Cash Budget

Cash budget for the months May, June and July

Particulars May June July
Opening cash balance 25000 7300 -
Add: Receipts
56800 64000 82000
Cash received on sales
Total Receipts [A] 81800 71300 82000
Less: Payments
- - 63200
Overdraft balance
30000 32000 35000
Cash paid towards purchase
7000 9000 9500
Wages
5500 6000 7500
Factory expenses
4000 4000 4000
Office expenses
3000 3500 4500
Selling expenses
15000 - -
Dividend
10000 - -
Bonus
- 80000 -
Purchases of Plant
- - 25000
Income tax
Total payment [B] 74500 134500 148700
Cash balance / Overdraft balance [A-B] 7300 (63200) (66700)
OD OD
 Working note:
Cash received on sales [20% cash sales and 80% credit sales]
March April May June July
March 50000 10000 40000
April 56000 11200 44800
May 60000 12000 48000
June 80000 16000 64000
July 90000 18000
56800 64000 82000
CAPITAL BUDGETING
 initial investment
Payback period = Annual C ash inflow

Nos. of Units produced = 5000Hrs x 10 units per hour

= 5000 x 10
Annual Production = 50000 units

Particulars Rs. Rs.

Sales [50000 x 10] 500000
Less: Cost 50000
Material [ 50000 x 1] 200000
Labour [ 5000 x 40] 350000
100000
Overheads [5000 x 20]
150000
Less : Depreciation
30000
Profit after depreciation but before tax 120000
Less: tax @ 50% 60000
Profit after depreciation and tax 60000
Add: depreciation 30000
Annual cash inflow 90000
 initial investment
Payback period = cash inflow

300000
Payback period = 90000 = 3.33 years
cost of assets−scrap
Depreciation = estimated life time

300000−0
Depreciation = 10 = 30000
Statement of Annual cash inflow project A
Years
Particulars
1 2 3 4 5
Cash inflow before dep. and tax 80000 60000 40000 20000 10000
Less: depreciation [100000 / 5] 20000 20000 20000 20000 20000
Cash inflow after dep. but before tax 60000 40000 20000 0 -10000
Less: Tax @ 50% 30000 20000 10000 0 0
Cash inflow after dep. and tax* 30000 20000 10000 0 -10000
Add: depreciation 20000 20000 20000 20000 20000
Annual cash inflow 50000 40000 30000 20000 10000

*ARR = Cash inflow after depreciation and tax

Payback period and Net Present Value = cash inflow after tax before depreciation
Calculation of payback period
Years Cash Cumulative
inflow cash inflow
1 50000 50000
2 40000 90000
3 30000 120000
4 20000 140000
5 10000 150000
10000
Payback period = 2 + 30000

Payback period = 2 + 0.33

= 2.33 years
Statement of Annual cash inflow project B
Years
Particulars
1 2 3 4 5
Cash inflow before dep. and tax 20000 40000 60000 80000 100000
Less: depreciation [100000/5] 20000 20000 20000 20000 20000
Cash inflow after dep. But before tax - 20000 40000 60000 80000
Less: Tax @ 50% 10000 20000 30000 40000
Cash inflow after dep and tax - 10000 20000 30000 40000
Add: depreciation 20000 20000 20000 20000 20000
Annual cash inflow 20000 30000 40000 50000 60000

Calculation of payback period

Years Cash Cumulative
inflow cash inflow
1 20000 20000
2 30000 50000
3 40000 90000
4 50000 140000
5 60000 200000
 10000
Payback period = 3 + 50000

= 3 + 0.20
= 3.2 years
Accounting rate of return:

a. Original investment method:

annual average net earnings
ARR = original investment x 100
b. Average investment method:
annual average net earnings
ARR = average investment x 100
total earnings
Annual average net earnings = Nos . of years

original invesment −scrap

Average investment = 2

−100000+300000+400000+ 200000+ 200000

Annual average net earnings = 5

Annual average net earnings = 200000

Original investment method:

 annual average net earnings
ARR = original investment x 100
200000
ARR = 1000000 x 100
= 20%

Average investment method:

annual average net earnings
ARR = average investment x 100
original invesment −scr ap
Average investment = 2

1000000−0
= 2

= 500000
200000
ARR = 500000 x 100
ARR = 40%

Calculation of Net present value: [project A]

years Cash inflow PV Present
 [a]
Factor value
Value @ [axb]
10%
[b]
1 50000 0.909 45450
2 40000 0.826 33040
3 30000 0.751 22530
4 20000 0.683 13660
5 10000 0.621 6210
Present value of cash inflow 120890
Less: Present value of cash outflow 100000
Net Present Value 20890

PV factor = 10% or 0.10

1
PV factor = [1+r ] n

1 1
1st year = [1+0.10] = 1
1.1 = 0.909
1 1 1
2 year =
nd
= = =¿ 1 = 0.826
[1+r ]n [1+0.1]2 [1.1]2
1.21
 present value of cash inflow
Profitability Index = present value of cash outflow

120890
= 100000 = 1.21 if the profitability index is more 1
MATERIAL COST VARIANCE
Materials MCV = [SP X SQ] – [AP X AQ]
X [5x20] – [4x24] 100-96 +4 [F]
 Y [4x16]-[4.5x14] 64-63 +1 [F]
Z [3x12]-[3.25x10] 36-32.5 +3.5 [F]
Material Cost Variance 8.5 [F]

MATERIAL PRICE VARIANCE

Materials MPV = AQ x [SP-AP]
X 24 x [5 - 4] 24 x 1 +24 [F]
Y 14 x [4 - 4.5] 14 x - 0.5 - 7 [A]
Z 10 x [3 – 3.25] 10 x -0.25 -2.5 [A]
Material Price Variance + 14.5 [F]

MATERIAL USAGE VARIANCE

Materials MUV = SP x [SQ – AQ]
X 5 x [20 – 24] 5 x -4 -20 [A]
 Y 4 x [16 – 14] 4x2 +8 [F]
Z 3 x [12 – 10] 3x2 + 6 [F]
Material Usage Variance - 6 [A]

MATERIAL MIX VARIANCE

Materials MMV = SP x [RSQ – AQ]
X 5 x [20 – 24] - 20 [ A]
Y 4 x [16 – 14] + 8 [F]
Z 3 x [12 – 10] +6 [F]
Material Mix Variance - 6 [A]
Total Actual mix
Revised Standard Quantity = Total Standard mix x Standard quantity of each material
48
Material X = 48 x 20 = 20 kgs
48
Material Y = 48 x 16 = 16 kgs
48
Material Z = 48 x 12 = 12 kgs

Material Sub-Usage Variance = Sp x [SQ – RSQ]

MCV = MPV + MUV
Sales Value VARIANCE
Products SVV = [BQ X BP] – [ AQ x AP]
M [400x10] – [440x11] 4000- 4840 - 840 [ F]
 N [500x20]-[480x19] 10000-9120 + 880 [ A]
O [100x50] – [180x45] 5000- 8100 - 3100 [F]
Sales Value Variance - 3060 [F]
Sales Price VARIANCE
Products SPV = AQ x [SP – AP]
M 440 x [10-11] 440 x -1 - 440 [F]
N 480 x [20-19] 480 x1 + 480 [A]
O 180 x [50 – 45] 180 +5 + 900 [A]
Sale Price Variance 940 [A]

Sales Volume VARIANCE

Products SVV = SP x [BQ-AQ]
M 10 x [400-440] -400 [F]
N 20 x [500-480] 400 [A]
O 50 x [100 – 180] - 4000 [F]
Sales Volume Variance - 4000 [F]
Sales Mix VARIANCE
Products SMV = SP x [RSQ-AQ]
M 10 x [440-440] 0
 N 20x[550-480] 1400[A]
O 50x[100-180] - 3500[F]
- 2100 [F]
Total Actual mix
Revised Standard Quantity = Total Standard mix x Standard quantity of each Product
1100
Product M = 1000 x 400 =440
1100
Product N = 1000 x 500 = 550
1100
Product O = 1000 x 100 = 110