Management Accounting (Section E) (Batch 2022-24)

Budgetary Control
Exercises
Sales budget
 Past sales, reports by salesman, company conditions, business conditions, special
conditions, market analysis
Question 1
Rajputana Ltd. sells two products Polo and Golf in four regions – North, South, East and
West. It provides the following data on its budgeted sales for the month of January
2022:
Region Polo Golf
North 5000 units @ Rs 30 each 3000 units @ Rs 15 each
South - 6000 units @ Rs 15 each
East 7500 units @ Rs 30 each -
West 4000 units @ Rs 30 each 2500 units @ Rs 15 each

Actual sales for the month of January 2022 were

Region Polo Golf
North 5750 units @ Rs 30 each 3500 units @ Rs 15 each
South - 6250 units @ Rs 15 each
East 8250 units @ Rs 30 each -
West 4750 units @ Rs 30 each 2625 units @ Rs 15 each

On the basis of all the relevant factors, the following sales are budgeted for the month of
February 2022
Region Polo Golf
North 6000 units 3250 units
South - 6500 units
East 8500 units -
West 4500 units 22750 units

It was decided that additional advertising campaign will be undertaken in South and
East which will result in additional sales of 1500 units of Polo in South and 2500 units of
Golf in East.
Prepare a sales budget for the month of February 2022. Also show the budgeted and
actual sales for the month of January 2022.
Exercise 6-16 pg 233

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Production budget
 Sales budget, inventory policy, production capacity, management policy
 Estimated sales + closing stock – opening stock
 Production cost budget – direct materials, direct wages and factory overheads
Raw material budget
 Direct materials
 Indirect materials are part of overhead cost budget
 Estimated quantities of all raw materials needed for production demanded by
the production budget
Purchase budget
 Important area for cost saving
 Quantity, time and estimated cost of purchase
 Maintaining stock levels – EOQ
 Maintaining opening and closing stocks
 Orders placed before budget period which will be supplied during the budget
period
 Management policy – make or buy
Labour budget
 Direct and indirect labour (both)
 Only direct labour (indirect as a part of overhead)
 Estimate labour cost
 Estimate labour requirements (recruitment)
 Determine cash requirements for payment of salaries
 Managerial control of labour cost
Production overheads budget
 Allocation of production overheads to products manufactured
 Control of production overheads
 Individuals who have responsibility for incurring them
 Variable and fixed classification
 Level of activity
 Past data
 Management policy – overtime, number of shifts etc.
Selling and distribution cost budget
 Closely related to sales budget
 Prepared simultaneously with sales budget
 Separate advertising budget

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Administration cost budget
 Administrative expenses
 Mostly fixed
Capital expenditure budget
 Expenditure on fixed assets
 Items are generally not related to profit/loss statement
 Advance planning
 Top management approval
Cash Budget
 Most important
 Detailed estimate of cash receipts from all sources and cash payments for all
purposes and resulting cash balances
 Whether business has sufficient cash or not
 Basis for planning and financing – invest or borrow
 Cash receipts
 Cash payments
Question 1
DP Ltd provides following information on cash receipts and cash payments for three
months – April, May and June 2022
Month Sales (in Rs.) Materials (in Wages (in Overheads (in
Rs.) Rs.) Rs.)
April 14650 9600 3150 1950
May 15650 9000 3500 2100
June 16650 9200 3900 2250

Other relevant information is given below:

 Cash and bank balance on 1st April 2022 is expected to be Rs 6000
 Plant and machinery will be installed in February 2022 at a cost of Rs 96000. The
monthly instalment of Rs 2000 is payable from April onwards
 Dividend @ 5% on preference share capital of Rs 200000 will be paid on June 1
 Dividends from investments amounting to Rs 1000 are expected to be received
in June
 Income tax (advance) to be paid in June is 2000
Question 2
PR Ltd. provides following information on sales
Month Amount in Rs
February 14000
March 15000

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 April 16000
May 17000
June 18000

10% of sales are on cash, 50% of the credit sales are collected in the same month and
the balance in the following month. Calculate the cash receipts from sales in the month
of April, May and June
Question 3
PR Ltd. provides following information on material, wages and overheads
Month Material Wages Overheads
February 9600 3000 1700
March 9000 3000 1900
April 9200 3200 2000
May 10000 3600 2200
June 10400 4000 2300
Payment for materials, wages and overheads is done as follows:
 Creditors – 2 months
 Wages – ¼ month
 Overheads – ½ month
Calculate cash payments for materials, wages and overheads for the month of April, May
and June
Question 4
DJ Ltd forecasts the following information for the purpose of effective cash utilisation
and management
Month (2022) Sales (in Rs.) Materials (in Wages (in Rs.) Overhead (in
Rs.) Rs.)
April 420000 200000 160000 45000
May 450000 210000 160000 40000
June 500000 260000 165000 38000
July 490000 282000 165000 37500
August 540000 280000 165000 60800
September 610000 310000 170000 52000
 20% of the sales is on cash basis, 50% of the credit sales are collected next
month and balance in the following month
 Credit allowed by suppliers is 2 months
 Delay in payments of wages is ½ month and of overhead is one month
 Interest on 12% debentures of Rs 500000 is paid half yearly in June and
December
 Dividend on investments amounting to Rs 25000 is expected to be received in
June 2022

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  A new machinery will be installed in June 2022 at a cost of Rs 400000 which is
payable in 20 investments from July 2022 onwards
 Advance income tax, to be paid in August 2022 is Rs 15000
 Cash balance on 1st June 2022 is expected to be Rs 45000 and the company wants
to keep it at the end if every month around this figure. The excess cash (in
multiples of thousand) is being put in a fixed deposit
Prepare a cash budget for four months starting from June’22.
Exercise 6-36 pg 242
Exercise 6-37 pg 243
Master Budget
Question 1
Glass manufacturing company requires you to present the budget for the next year from
the following information:
Sales
Toughened glass – Rs 6,00,000 Bent glass – Rs 2,00,000
Direct material cost 60% of sales
Direct wages 20 workers @ 150 per month
Factory overheads
Indirect labour: Works manager Rs 500 per month; Foreman Rs 400 per month
Stores and spares 2.5% on sales
Depreciation on machinery Rs 12600 per year
Light and power Rs 3000 per year
Repairs and maintenance Rs 8000 per year
Other sundries 10% on direct wages
Administration, selling and distribution expenses Rs 36000 per year
Question 2
The operating results of RCR Ltd. for the year ending 31 st December 2021 are
summarised below:
Particulars Rs in Lakhs
Sales – 40000 units 48
Less trade discount 2.4
Net sales 45.60
Cost of sales:
Direct materials 14.40
Direct labour 12.60

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 Factory overheads 6.30
Administration overheads 3.6
Selling and distribution overheads 4.5

The following changes are to be incorporated in the budget for the year 2022:
1. Sales units to be increased by 25%
2. Material price to be increase by 15%
3. Direct wages to go up by 12%
4. Overheads – factory overheads will increase by 15%. In addition, a new facility
will be added to the factory laboratory at a recurring cost of Rs 12500 per year.
Administrative and selling and distribution overheads are estimated to increase
by 10% and 14% respectively.
5. Inventory – no change
6. Profit target for the year has been fixed at Rs 6 lakhs
7. No change in the rate of trade discount
Calculate the unit selling price and present the budget for 2022 in a meaningful format.
Question 3

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