Assignment of Budgetary Control

`Prepare a flexible budget for overheads on the basis of the following data. Ascertain the overhead
rates at 50%, 60% and 70% capacity.

At 60%
Variable Overheads: capacity(RS)

Indirect Material 6,000

Indirect Labour 18,000
Semi Variable Overheads:
Electricity (40% fixed, 60% variables) 30,000
Repairs (80% fixed, 20 % variables) 3,000
Fixed Overheads:
Deprication 16,500
Insurance 4,500
Salaries 15,000
Total Overheads 93,000
Estimated Direct Labour Hours 1,86,000
Solution: Rs 0.55, Rs 0.50, Rs 0.46
1) Draw up flexible budget for the overhead expenses on the basis of the following data and
determine the overhead rate at 70%, 80% and 90% plant capacity.

At 70% At 80% At 90%

capacity(RS) capacity(RS) capacity(RS)
Variable Overheads:
Indirect Labour 12,000
Stores including spares 4,000
Semi Variable Overheads:
Power (30% Fixed) 20,000
(70% Variables)
Repairs (60% Fixed) 2,000
(40% Variables)
Fixed Overheads:
Deprication 11,000
Insurance 3,000
Salaries 10,000
Total Overheads 62,000
Estimated Direct Labour
Hours 1,24,000
Solution: Rs 0.536, Rs 0.50, Rs 0.472

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 Assignment of Budgetary Control

2) The expenses for the budgeted production of 20,000 units in a factory are furnished below:

per unit
Particulars (Rs)
Materials 140
Labour 50
Variable Overhead 40
Fixed Overhead 20
Variable Expenses (Direct) 10
Selling Expenses (10% fixed) 26
Distribution Expenses (20%
fixed) 14
Administrative Expenses 10
Prepare a flexible budget for the production level of (a) 16,000 units (b) 12,000 units (c)
indicate cost per unit at both the levels. Assume that administrative expenses are fixed for
all the levels of production.
Ans: 310,318.85, 333.60

3) Murugan and Co is expected to have Rs. 25,000 in its bank account on 1.4.1996. Prepare a
cash budget for April, May, June 1996 from the following estimates.

Administrative Selling
Month Sales Purchase Salary Expenses Expenses
Februar
y 50,000 30,000 6,000 9,000 3,000
March 56,000 32,000 6,500 9,500 3,000
April 60,000 35,000 7,000 10,000 3,500
May 80,000 40,000 9,000 11,500 4,500
June 90,000 40,000 9,500 12,500 4,500
Other information

a) 20% sales on cash. Balance on credit and amount to be collected in the next month.
b) Suppliers are paid second month following the purchases.
c) Workers salary paid in the same month.
d) Administrative and selling expenses are paid in the next month.
e) Dividend of Rs 10,000 and Bonus to workers of Rs 15,000 are to be paid in May.
f) Income tax of Rs 25,000 to be paid in June.

Ans: June balance Rs. 13,300

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 Assignment of Budgetary Control

4) Prepare a Cash Budget for the three months ending 30th June 2010 from the information
given below:

Month Sales Materials Wages Overheads

Februar
y 14,000 9,600 3,000 1,700
March 15,000 9,000 3,000 1,900
April 16,000 9,200 3,200 2,000
May 17,000 10,000 3,600 2,200
June 18,000 10,400 4,000 2,300
Credit terms are:
a) Sales and debtor- 10% of sales are on cash, 50% of the credit sales are collected next
month and balance in the following month.
b) Creditors – materials 2 months, wages ¼ month, Overheads ½ month
c) Cash and bank balance on 1st April, 2010 is expected to be Rs.6,000.
d) Plant and machinery will be installed in February 2010 at the cost of Rs 96,000. The
monthly instalment of Rs. 2,000 is payable from April onwards.
e) Dividend @ 5% on Preference Share capital of Rs.2,00,000 will be paid on 1 st June.
f) Dividend from investments amounting to Rs.1,000 are expected to be received in
June.
g) Income tax (advance) to be paid in June is Rs.2,000.
h) Advance to be received from sale of vehicle of Rs9000 in June.

Ans: closing balance of June is Rs.300.

5) A factory is currently working to 50% capacity and produces 10,000 units. Estimate the
profits of the company by preparing flexible budget, when it works at 60% and 80% capacity.
At 60% working, material cost increase by 2% and selling price falls by 2%. At 80% raw
material cost increases by 5% and selling price falls by 5%.
At 50% capacity working the product costs Rs. 180 per unit and is sold at Rs 200 per unit. The
unit cost of Rs 180 is made up as follows:
Material Rs. 100
Labour Rs. 30
Factory overhead Rs. 30(40% fixed)
Administration overhead Rs. 20(50% fixed)
6) Draw up a flexible budget for overhead expenses on the basis of the following data and
determine the overhead rates at 70%, 80% and 90% plant capacity.

Capacity level 70% 80% 90%

Variable overhead
Indirect labour 12,000
Indirect material 4,000
Semi variable overhead

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 Assignment of Budgetary Control

Power (30% fixed) 20,000

Repairs and maintenance (60% fixed) 2,000
Fixed overhead
Depreciation 11,000
Insurance 3,000
Salaries 10,000
Total overhead 62,000
Estimated direct labours hour 1,24,000

7) The following information relates to the productive activities of G Ltd for three months
ended 31st December, 2007.

Fixed expenses Rs
Management Salaries 2,10,000
Rent and Taxes 1,40,000
Depreciation of machinery 1,75,000
Sundry office Expenses 2,22,500
7,47,500
Semi Variable Expenses at 50% Capacity
Plant maintenance 62,500
Indirect labour 2,47,500
Salesman’s Salaries 72,500
Sundry Expenses 65,000
4,47,500
Variable expenses at 50% Capacity
Materials 6,00,000
Labour 6,40,000
Salesman Commission 95,000
13,35,000

It is further noted that semi-variable expenses remain constant between 40% and 70%
capacity, increase by 10% of the figures between 70% and 85% capacity and increase by 15%
of the above figure 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 items produce are
sold , prepare a flexible budget at 60%, 80% and 100% production capacity.

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