
60% paid in the following month

Cash Policies
Minimum Cash Balance of Rs. 60000 at the end of each month
Balance above Rs. 60000 invested at the end of month but
minimum investment is Rs. 10000 and increment thereof.

Tax Rate: 40%

Variance Analysis - Exercise

Kid World Company - Variance Analysis

The following actual cost details are available at the end of quarter.
Read the problem again before seeing the solution)

Production 210000 units

Raw Material Consumed 86000 Kgs.
Raw Material Value Rs. 163400
Labour 21500 hours
Labour Cost Rs. 139750
Overhead Budget Actual
Variable 40% 35032 33000
Fixed 60% 52548 60000
Overhead is allocated/absorbed on the basis of machine hours.
The machine hours details are given below:

Budgeted Machine Hours 3736 hours

Actual Machine Hours 4200 hours
Analyse the budget/standard and actual data.
any credit terms)
 Balance Sheet as on the last day of Previo

Equity 1800000
Reserves 1016220
Current Liabilities
Accounts Payable 43300
Dividends payable 250000
(due at the end of first
quarter of the next year)

3109520
Closing Stock Raw Material
Finished Goods
Units that can be produced with closing Raw Material
Sales Budget for the Quarter

Sales Price per unit 5.00

January February
Sales Quantity 80000 70000
Sales in Value 400000 350000

Production Budget for the Quarter

Finished Goods Inventory Policy: 5.00%

January February
Sales in Units
+ Desired ending inventory
Total Needed
- Beginning inventory
Units to be Produced
Purchase Budget
Material per unit 0.4 k.g. of plastic and other mate
Material Cost (Rs.) 2 per k.g.
Policy: Material worth of 10.00% of the next months productio
January February
Opening stock (Kg)
Material required for production (kg)
Closing stock (kg)
Purchase quantity (kg)
Purchase value (@ Rs.2 per kg)

Note: April Production is assumed at 64500

Direct Labour Budget
Labour Time Required: 10 units per hour
Labour Cost per hour Rs. 6.00 per hour
January February
Units of production
Required Labour hours
Direct Labour Cost

Overhead Budget January February

(All Figures are estimated by the respective departments)
Depreciation 6000 6000
Indirect Material 2650 2340
Indirect Labour 16630 15850
Utililties 3650 3340
Property Tax 1000 1000
Insurance 500 500
Maintenance 5730 5260
Total Cost 36160 34290
OH net of Depreciation 30160 28290
Estimated Machine hours 1325 1171

Selling and Administration Overhead Budget (Estimates given)

Total (including depre. January February
of fixed assets) 53400 50850
Depreciation 2000 2000
Total net of Depreciation 51400 48850

Capital Budget January February

Acquisition: Computer 0 230000
Cash Payment 0 230000

Cash Budget - Component 1: Cash collected from customers

Policy and Pattern
Sales 20% Cash
Credit Sales 40% takes
60% not taking discount
Collection Pattern 20% in the month of sale
50% in the following month
29% in the second month
 1% uncollectible
Last two months sales Dec. Nov.
of the previous year 460000 440000

January February
Collection from Customers
Cash Sales (20% of sales of the month)
Credit Sales with cash discount (.32*.98)
Credit Sales collected in the same month
Credit Sales collected in the next month
Credit Sales collected in the second month
November sales collected in January
December sales collected in January
December sales collected in February

Total

Component 2: Cash Disbursements to Suppliers

Payment Policy: 100% on credit
40% paid on the same month to ge
60% paid in the following month

Purchases
January February
Current month purchases paid
Last month purchases paid

Total
Component 3: Integration
Policies: Minimum Cash Balance of Rs. 60000 at the
Balance above Rs. 60000 invested at the end
minimum investment/sale is Rs. 10000 and i
January February
Beginning cash balance
Collection from sales
Total
Disbursements
Suppliers
Wages
Production Expenses (excl Dep)
S&A Expenses (Excl. Dep)
Capex
Dividend Paid (last year dividend)
Total
Balance
Investments
Closing Cash Balance

Cost of Goods Manufactured

Beginning Work-in-process
Cost of Raw Materials Used
Beginning Raw material
Purchases
Purchase Discount
Closing RM (See note 1)
Direct Labour
Factroy Overhead
Ending Work-in-process
Cost of Goods Manufactured

Note 1:
Required Closing FG
Raw Material Required per unit 0.4
Total Material Requirement
Price Per k.g. Rs. 2
Value of Closing RM Rs.

Income Statement

Sales
Less: Sales Discount
Net Sales
Cost of Goods Sold
Opening Finished Goods
Cost of Goods Manufactured
Cost of Goods Available for Sale
Closing Value of Finished Goods (Note A)
Gross Margin
Expenses:
Bad Debts
Selling and Administration Expenses
Income from Operation
Other Revenue: Interest Earned (See Cash Budget)
Profit Before Tax
Tax (40% assumed)
Profit After Tax

Note A:
Opening Finished Goods Stock
Production during the year
Units available for sale
Sales
Closing Finished Goods

Balance Sheet as on the last day of the quart

Equity
Reserves
Current Liabilities
Accounts Payable
Tax Payable
 Kid World Company

n the last day of Previous Year

Fixed Assets 3700000

Less: Depreciation 900000 2800000
Current Assets
Cash 60000
Accounts Receivabl 240000
Less:Bad Debts Prov 4320 235680
Inventories
Raw Materials 6360
Finished Goods 7480 13840

3109520
3000 Kgs.
2000 toys
7500

March Total for the Quarte April

75000 225000 64000
375000 1125000 320000

of the next month's sales

March Total for the Quarter
of plastic and other materials

e next months production to be to stored

March Total for the Quarter

units
 March Total for the Quarter

March Total for the Quarter

6000 18000
2480 7470
16200 48680
3480 10470
1000 3000
500 1500
5470 16460
35130 105580
29130 87580
1240 3736

March Total for the Quarter

52130 156380
2000 6000
50130 150380

March Total for the Quarter

0 230000
0 230000

80% Credit
2% discount
aking discount
e month of sale
e following month
e second month
 Jan Feb March
400000 350000 375000
Cash Discount given Bad debt
March Total for the Quarter Jan
Feb
Mar
Nov
Dec
Cash discount received
Jan
Feb
Mar

on the same month to get discount of 2%

in the following month

March Total for the Quarte Discount

ance of Rs. 60000 at the end of each month

60000 invested at the end of month but
nt/sale is Rs. 10000 and increment thereof.
March Total for the Quarter
k.g.
k.g.
 Cost of Goods Manufactured
Units Produced
Average unit cost
Value of closing stock

n the last day of the quarter

Fixed Assets
Less: Depreciation
Current Assets
Cash
Investments
Accounts Receivable
Less:Bad Debts Prov.
Inventories:
Raw Materials
Finished Goods
Bad debt
Variance Analysis - Exercise
Kid World Company - Variance Analysis

Figures in BLUE BOLD are computed values

Production
Raw Material Consumed
Raw Material Value
Material price per unit (Rs. Per kg)
Labour Hours
Labour Cost
Labour Rate per hour
Machine hours
Variable Overhead
Variable Overhead Rate per hour
Fixed Overhead

Variance Rate Variance

(Minus indicates Adverse Variance)
Material
Labour
Variable Overhead
Fixed Overhead Spending Variance
Total Variance
 Flexible
Actual Budget Budget

210000 210000 0
86000 0
Rs. 163400 0

21500 0
Rs. 139750 0

4200 3736
33000 35032

60000 52548 52548

Efficiency/Usage Total