FUNCTIONAL BUDGETS

1 Sales
2 Pdn
3 Material usage
4 Material purchases
5 Labour cost budget

Q4
**** SALES BUDGET Shows sales units, SP and sales value Assume that the SP of M

Products: Sales units SP Sales Value

M 2000 200 400,000.00
K 1500 300 450,000.00
850,000.00

i) Pdn budget Budgeted pdn units to meet sales dd given inventories

O/S + PDN - SALES = C/S
PDN=SALES+C/S-O/S
Products:
M K (Need inputs like material, lab)
Units Units
Sales units 2000 1500
Closing stock units 200 150
Opening stock units -100 -200
Pdn units 2100 1450

ii) Material usage budget( Kgs and Litres) Mat qntity is required to produce pdn units as
Materials
Exe Zed
Kgs Litres
Product: M 4200 2100
K 4350 5800
Material usage 8550 7900

iii) Material purchases budget(Qntity and value) Mat purch' in qntity and value to meet expecte
O/S+PURCH'-USAGE=C/S
PURCH'=USAGE+C/S-O/S
Materials
Exe Zed
Usage 8550 7900
Closing stock 855 790
Opening stock -300 -1000
Material purch'- Qntity 9105 7690
 Material price 100 70

Material purch'-cost 910,500.00 538,300.00

iv) Labouur budget( Hrs and Cost) Labour qntity(Hrs) and cost required to meet p
Labor type:
Skilled Semi-skilled
Products: M 8400
K 2900
Labour hrs required 11300 11450
Labour rate/hr 120 80

Labour cost 1,356,000.00 916,000.00

 Assume that the SP of M and K are Sh. 200 and 300 respectively

uts like material, lab)

d to produce pdn units as per the pdn budget

and value to meet expected usage, given inventtory

nd cost required to meet pdn
 3 FIXED AND FLEXIBLE BUDGETS

Fixed budget Budget which does not change…….remains the same at the bdugeted acativity level…..de

Flexible budget Budget which adjusts depending on changes in actaul activity levels

NB: The variances from Flexible budget are more realsistic and useful than those from Fix

ILLUSTRATION 2- WHATSAPP GRP 2ND COPY

b) i) Trans Ltd.
(Fixed) Flexible
Budget Workings: Budget Actual
Number of units sold 640 B per unit 720 720
Sh Sh Sh
Sales 1024 1.6 1152 1071

COS: D.material 168 0.2625 189 144

D.labour 240 0.375 270 288
Overheads 32 0.05 36 36
440 495 468
Fixed labor cost 100 100 94
S&D costs:Fixed 72 72 83
Variable 144 0.225 162 153

Admin costFixed 184 184 176

Variable 48 0.075 54 54
548 572 560
Net profit margin 36 85 43

ii) Problems associated with Flexible Budget

1 More complicated compared to Fixed budget
2 The assumption that the FC are constant may not be true in some cases.
bdugeted acativity level…..despite cahnges in actual activity

nd useful than those from Fixed budget

Variance +ve=Good Favourable

0 ve=Bad Adverse

-81

45
-18
0
27 -42
6
-11
9

8
0
12
-42
COST VOLUME PROFIT(C-V-P) ANALYSIS

Study of change in cost, revenue and profit caused by change in Volume(Units/Activity level)
Volume is the independent variable causing cahnges in the dependent variables like C,R and P

CVP=Model Weaknesses= Assumptions

ASSUMPTIONS: 1 VC per unit is constant Critique
2 Total FC is constant
3 SP per unit is constant
4 Technology is constant
5 The company produces a single product, but incase of multiple products, we assume constant
6 All units produced are sold= There are no inventories

CVP analysis apply the contribution concept

Conribution= Revenue or sales - VC only…………………………………..FC are not relevant for decision making.

The main application of CVP Model is The BREAK EVEN POINT(BEP)

BREAK EVEN POINT

products, we assume constant product mix ratio