CUIM_MBA_G BUDGETING AND BUDGE

CUIM_MBA_G BUDGETING AND BUDGETARY CONTROL
SUBMITTED BY:

ABHIJEET SINGH 1020801
JETA PRAKASH 1020813
MADHUKAR DAS 1020815
NISHANT GUPTA 1020818
TYRONE POPE 1020830
YASH VARDHAN 1020833
NEHA CHAJJER 1020839
NIKITA SHARMA 1020840
PARNITA KUMARI 1020841
VASUNDHARA BHARADWAJ 1020846
BUDGETING AND BUDGETARY CONTROL

CONCEPT OF BUDGET:
“A Budget is a pre-determined statement of management policy during a given period which provides a standard for comparison with the results actually achieved”-Brown and Howard
Characteristics:
a) A budget is primarily a planning device but it also serves as a basis for performance evaluation and control.
b) A budget is prepared either in monetary terms or in quantitative terms or both .
c) A budget is prepared for definite future period.
d) Purpose of a budget is to implement the policies formulated by management for attaining the given objectives.

Advantages:
1) Compels managers to think ahead -to anticipate and prepare for changing conditions.
2) Co-ordinates the activities of various departments and functions of the business.
3) Increases production efficiency, eliminates waste and controls the cost.
4) Also aids in obtaining bank credits.
5) It ensures that the working capital is available for the efficient operation of the business and aims at maximizing the profits.
6) Creates necessary conditions for the introduction of standard costing techniques.
7) Assists in delegation of authority and assignment of responsibility.
8) Shows management where action is needed to remedy a situation.

CLASSIFICATION OF BUDGETS:
Budgets may be classified into the following categories;
1) ON THE BASIS OF FUNCTION AND SCOPE:
A) Functional budgets
B) Master budget
2)ON THE BASIS OF FLEIBILITY:
A) Fixed budget
B) Flexible budget

A) FUNCTIONAL BUDGETS:
A Functional budget is one which relates to a particular function of the business, eg Sales Budget , Purchase Budget , etc.
Types of Functional Budgets:
1) Sales Budget
2) Production Budget
3) Production Cost Budget
4) Raw Material Budget
5) Purchases Budget
6) Labour Budget
7) Production Overhead Budget
8) Selling And Distribution Cost Budget
9) Administration Cost Budget
10) Capital Expenditure Budget
11) Cash Budget

1) SALES BUDGET:
The sales budget is a statement of planned sales in terms of quantity and value. It forecasts what the company can reasonably expect to sell to its customers during the budget period .The sales budget can be prepared to show sales classified according to product , salesmen ,customers ,territories and periods, etc.

2) PRODUCTION BUDGET:
The Production budget is a plan of production for the budget period. The principal considerations involved in budgeting production are:
a) Sales Budget
b) Inventory Policy
c) Production Capacity
d) Management Policy

3) PRODUCTION COST BUDGET:
This budget shows the estimated cost of production. The cost of production is shown in detail in respect of material cost , labor cost, and factory overhead.

3) RAW MATERIAL BUDGET:
This budget shows the estimated quantities of all the raw materials and components needed for production demanded by the production budget. It serves the following functions:
A) It assists purchasing department in planning the purchases.
B) It helps in the preparation of purchase budget
C) It provides data for raw material control

4) PURCHASE BUDGET:
The purchase budget provides details of the purchases which are planned to be made during the period to meet the needs of the business .It indicates.
A) The quantities of each type of raw material and other items to be purchased.
B) The timing of purchases.
C) The estimated cost of materials purchased.
Factors to be taken under consideration:
1) Opening and closing stocks to be maintained as it will affect material requirements.
2) Maximum and minimum stock quantities,
3) Economic order quantities.
5) Financial resources available.
6) Purchase orders placed before the budget period.
7) Policy of the management.

5) LABOR BUDGET:
It is classified under direct and indirect. The labor budget represent the forecast of labor requirements to meet the demands of the company during the budget period. It is prepared as follows :
I) The standard direct labor hours of each grade of labor required for each unit of output and standard wage rate for each grade of labor are ascertained.
II) Multiplication of units of finished goods to be produced by the labor cost per unit gives the direct labor cost. The indirect labor cost is normally a fixed amount.
6) PRODUCTION OVERHEAD BUDGET:
It represents the forecast of all the production overhead (fixed, variable and semi -variable) to be incurred during the budget period .
The budget expenses for each sub – period during the budget period should be indicated and the classification of expenses should be the same as used by the accounting department. The budgeted overhead costs of service departments are totaled and apportioned to production departments according to the services received.
8) THE SELLING AND DISTRIBUTION COST BUDGET :
It represents the plan of all costs incurred in selling and distributing the company’s products during the budget period. As a general rule , the sales budget and the selling and distribution budget is prepared simultaneously.
9) ADMINISTRATION COST BUDGET :
This budget represents forecast of all administration expenses like director’s fees , managing director’s salary , office lightings , heating and air-conditioning, etc. Most of these expenses are fixed .
10) CAPITAL EXPENDITURE BUDGET :
It represents the expenditure on all fixed assets during the budget period. It includes items as new buildings, machinery, land and intangible items like patents, etc. Special characteristics:
a) Capital expenditure budget deals with items not directly related to profit and loss account. Expenses related to capital expenditure such as depreciation , repairs , and maintenance , etc. are , however , correlated to this budget and they are included in overhead budgets.
b) Capital expenditure is frequently planned a number of year in advance , perhaps five to ten years , in which case it is broken down into convenient periods like years or months .
c) This budget involves large amount of expenditure which needs top management approval.
11) CASH BUDGET:
It is a detailed estimate of cash receipts from all sources and cash payments for all purposes and the resultant cash balances during the budget period. There are three methods of preparing cash budgets:
a) Receipts and payment method
b) Adjusted profit and loss method
c) Balance sheet method
FIXED AND FLEXIBLE BUDGET:

FIXED BUDGET:
A fixed budget is one which is prepared keeping in mind one level of output. It is defined as budget “which is designed to remain unchanged irrespective of the level of activity attained”.
FLEXIBLE BUDGET:
It is one “which is designed to change in relation to the level of activity attained” . It has been developed with the objective of changing the budget figures to correspond with the actual output received. These are prepared in those companies where it is extremely difficult to forecast output and sales with accuracy.
USES OF FLEXIBLE BUDGETS:
It is more realistic, practical and useful.
They are useful in control point of view.

ZERO BASED BUDGETING (ZBB)
It is a planning and budgeting process which requires each manager to justify his entire budget request in detail from scratch (hence zero base).
Main features of ZBB:
1) All budget items, both old and new are proposed, are considered totally afresh.
2) Amount to be spent on each budget item is to be totally justified.
3) A detailed cost benefit analysis of each budget programmed is undertaken and each programmed has to compete for scarce resources.
4) Departmental objectives are linked to corporate goals.
5) The main stress is not on “how much” a department will spend but on “why” it needs to spend.
6) Managers at all levels participate in ZBB process and they have corresponding accountabilities.

PERFORMANCE BUDGETING:
It lays emphasis on achievement of physical targets, it focuses on functions, programmes and activities. These budgets are established in such a manner that each item of expenditure related to a specific responsibility centre is closely linked with the performance of that sector. It also sometimes called as Program me Budgeting or Planning, Programme and Budget System (PPBS).
Steps in performance budgeting:
1) Establishment of responsibility centre
2) Establishment of performance targets
3) Estimating financial requirements
4) Comparison of actual with budgeted performance
5) Reporting and action

RESPONSIBILITY ACCOUNTING:
It is one of the basic components of a good control system. The main characteristic feature is that it is relevant to the measurement of performance of departments or divisions of an organization while other control systems are applicable to the organization as a whole. Budgeting and variance analysis (standard costing)are thus part of the responsibility accounting process.
Horngren has defined responsibility accounting as ” a system of accounting that recognizes various responsibility centers throughout the organization and reflects the plans and actions of each of these centers by assigning particular revenues and costs to the one having the pertinent responsibility”.
Pre-requisites for Responsibility Accounting :
1) The areas of responsibility are well defined at different levels of the organization.
2) There are clearly set goals and targets.
3) Managers actively participate in establishing the budgets against which the performance is measured
4) Accounting system generates correct and dependable information for each responsibility center
5) The managers are held responsible only for those activities over which they exercise significant degree of control.
6) Managers must try to attain the goals and objectives
7) Goals for each area of responsibility should be attainable with efficient performance
8) Performance reporting should be timely and should contain significant information relating to the responsibility centre.

RESPONSIBILITY CENTRE:
Responsibility accounting is based on the recognition of individual areas of responsibility as specified in the organization structure of the firm. These areas of responsibility are known as responsibility centers. It may be a department , a product line , a territory or any type of clearly identifiable area of responsibility. It is of the following three types:
a) Cost Centre
b) Profit Centre
c) Investment Centre

QUESTION
1) J K Ltd .sells two products Jay and Kay in four areas– North South East West. The following sales are budgeted for the month of Jan 1990:
North-Jay 6000 units and Kay 3250 units. South -Kay 6500 units East-Jay 8500 units West—Jay 4500 units and Kay 2750units. Selling prices-Jay Rs .30 per unit; Kay Rs.15 per unit.
It was decided that additional advertising campaign will be undertaken in South and East which will result in additional sales of 1500 unit of Jay in South and 2500 units of kay in east. You are required to prepare a sales budget for the month of January 1990.
SOLUTION
Sales Budget forJanuary, 1990.
Area Product Quantity Price Amount Units Rs. Rs. North Jay 6000 30 180000 Kay 3250 15 48750 Total 9250 228750 South Jay 1500 30 45000 Kay 6500 15 97500 Total 8000 142500 East Jay 8500 30 255000 Kay 2500 15 37500 Total 11000 292500 West Jay 4500 30 135000 Kay 2750 15 41250 Total 7250 176250 Total Jay 20500 30 615000 Kay 15000 15 225000 Total 35500 840000

QUESTION
2) Madras agro chemicals manufactures chemical X. A forecast for quantity sold in the
first four months of the year is as follows:

Quantity in Units January 1991 6000 February 1991 6000 March 1991 5200 April 1991 4400 It is anticipated that
a) there will be no work in progress at the end of any month
b) finished units equal to half the sales for the next month ‘will be in stock at the end of each month including (December,1990)
You are required to prepare a Production Budget for each of the three months ending 31st March,1991.

SOLUTION
Production Budget
For the month ending 31st March 1991
Jan feb march units units units Budget Sales 6000 6000 5200 Add: Closing stock 3000 2600 2200 9000 8600 7400 less: Opening stock 3000 3000 2600 Production 6000 5600 4800

QUESTION
3) Glass Manufacturing Company requires you to prepare and present the budget for the next year from the following information:
Sales :
Toughened Glass Rs 300 000
Bent Toughened Glass Rs 500 000
Factory over head: Indirect labour works manager Rs 500 foreman Rs. 400 per month stores and spares 2.5% on sales
depreciation on machinery Rs 12,600
light and power Rs 5000
repairs and maintenance RS 8000 other sundries 10% on dir.wag
Admin, selling and distribution exp. Rs 14000/yr
SOLUTION
i) Sales Budget: Rs. Toughened glass 300 000 Bent Toughened Glass 500 000 total sales 800 000 ii)Less: Administration, selling and distribution expenses 14000 (A) Net sales revenue 786000 Production cost budget: Direct material(60% of sales) 480000 Direct wages 36000 Prime cost 516000 Factory overhead: Variable:stores and spares 20000 (2.5% of sales) Light and power 5000 Repairs and maintance 8000 33000 549000 Fixed : Indirect Labour works manager 6000 Foreman 4800 Depriciation 12600 sundries 3600 27000 (B)Works cost 576000 210000

QUESTION
4) Prepare a Flexible Budget for production at 80 per cent and 100 percent activity on the basis of the following information:
Production at 50% capacity — 5000 units Raw material — Rs.80 per units . Direct labour — Rs 50 per unit Factory expenses Rs 50000(50% fixed) Administration expenses — Rs 600000(60% variable)
SOLUTION
Flexible Budget
Items 80% 100% (8000 units) (10000 units) Per unit Total Per unit Total Rs. Rs. Rs. Rs. Raw Material 80 640000 80 800000 Direct Labour 50 400000 50 500000 Direct expences 15 120000 15 150000 Prime cost 145 1160000 145 1450000 Factory Expenses Fixed 3.125 25000 2.5 25000 Variable 5 40000 5 50000 Factory 153.125 1225000 152.5 1525000 Adm. Expenses Fixed 3 24000 2.4 24000 Variable 7.2 Rs. 57,600 7.2 72000 Total cost 163.325 Rs. 13,06,600 162.1 1621000

QUESTION
5) Production cost of a factory for a year is as follows;
Direct wages 180000 Direct material 420000 Production overhead — Fixed 140000
Variable 180000
During the forthcoming year it is anticipated that; a)The average rate of direct remuneration will fall from Rs 3 per hour to Rs 2.50 per hr. b)Production efficiency will remain unchanged: c)Direct labour hrs will increase by 25%. The price of material and overhead is remaining the same
Draw up a budget and compute a factory overhead rate, the overheads being absorbed on a direct wage basis
SOLUTION
Production Cost Budget
Rs. Direct material 420000 Direct wages 180000 *2.50*125 187500 3.00*100 Prime cost 607500 Factory overhead Fixed 140000 variable 180000 320000 Production cost 927500 Factory overhead rate(%of D.wages) = Factory overhead *100 Direct labour cost
320000 *100 187500 = 170.67%
QUESTION
6). A department attains a sale of Rs 600000 at 80% of its normal capacity and its expenses are given below.
Administrative expenses RS Selling costs RS
1. OFFICE SALARIES 90000 SALARIES 8% OF SALES
2. GENERAL EXPENSES 2% OF SALES TRAVELLING EXPENSES 2% OF SALES
3. RATES AND TAXES 8750 GENERAL EXPENSES 1% OF SALES
4. DEPRECIATION 7500 SALES OFFICE EXPENSES 1% OF SALES

The distribution costs are: wages- Rs 1500; rent- 1% of sales; and other expenses-4% of sales.
Draw up a flexible administration overhead, selling and distribution overhead costs budget at 80% and 905 of normal capacity.
Solution:
FLEXIBLE BUDGET
PARTICULARS BASIS LEVEL OF ACTIVITY SALES 80%(600000) 90%(6750000 Administrative costs Office salaries Fixed 90000 90000 General expenses 2% of sales 12000 13500 Depreciation Fixed 7500 7500 Rates and taxes Fixed 8750 8750 TOTAL ADMIN. EXPENSES (A) 118250 119750 Selling costs Salaries 8% of sales 48000 54000 Travelling expenses 2% of sales 12000 13500 Sales office expenses 1% of sales 6000 6750 General expenses 1% of sales 6000 6750 TOTAL SELLING EXPENSES (B) 72000 81000 Distribution costs Wages Fixed 15000 15000 Rent 1% of sales 6000 6750 Other expenses 4% of sales
24000 27000 TOTAL DISTRIBUTION COSTS (c) 45000 48750 TOTAL COSTS (A)+(B)+(C) 232250 249500

QUESTION
7). Gaurav ltd. Will commence business on 1 Jan when it will issue equity share of Rs 10 each at a premium of 30% payable in cash to finance.
(A) Capital expenditure
1 Jan – Rs 5 lakh
31 March- Rs 10.1 lakh by cash payment
(b) Working capital for the first six months on the basis of:
(i) Sales Jan and Feb- Rs 60000 p.m., March-Rs 80000,April- Rs 1 lakh, May to July- Rs 40000 p.m. collections have to be made on the last day of the month after that on which the goods were sold . commission at 5% is payable on collection.
(ii) on the first date of each month ,there should be stock to supply all sales of the following month only. Payments to be made on the last date of the month after goods were purchased.
(iii) salaries and other fixed expenses -Jan to March -Rs 3000 p.m .,April to June- Rs 5000 p.m. These are payable on the last day of the month .
Prepare month wise cash budget for six months ending June.
Solution :
CASH BUDGET FOR THE PERIOD ENDED 30TH JUNE
PARTICULARS MONTHS Opening balance receipts

Issue of equity shares
(working notes)
Collection from debtors
(A)
PAYMENTS:
Creditors raw materials
Commission on sales
Salaries and fixed expenses
Capital expenditure
(B)
CLOSING BALANCE Jan feb mar april may june
Nil 147000 111000 4000 – 60000 650000 – – – – – – 60000 60000 80000 100000 40000 650000 207000 171000 84000 100000 100000 – 90000 60000 75000 30000 30000 – 3000 3000 4000 5000 2000 3000 3000 3000 5000 5000 5000 500000 – 101000 – – – 503000 96000 167000 84000 40000 37000 147000 111000 4000 – 60000 63000
WORKING NOTES:
Calculation of amount raised from the issue of equity shares
Month -wise deficit, i.e. excess of payments over receipts
1. Jan- receipt/nil-payments/Rs 503000 = Rs 503000
2. Feb- Rs 60000-Rs 96000 = Rs 36000
3. March- Rs60000-Rs167000 =107000
4. April- Rs80000-Rs84000= 4000
5. May – no deficit
6. June- no deficit
Thus Rs 650000 woth of capital has to be issued
Issue of equity shares(including premium) Rs 650000
Less: share premium (30/100*Rs650000) Rs 150000
Share capital = Rs 500000

QUESTION
8). X ltd manufactures two products using one type of material and one grade of labour .
PARTICULARS PRODUCT A PRODUCT B Budgeted sales 3600 units 4800 units Budgeted material consumption per product. 5 kg 3 kg (standard cost =Rs 12 per kg) Standard hours allowed per product 5 hours 4 hours (standard rate=Rs5 per hour)
Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week. There are 90 direct workers. The target productivity ratio for the productive hours worked by the direct workers in manufacturing the product is 80%; in addition the non-productive downtime is budgeted at 20% of the productive hours worked . there are twelve 5 day weeks in the budget period and it is anticipated that sales and production will occur evenly throughout the whole period,.
Stock at the beginning of the period will be, product A-1020 UNITS, PRODUCT B-2400 UNITS and raw material -4300 units
Closing stocks product A 15 days sales, product B-20 days sales and raw materials – 10 days consumption.
Solution:
PRODUCTION BUDGET
PARTICULARS PRODUCT A (units) PRODUCT B (Units) Sales (for 12*5=60 days) 3600 4800 Add: closing stock (for 15 and 20 days) 3600*15/60=900 4800*20/60=1600 Less: opening stock 1020 2400 Budgeted production 3480 4000 Raw materials required per unit 5 kg 3kg Budgeted raw materials usage 3480*5=17400kg 4000*3=12000kg Direct labour hrs required per unit 5hrs 4hrs Standard hrs for budgeted production 3480*5=17400 4000*4=16000hrs
QUESTION
9).You are required to prepare a Sales Overhead Budget from the following estimates:
Advertisement Rs.2,500
Salaries of sales department Rs.5,000
Expenses of sales department Rs.1,500
Counter salesman’s salaries and dearness allowance Rs.6,000
Commission to counter salesman at 1% of their sales. Travelling salesman’s commission at 10% on their sales and expenses at 5% on their sales. The sales during period were estimated as follows:
Counter sales Travelling salesman’s sales
Rs. 80,000 Rs. 10,000
Rs. 1, 20,000 Rs. 15,000
Rs. 1, 40,000 Rs. 20,000
Solution:
Sales Overhead Budget for the period
Rs. Rs. Rs. Counter sales 80,000 1,20,000 1,40,000 Travelling Sales 10,000 15,000 20,000 Total Sales 90,000 1,35,000 1,60,000 Fixed Overhead Advertisement 2,5000 2,500 2,500 Salaries of sales dept. 5,000 5,000 5,000 Expenses of sales dept. 1,500 1,500 1,500 Salaries and DA of counter salesmen. 6,000 6,000 6,000
(A)Total
Variable Overheads 15,000

15,000

15,000
Commission of counter salesmen(1%) 800 1,200 1,400 Commission of travelling salesmen(10%) 1,000 1,500 2,000 Expenses (5% on travelling sales) 500 750 1,000 (B)Total 2,300 3,450 4,400 Total sales overhead (A
+B) 17,300 18,450 19,400
QUESTION
10).The following information is provided in respect of Pvt. Ltd. company Prepare a Cash Budget for April, May and June 2007.

Months Details Sales Purchases Wages Expenses Jan Actual 80,000 45,000 20,000 5,000 Feb Actual 80,000 40,000 18,000 6,000 March Actual 75,000 42,000 22,000 6,000 April Budget 90,000 50,000 24,000 7,000 May Budget 85,000 45,000 20,000 6,000 June Budget 80,000 35,000 18,000 5,000
Additional information:
i. 10% of the purchases and 20% of sales are in cash
ii. The average collection period of the company is 1/2 month and the credit purchases are paid regularly after one month.
iii. Wages are paid half monthly and the rent of Rs.500 included in expenses is paid monthly. Other expenses are paid after one month lag.
iv. Cash balance on April 1, 2007 may be assumed to be Rs.15,000.

Solution:
CASH BUDGET
For the month ending June 2007
Particulars April May June RECEIPTS Opening Balance 15,000 27,200 35,700 Cash Sales 18,000 17,000 16,000 Collection from Debtors 66,000 70,000 66,000 Total say A 99,000 1,14,200 1,17,700 PAYMENTS Cash purchases 5,000 4,500 3,500 Payments to creditors 37,800 45,000 40,500 Wages 23,000 22,000 19,000 Rent 500 500 500 Other expenses 5,500 6,500 5,500 Total, say B 71,800 78,500 69,000 CLOSING CASH BALANCE, A – B 27,200 35,700 48,700 QUESTION
11). The following information is provided in respect of Rashmi Ltd. Prepare a Cash Budget for April, May and June 2007.

Months Details Sales Purchases Wages Expenses Jan Actual 80,000 45,000 20,000 5,000 Feb Actual 80,000 40,000 18,000 6,000 March Actual 75,000 42,000 22,000 6,000 April Budget 90,000 50,000 24,000 7,000 May Budget 85,000 45,000 20,000 6,000 June Budget 80,000 35,000 18,000 5,000
Additional information:
v. 10% of the purchases and 20% of sales are in cash
vi. The average collection period of the company is 1/2 month and the credit purchases are paid regularly after one month.
vii. Wages are paid half monthly and the rent of Rs.500 included in expenses is paid monthly. Other expenses are paid after one month lag.
viii. Cash balance on April 1, 2007 may be assumed to be Rs.15,000.

Solution:
CASH BUDGET
For the month ending June 2007

Particulars April May June RECEIPTS Opening Balance 15,000 27,200 35,700 Cash Sales 18,000 17,000 16,000 Collection from Debtors 66,000 70,000 66,000 Total say A 99,000 1,14,200 1,17,700 PAYMENTS Cash purchases 5,000 4,500 3,500 Payments to creditors 37,800 45,000 40,500 Wages 23,000 22,000 19,000 Rent 500 500 500 Other expenses 5,500 6,500 5,500 Total, say B 71,800 78,500 69,000 CLOSING CASH BALANCE, A – B 27,200 35,700 48,700
QUESTION
12). Hindustan Ltd. is to start production on January 1, 2008. The prime cost of a unit is expected to be Rs.40 (Rs.16 per material and Rs.24 for labor). In addition, variable expenses per unit are expected to be Rs.8 and fixed expenses per month Rs.30,000. Payment for materials is to be made in the month following the purchases. One-third of sales will be for cash and the rest on credit for settlement in the following month. Expenses are payable in the month in which they are incurred. The selling price is fixed at Rs.80 per unit. The number of units to be produced and sold is expected to be: January 900, February 1,200, March 1,800, April 2,000, May 2,100 and June 2,400. Draw a cash budget indicating cash requirements.

Solution
CASH BUDGET
For six months ending 30th June
Particulars Jan Feb Mar Apr May June RECEIPTS Opening bal – (34,800) (37,600) (32,400) (5,867) 27,600 Cash Sales 24,000 32,000 48,000 53,333 56,000 64,000 Collection from Debtors – 48,000 64,000 96,000 1,06,667 1,12,000 A. Total 24,000 45,200 74,400 1,16,933 1,56,800 2,03,600 PAYMENTS Creditors – 14,400 19,200 28,800 32,000 33,600 Wages 21,600 28,800 43,200 48,000 50,400 57,600 Variable Expenses 7,200 9,600 14,400 16,000 16,800 19,200 Fixed Expenses 30,000 30,000 30,000 30,000 30,000 30,000 B. Total 58,800 82,800 1,06,800 1,22,800 1,29,200 1,40,400 Closing Bal.
[A – B] (34,800) (37,600) (32,400) (5,867) 27,600 63,200
Working Notes:
Particulars Jan Feb Mar Apr May June Sales [Units] 900 1,200 1,800 2,000 2,100 2,400 Sales [Rs.] 72,000 96,000 1,44,000 1,60,000 1,68,000 1,92,000 Cash Sales [Rs.] – 1/3 24,000 32,000 48,000 53,333 56,000 64,000
QUESTION
13).Ranjini Ltd. intends to approach her Bankers for temporary overdraft facility for three months from 1st June to 31st August, 2007. Prepare a Cash budget for the above period.
Months Sales Purchases Wages April 3,60,000 2,49,600 24,000 May 3,84,000 2,88,000 28,000 June 2,16,000 4,86,000 22,000 July 3,48,000 4,92,000 20,000 Aug 2,52,000 5,36,000 30,000 (a) The entire sale is on credit basis out of which 50% is realized in succeeding month and balance in the second month following sales.
(b) Creditors are paid in the month following purchase.
(c) Estimated cash as on 1st June is Rs.50,000

Solution
Cash Budget for the period ending 31st August
Particulars June July August RECEIPTS Opening balance 50,000 1,12,000 (94,000) Collection from Debtors 3,72,000 3,00,000 2,82,000 A. Total 4,22,000 4,12,000 1,88,000 PAYMENTS Payments to creditors 2,88,000 4,86,000 4,92,000 Wages 22,000 20,000 30,000 B. Total 3,10,000 5,06,000 5,22,000 Closing Balance [A – B] 1,12,000 (94,000) (3,34,000) Overdraft needed NIL 94,000 3,34,000

QUESTION

14). Prepare a cash budget from January to April.

Expected Purchases Expected Sales Jan 48,000 60,000 Feb 80,000 40,000 Mar 81,000 45,000 April 90,000 40,000 Wages paid Rs.5, 000 per month. Cash balance on 1st January Rs.8, 000. Management decides that:
a) In case of deficit up to of Rs.10, 000, arrangement can be made with the bank.
b) In case of deficit exceeding Rs.10, 000 but within Rs.42, 000, debentures to be issued.
c) In case of deficit exceeding Rs.42, 000, equity shares to be issued.

Solution
CASH BUDGET
Particulars Jan Feb March April RECEIPTS Opening balance 8,000 15,000 (30,000) (71,000) Cash sales 60,000 40,000 45,000 40,000 Total, say A 68,000 55,000 15,000 (31,000) PAYMENTS Purchases 48,000 80,000 81,000 90,000 Wages 5,000 5,000 5,000 5,000 Total, say B 53,000 85,000 86,000 95,000 Closing Balance [A – B] 15,000 (30,000) (71,000) (1,26,000) The total deficit of Rs. 1,26,000 should be raised from the issue of Equity Shares.

QUESTION
15). A company expects to have Rs 37500 cash in hand on 1st April and requires you to prepare as estimate of cash position during the three months. April, May and June. The following information is supplied to you:
Months Sales Purchases Wages Factory exp Office exp Selling exp February 75000 45000 9000 7500 6000 4500 March 84000 48000 9750 8250 6000 4500 April 90000 52000 10500 9000 6000 5250 May 120000 60000 13500 11250 6000 6570 June 135000 60000 14250 14000 7000 7000
Other information:
a. Period of credit allowed by suppliers 2 months
b. 20% of sales is for cash and period of credit allowed to customers for credit is one month
c. Delay in payment of all expenses 1 month
d. Income tax of Rs 57500 is due to be paid on June 15th
e. The company is to pay dividends to shareholders and bonus to workers of Rs 15000 and 22500 respectively in the month of April.
f. Plant has been ordered to be received and paid in May. It will cost Rs 120000.
Solution:
Cash budget for 3 months

Particulars April May June Receipts: o/p bal 37500 11700 (-91050) Cash sales [20% of sales] 18000 24000 27000 Credit sales 67200 52500 96000 Total 122700 107700 31950 Payments Creditors 45000 48000 52000 Wages 9750 10500 13500 Income tax – – 57500 Expenses Office Expenses 6000 6000 6000 Selling expenses 4500 5250 6570 Factory expenses 8250 9000 11250 Dividend to share hold 15000 – – Bonus 22500 – – Plant brought – 120000 – Total 11700 (91050) (11480)
QUESTION
16). Excellent Manufacturers can produce 4000 units of a certain product at 100% capacity. The following information is obtained from the books of accounts:
Aug.2006 Sept.2006 Units produced 2800 3600 Rs. Rs. Repairs and maintenance 500 560 Power 1800 2000 Shop labor 700 900 Consumable stores 1400 1800 Salaries 1000 1000 Inspection 200 240 Depreciation 1400 1400 Rate of production per hour is 10 units. Direct material cost per unit is Re. 1 and direct wages per hour is Rs. 4
You are required to:
i) Compute the cost of production at 100%, 80% and 60% capacity showing the variable, fixed and semi-variable items under the flexible budget.
ii) Find out the overhead absorption rate per unit at 80% capacity.

Solution:
Flexible budget from Aug-Sept. 2006
_____________________________________________________________________________________
100% 80% 60%
Capacity capacity capacity
4000 units 3200 units 2400 units
Rs. Rs. Rs.
Variable cost:
Direct material [@Re 1 per unit.] 4000 3200 2400
Direct wages [@ Rs. 4 per hour for 10 units] 1600 1280 960
Shop labor 1000 800 600
Consumable stores 2000 1600 1200
_____________________________________________
Table ‘A’ total 8600 6880 5160
Semi-variable costs:
Power 2100 1900 2400
Inspection 260 220 180
Repairs and maintenance 590 530 470
Total ‘B’ 2950 2650 2350
Fixed cost:
Salaries 1000 1000 1000
Depreciation 1400 1400 1400
Total ‘C’ 2400 2400 2400
Total (A+B+C) 13,950 11,390 9910
Cost per unit (Total cost /units) 3.49 3.73 4.13
ii) Calculation of overhead absorption rate per unit at 80% capacity
Total cost at 80% Rs. 11 930
Less: direct material and wages 4480
Overhead cost 7450
Overhead rate per unit = 7450 /3200 units = 2.33
Working notes:
Calculation of semi-variable costs.
Variable cost per unit = difference in cost/ difference in units
Power = 2000 – 800/3600 – 2800 =200/800= Re. 0.25
At 70% fixed element in power cost= 1800- 700 (i.e. 2800 units @0.25 per unit) = Rs. 1100
Semi variable power cost at 100% = 1100 + 1000 (i.e. 4000 units @ 0.25) = Rs. 2100
Semi variable power cost at 80% = 1100 + 800 (i.e. 3200 units @ 0.25) = Rs. 1900
Semi variable power cost at 60% = 1100 + 600 (i.e. 2400 units @ 0.25) = Rs. 1700
Similar calculations for repairs and inspection.

QUESTION
17). A company produces two products and budgets at 60 % level of activity for the year 2006. It gives the following information:
Product A Product B
Raw material cost per unit Rs. 7.50 3.50
Direct wages per unit Rs. 4.00 3.00
Variable overhead per unit Rs. 2.00 1.50
Fixed overhead per unit Rs. 6.00 4.50
Selling price per unit Rs. 20 15.00
Production and sales units 4000 6000
The managing director is not satisfied with the budgeted results as stated above and wants to improve the performance. The managing director proposed that the sales quantities of the products A and B could be increased by 50% provided the selling price is reduced by 5% in the case of product A and 10% in the case of product B. the price reduction should be made applicable to the entire quantity of sales of each of the two products.
You are required to present the overall profitability under the original budget and revised budget after taking the increased sales into consideration.

Solution:
Original budget Revised budget A B total A B total Sales (units) 4000 6000 6000 9000 (A) Sales value Rs. Rs. Rs.
80000 90000 170000 Rs. Rs. Rs.
114000 121500 235500 Costs:
Raw material
Labor
Variable O/H
Fixed O/H
30000 21000 51000
16000 18000 34000
8000 9000 17000
24000 27000 51000
45000 31000 76500
24000 27000 51000
12000 13500 25500
24000 27000 51000 (B) Total cost 78000 75000 153000 105000 99000 204000 (C) Profit (A-B) 2000 15000 17000 9000 22500 31500 Working note:
Revised sales figures are computed as follows: A B
Selling price per unit Re. 20 15
Less: 5% and 10% Re. 1 1.50
Rs. 19 13.50
Sales value = 6000 units * Rs. 19 = Rs. 114000
= 9000 units * Rs. 13.50 = Rs. 121500
QUESTION

17.) Prepare a Cash Budget for the three months ending 30th June, 2005 from the information given below:
(a) Month Sales Materials Wages Overheads Rs. Rs. Rs. Rs. February 14000 9600 3000 1700 March 15000 9000 3000 1900 April 16000 9200 3200 2000 May 17000 10000 3600 2200 June 18000 10400 4000 2300
(b) Credit terms are:
Sales and debtors- 10% of sales are on cash, 50% of the credit sales are collected next month and the balance in the following month:
Creditors- Materials 2 months
Wages 1/4 month
Overheads 1/2 month

(c) Cash and bank balance on 1st April, 2005 is expected to be Rs. 6000.
(d) Other relevant information are:
(i) Plant and machinery will be installed in February 2005 at a cost of Rs. 96000.
The monthly installments of Rs. 2000 is payable from April onwards.
(ii) Dividend @ 5% on Preference Share Capital of Rs. 200000 will be paid on 1st June.
(iii) Advance to be received for sale of vehicle Rs.9000 in June.
(iv) Dividends from investments amounting to RS. 1,000 are expected to be received in June.
(v) Income tax (advance) to be paid in June is Rs. 2000.

Solution
Cash Budget
For three months ending 30th June, 2005
April Rs. May Rs. June Rs. Total RS. Balance b/f 6000 3950 3000 6000 Receipts : Sales* 14650 15650 16650 46950 Dividend 1000 1000 Advance against vehicles 9000 9000 Total 20650 19600 29650 62950 Payments : Creditors (materials) 9600 9000 9200 27800 Wages 3150 3500 3900 10550 Overheads 1950 2100 2250 6300 Installment for plant 2000 2000 2000 6000 Pref. dividend 10000 10000 Income-tax advance 2000 2000 Total 16700 16600 29350 62650 Closing balance 3950 3000 300 300
*working notes:
1. Calculation of collection from debtors
Feb. Rs. March Rs. April Rs. May Rs. June Rs. Sales 14000 15000 16000 17000 18000 Cash sales (10%) 1400 1500 1600 1700 1800 Credit sales 12600 13500 14400 15300 16200 50% collection in next month 67500 7200 7650 50% collection in the following month 6300 6750 7200 Total collections 13050 13950 14850 Cash sales 1600 1700 1800 14650 15650 16650
2. Payment to creditors for materials wages and overhead have been computed on a similar pattern.
(i) For example, payment for creditors for materials will be : February purchases will be paid in April, March purchases will be paid in May, and April purchases will be paid in June.
(ii) Payment for overhead in April = (3000*1/4) + (3200*3/4) = Rs. 3150
May = (3000* 1/4) + (3600*3/4) = Rs.3500
June = (3000* 1/4) + (4000 * 3/4) = Rs. 3900
(iii) Payment for overhead in April = (1900* 1/2) + (2000* 1/2) = Rs. 1950.
QUESTION
18). Glass manufacturing Company requires you to present the budget for the next year from the following information :
Sales :
Toughened Glass Rs. 600000
Bent Glass Rs. 200000
Direct material cost 60% of sales
Direct wages 20 workers @ Rs. 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
Light and power Rs. 3000
Repairs and maintenance Rs. 8000
Other sundries 10% on direct wages
Administration, selling and distribution expenses Rs. 36000 per year
Solution
Master Budget for the year ending
Sales: Rs.
Toughened Glass 600000
Bent Glass 200000
Total sales 800000
Less: Direct materials (60% of Rs. 800000) 480000
Direct wages (20 * 150 * 12 months) 36000
Prime cost 516000
Fixed factory overheads:
Works manager’s salary (500*12) 6000
Foreman’s salary (400*12) 4800
Depreciation 12600
Light and power 3000 26400
Variable Factory Overhead:
Stores and spares 20000
Repairs and maintenance 8000
Sundry expenses 3600 31600
Works Cost 574000
Gross Profit 226000
Less: Adm., selling and dist. Expenses 36000
Net Profit 190000
QUESTION
19). 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.

Variable overheads: Rs.
Indirect labor 12000
Stores including spares 4000
Semi-variable overheads:
Power (30% fixed, 70% variable) 20000
Repairs and maintenance (60% fixed, 40% variable) 2000
Fixed overheads:
Depreciation 11000
Insurance 3000
Salaries 10000
Total overheads 62000
Estimated direct labour hours 124000 hrs
Solution
Flexible Budget for the period
Particulars At 70% capacity At 80% capacity At 90% capacity Variable overheads Rs. Rs. Rs. Indirect labour 10500 12000 13500 Stores including spares 3500 4000 4500 Semi-Variable overheads: Power: Fixed 6000 6000 6000 Variable 12250 14000 15750 Repairs and Maintenance : Fixed 1200 1200 1200 Variable 700 800 900 Fixed overheads: Depreciation 11000 11000 11000 Insurance 3000 3000 3000 Salaries 10000 10000 10000 (A) Total overheads 58150 62000 65850 (B) Estimated direct labour hours 102500 124000 139500 Direct labour hour rate (A / B) Re. 0.536 0.5 0.472
Working notes :
1. Indirect labour cost at 70% = 12000*70/80 = Rs. 10500
at 90% = 12000*90/80 = Rs. 13500
Similar calculation for other variable items, i.e., stores.
2. Power – Fixed = Rs. 6000, Variable = Rs. 14000.
Variable power at 70% = 14000*70/80 = Rs. 12250
at 90% = 14000*90/80 = Rs. 15750
Similar calculation for repairs and maintenance
3. Direct labour hours at 70% = 124000*70/80 = 108500
at 90% = 124000*90/80 = 139500

QUESTION
20). For the production department of XXL Ltd you are required to :
(a) Prepare a fixed budget of overheads;
(b) Prepare a flexible budget of overheads at 70% and 110% of budgeted volume;
(c) Calculate a department hourly rate of overheads absorption as per (a) and (b) above. The budgeted level of activity of the department is 5000 hour per period and a study of the various items of expenditure reveals the following :
Rs. Re. per hr. Indirect wages 0.4 Repairs Up to 2000 hours 100 For each additional 500 hours up to a total of 4000 hrs. 35 Additional from 4001 to 5000 hrs. 60 Additional above 5000 hrs. 70 Rent and rates 350 Power Up to 3600 hours 0.25 For hours above 3600 0.2 Consumable supplies 0.24 Supervision Up to 2500 hours 400 Additional for each extra 600 hours above 2500 and up to 4900 hours 100 Additional above 4900 hours 150 Depreciation Up to 5000 hours 650 Above 5000 hours and up to 6500 hours 820 Cleaning Up to 4000 hours 60 Above 4000 hours 80 Heat and lighting From 2100 hrs. to 3500 hrs. 120 From above 3500 hrs. to 5000 hrs. 150 Above 5000 hours 175

Solution
Fixed and Flexible Budget for the period
Items of Overhead Nature of Overhead Fixed Budget Flexible Budget 100% 70% 110% 5000 hrs 3500 hrs. 5500 hrs. Rs. Rs. Rs. Indirect wages Variable 2000 1400 2200 Repairs Semi-variable 300 205 370 Rent and taxes Fixed 350 350 350 Power Semi-variable 1180 875 1280 Consumable Supplies Variable 1200 840 1320 Supervision Semi-variable 950 600 950 Depreciation Semi-variable 650 650 820 Cleaning Semi-variable 80 60 80 Heat and lighting Semi-variable 150 120 175 Total overheads 6860 5100 7545 Hourly rate of overheads Rs. 6860 Rs. 5100 RS. 7545 5000 hrs. 3500 hrs. 5500 hrs. (Total overheads / Hours) =Rs. 1.37 =Rs. 1.46 =Rs. 1.37
QUESTION
21). J K Ltd. Sells two products Jay & Kay in four areas North, South, East and West. The following are budgeted for the month of Jan. 2005:
North – Jay 5,000 @ Rs.30 each, and Kay 3,000 units @ Rs.15 each
South – Kay 6,000 @ Rs.15 each
East – Jay 7,500 units @ Rs. 30 each
West – Jay 4,000 units @ Rs. 30 each and Kay 2,500 units @ Rs. 15 each
Actual sales for the same period were as follows:
North – Jay 5,750 @ Rs.30 each, and Kay 3,500 units @ Rs.15 each
South – Kay 6,250 @ Rs.15 each
East – Jay 8,250 units @ Rs. 30 each
West – Jay 4,750 units @ Rs. 30 each and Kay 2,625 units @ Rs. 15 each
On the basis of all the relevant factors, the following sales are budgeted for the month of Feb. 2005.
North – Jay 6,000 and Kay 3,250 units
South – Kay 6,500 units
East – Jay 8,500 units
West – Jay 4,500 units and Kay 2,750 units
It was decided that additional advertising campaign will be undertaken in South and East which will result in additional sales of 1,500 units of Jay in South and 2,500 units of Kay in East.
You are required to prepare a sales budget for the month of Feb. 2005 for presentation to management also showing the budgeted and actual sales for the month of Jan. 2005 which are to be provided as a guide in preparing the sales budget.
Solution

Sales Budget
For the month of Feb. 2005
Budget Feb. 2005 Budget Jan 2005 Actual Jan 2005 Area Product Quantity units Price Rs. Amount Rs. Quantity units Price Rs. Amount Rs. Quantity units Price Rs. Amount Rs. North Jay 6,000 30 180,000 5000 30 150000 5,750 30 172,500 Kay 3,250 15 48,750 3000 15 45000 3,500 15 52,500 Total 9,250 228,750 8000 195000 9250 225000 South Jay 1,500 30 45,000 Kay 6,500 15 97,500 6000 15 90000 6,250 15 93,750 Total 8,000 142,500 6000 90000 6,250 93,750 East Jay 8,500 30 255,000 7500 30 225000 8,250 30 247,500 Kay 2,500 15 37,500 Total 11,000 292,500 7500 225000 8,250 247,500 West Jay 4,500 30 135,000 4000 30 120000 4,750 30 142,500 Kay 2,750 15 41,250 2500 15 37500 2,625 15 39,375 Total 7,250 176,250 6500 157500 7,375 181,875 Total Jay 20,500 30 615,000 16500 30 495000 18,750 30 562,500 Kay 15,000 15 225,000 11500 15 172500 12,375 15 185,625 Total 35,500 840,000 28000 667500 31,125 748,125 QUESTION
22).Viveka elementary school has a total of 150 students consisting of 5 sections with 30 students per section. The school [plans for a picnic around the city during the weekend to places such as the Zoo, the amusement park, Planetarium etc. A private transport operator has come forward to lease out the buses door taking out the students. Each bus will have a maximum capacity of 50(excluding 2 seats reserved for teaches accompanying the students).The school will employ two teachers for each bus, paying them an allowance of Rs 50 each. It will also lease out the required number of buses. The following are the other cost estimates:
Cost per student Breakfast 5 Lunch 10 Tea 3 Entrance fee at Zoo 2
Rent Rs650 per bus.
Special permit Fee Rs50 per bus.
Blocked entrance Fee at planetarium Rs250
Prize to students for games Rs 250No costs are accompanied per teacher (apart fromRs50 allowance).
You are required to prepare:
(a) A flexible budget estimating the total costs for levels of 30, 60, 90, 120 and 150 students.
(b) Compare the average cost per student at these levels.
(c) What will be your conclusion regarding the break-even level of students if the school proposes to collect Rs45 per student?
Solution.

Flexible budget to estimate total cost

No. of Students 30 60 90 120 150 Rs. Rs. Rs. Rs. Rs. Variable Costs: Breakfast 150 300 450 600 750 Lunch 300 600 900 1200 1500 Tea 90 180 270 360 450 Entrance fee to Zoo 60 120 180 240 300 600 1200 1800 2400 3000 Semi-Fixed Costs: Rent of Bus 650 1300 13000 1950 1950 Permit Fee 50 100 100 150 150 Allowance to teachers 100 200 200 300 300 800 1600 1600 2400 2400 Fixed Costs: blocked Entrance Fee at Pl. 250 250 250 250 250 Prizes to stud. For games 250 250 250 250 250 500 500 500 500 500 Total Costs 1900 3300 3900 5300 5900 Average costs per student 1900/30 3300/60 3900/90 5300/120 5900/180 63.33 55 43.33 44.17 39.33 Breakeven level Collection per student 45 Variable cost per student 20 Contribution per student 25
Since semi-fixed costs changes for every 50 students, fixed costs + semi-fixed costs for 3 level of students to be covered are:
Level upto50 51 to 100 101 to 150 Fixed Costs(including semi-fixed costs) 1300 2100 2900 Contribution per student 25 25 25 Break -even point no. of students to recover fixed costs 1300 2100 2900 including semi-fixed costs 25 25 25 52 84 116
The figure 52 lies outside 1st limit, while 84 and 116 lies within the limit hence they are 2 break-even points.

QUESTION

23). your company manufactures two products A and B. A forecast of the number of the units to be sold in the seven months of the year is given below:
Product A Product B January 1,000 2800 February 1,200 2800 March 1,000 2400 April 2,000 2000 May 2,400 1600 June 2,400 1600 July 2,000 1800 It is anticipated that (Í) there will be no work-in-progress at the end of any month, (ii) famished units equal to half the sales for the next month will be in stock at the end of each month (including the previous December).
Budgeted production and production costs for the whole year are as follows:
Product A Product B Production (Units) 22,000 24,000 Rs. Rs. Per unit, Direct Material 12.5 19 Direct Labour 5 7 Total Factory Overhead 66,000 96,000 apportioned Prepare for the six months ending 30th lume, a production budget for each month and a Summarized production cost budget.

Solution:-
Production Budget
(For six months ending 30th June)
Jan Feb Mar Apl May June Total (Units) (Units) (Units) (Units) (Units) (Units) (Units) Product A Sales 1,000 1,200 1,600 2,000 2,400 2,400 (+) Closing Stock 600 800 1,000 1,200 1,200 1,000 1,600 2,000 2,600 3,200 3,600 3,400 (-) Opening Stock 500 600 800 1,000 1,200 1,200 Production Budget 1,100 1,400 1,800 2,200 2,400 2,200 11,100 Product B Sales 2,800 2,800 2,400 2,000 1,600 1,600 (+) Closing Stock 1,400 1,200 1,000 800 800 900 4,200 4,000 3,400 2,800 2,400 2,500 (-) Opening Stock 1,400 1,400 1,200 1,000 800 800 Production Budget 2,800 2,600 2,200 1,800 1,600 1,700 12,700 B) Summarized Production Cost Budget
Product A Product B Total Rate Amount Rate Amount Rs. Rs. Rs. Rs. Rs. Direct Material 12.5 1.38.750 19 2,41,300 3,80,050 Direct Labour 4.5 49,950 7 88,900 1,38,850 Factory Overhead 3 33,300 4 50,800 84,100 Total 20 2,22,000 30 3,81,000 6,03,000

QUESTION

24). Estimate the cash requirement of Meerut Fruit Co. Ltd. For June11998 on basis of data given:
(i)Sales
Feb 1998 Rs.25, 000
Mar1998 Rs.20, 000
Apr to June1998 Rs.30, 000 per month
Half the sales are for cash.90%of credit sales are collected in the month following the month of sale and the balance one month later.
(ii) Fruits are always bought of cash of discount of 5%. The purchase began for 2nd Quarter was 15,000 per month at Rs1 per basket.
(iii) Wages and salaries for 2nd quarter were budgeted at Rs.5,000 per month.
(iv) Manufacturing and other expenses for the quarter were
Cash expenses Rs, 4,500
Depreciation Rs. 7,500
Selling expenses Rs, 3,000
Administrative expenses Rs. 2,000 (equally in April and May only)

Solutions:-

Cash Budget (For three months ending 30th June, 1998)
Particulars April May June Rs. Rs. Rs. Opening Cash Balance – 2,500 9,250 Add Cash inflows : (i) Cash Sales (1/2 of sales) 15,000 15,000 15,000 (ii) Cash Collected from Debtors 10,250 14,500 15,000 (A)Total cash available 25,250 32,000 39,250 Cash Outflows: (i) Cash Purchase (Less Trade discount) 14,250 14,250 14,250 (ii)Wages and salaries 5,000 5,000 5,000 (iii)Cash Expenses 1,500 1,500 1,500 (iv)Selling Expenses 1,000 1,000 1,000 (v)Administrative Expenses 1,000 1,000 – (B)Total Payments 22,750 22,750 21,750 (c)Closing Cash balance(A)- (B) 2,500 9,250 17,500

Working Notes:
(i) As the opening Cash balance for the month of April l has not been given in the question, it has been assumed to be nil

(ii) Closing cash balance of month becomes the opening balance of the next month.

(iii) Cash collections from debtors have been calculated as follows :
Feb March April May June Rs. Rs. Rs. Rs. Rs. Credit Sales (being1/2 of sales) 12,500 10,000 15,000 15,000 15,000 Cash collected from debtors; 9,000 13,500 13,500 (a)90% of prev. months Crdedit sales (b)10% of credit sales of two months earlier 1,250 1,000 1,500 10,250 14,500 15,000

QUESTION

25). A company making for stock in the first quarter of the year is assisted by its bankers with overdraft accommodation. The following are the relevant budgeted figures:
Rs. Rs. Rs. Sales Purchases Wages November 60,000 41,500 4,900 December 64,000 48,000 5,000 January 36,000 81,000 4,000 February 58,000 82,000 3,800 March 42,000 89,500 5,200 Budgeted cash at the bank on 1st January is Rs.8,600.Credit terms of sales are payment by the end of the month following the month of supply .On an average, one half of the sales are paid on due date, while the other half are paid during the next month. Creditors are paid during the month following the month of supply.
You are required to prepare a cash budget for the quarter from1st January to 31st March ,showing budgeted amount of bank facilities required at each month end.

Solution

Cash Budget (For the quarter ending 31st March)

Particulars January February March Rs. Rs. Rs. Opening bank Balance 8,600 18,600 -16,200 Add Cash Inflows: Collection from debtors 62,000 50,000 47,000 (A)Total Cash available 70,600 68,600 30,800 Cash Outflows: (i)Payment to creditors for purchases 48,000 81,000 82,000 (ii)Payment of wages 4,000 3,800 5,200 (B)Total Payments 52,000 84,800 87,200 (c)Clearing Bank balance(A) – (B) 18,600 -16,200 -56,400 Notes:
(i) Collection from debtors have been calculated as follows:

Nov Dec Jan Feb March Rs. Rs. Rs. Rs. Rs. Credit Sales 60,000 64,000 36,000 58,000 42,000 Amount Collected (i)for sales during the preceding month 32,000 18,000 29,000 (1/2of sales) (ii)For the sales during the month 30,000 32,000 18,000 preceding the previous month(1/2) of sales) Total Collection 62,000 50,000 47,000
(ii) Since the lag in payment of wages has not been given, these shall be treated to bepayable in the same month.
(iii) The company has to arrange for the bank overdraft facility for Rs.16,200 at February-end for Rs.56,200 at March -end.

QUESTION
26). From the following forecasts of income and expenditure prepare a Cash Budget for the half-year ended on 30th June, 1994-
Months Sales Purchases Wages Manufacturing Expenses Administration Expenses Selling expenses (Credit) (Credit) 1993 Rs. Rs. Rs. Rs. Rs. Rs. Nov 25,000 10,000 2,500 1,100 1,000 600 Dec 30,000 15,000 2,800 1,200 975 650 1994 January 20,000 10,000 2,000 1,250 1,060 550 Feb 25,000 15,000 2,200 1,150 1,040 650 Mar 30,000 17,500 2,400 1,300 1,105 750 Apr 30,000 20,000 2,600 1,350 1,120 800 May 40,000 22,500 2,800 1,450 1,180 825 June 45,000 25,000 3,000 1,500 1,185 875 (1)A sales commission of 5% on sales and due two months after sales is payable in addition to above selling expenses.(2) Capital Expenditure-Plant purchased,1st January for Rs.80,000, payable in two half-yearly installments, the first payable in February.(3)A dividend of Rs.5000(net) is payable at April.(4) Period of credit allowed by creditors and customers is 2 months.(5) Lag in payment of wages- 1/8th of month(6) Lag in payment of other expenses- 1 month(9( Cash balance on 1st January, was expected to be 37,500.

Solution:
Particulars Jan Feb Mar Apr May Jun Total Rs. Rs. Rs. Rs. Rs. Rs. Rs. Opening balance of 37,500 36,275 4,790 8,575 6,595 11,550 cash Receipts received from 25,000 30,000 20,000 25,000 30,000 30,000 1,60,000 customers Total 62,500 66,325 24,790 33,575 36,595 41,550 Less payment 26,175 61,535 16,215 26,980 25,045 27,930 Closing balance of cash 36,225 4,790 8,575 6,595 11,550 13,620 Payments: Paid to creditors 10,000 15,000 16,000 15,000 17,500 20,000 87,500 Wages 2,100 2,175 2,375 2,575 2,775 2,975 14,975 Manufacturing expenses 1,200 1,250 1,150 1,300 1,350 1,450 7,700 Administration expenses 975 1,060 1,040 1,105 1,120 1,180 6,480 Selling and distribution 650 550 650 750 800 825 4,225 expenses Sales 1,250 1,500 1,000 1,250 1,500 1,500 8,000 Purchase of plant 10,000 10,000 Installment payment of building 40,000 40,000 Dividend 5,000 5,000 Total payments 26,175 61,535 16,215 26,980 25,045 27,930 1,83,880

Amount of wages which is being paid actually in various months is calculated as per table given below:
Months Wages for Lag in payment Amount actually paid in the month months of 1/8 month for month 7/8 lag payment Total Dec-93 2,800 350 – – – Jan-94 2,200 250 1,750 350 2,100 Feb-94 2,200 275 1,925 250 2,175 Mar-94 2,400 300 2,100 275 2,375 Apr-94 2,600 325 2,275 300 2,575 May-94 2,800 350 2,450 325 2,775 Jun-94 3,000 375 2,625 350 2,975
QUESTION
27). A department attains sales of Rs 600000 at 80% of its normal capacity. Its expenses are
Office salaries 90,000
General exp 2% of sales
Dep 7500
Rent and rates 8750
Salaries 8% of sales
Travelling exp 2% of sales
Sales office 1% of sales
Gen selling expenses 1% of sales
Wages 15000
Rent 1% of sales
Other exp 4% of sales
Draw flexible budget operating at 90 per cent, 100 per cent and 110 per cent of normal capacity.

Solution

Flexible Budget
80% 90% 100% 110%
Sales 600000 675000 750000 825000
——————————————————————————–
Administration Costs:
Office salaries(fixed) 90000 90000 90000 90000
General exp(2% of sales) 12000 13500 15000 16500
Depreciation 7500 7500 7500 7500
Rent and rates 8750 8750 8750 8750
——————————————————————————–(A) Total Admin Exp 118250 119750 121250 122750
——————————————————————————–
Selling Costs:
Salaries(8% of sales) 48000 54000 60000 66000
——————————————————————————–
Travelling exp(2% of sales) 12000 13500 15000 16500
Sales office(1% of sales) 6000 6750 7500 8250
General expenses(1% of sales) 6000 6750 7500 8250
——————————————————————————–
(A) Total Selling Exp 72000 81000 90000 99000
——————————————————————————–
Distribution Costs:
Wages 15000 15000 15000 15000
Rent 6000 6750 7500 8250
Other exp 24000 27000 30000 33000
——————————————————————————–
(C) Total Dist cost 45000 48750 52500 56250
——————————————————————————–
Total cost (A+B+C) 235250 249500 263750 278000

QUESTION

28). The following data relates to the working of a factory at Wardha for the current year:
Capacity worked, 50%

Fixed costs: Rs Rs
Salaries 84000
Rent 56000
Dep 70000
Other admin exp 80000 290000
——–

Variable costs:
Materials 240000
Labour 256000
Other exp 38000 534000
———-
Possible sales at various levels of working are

Capacity(%) Sales(Rs)
60 950000
75 1150000
90 1375000
100 1525000

Prepare a flexible budget and show the forecast of profit at 60%, 75%, 90% and 100% capacity.

Flexible budget

——————————————————————————————————————————-
60% 75% 90% 100% ——————————————————————————————————————————–
Sales Revenue 950000 1150000 1375000 1525000
—————————————————————————
Less
Materials 288000 360000 432000 480000
Labour 307200 384000 460800 512000
Other exp 45600 57000 68400 76000
——————————————————————————–
(A) Total Var Cost 640000 801000 961200 1068000

Salaries 84000 84000 84000 84000
Rent and rates 56000 56000 56000 56000
Depreciation 70000 70000 70000 70000
Adm exp 80000 80000 80000 80000
————————————————————————
(B) Total fixed cost 290000 290000 290000 290000
____________________________________________________________________________________________________________________

Total cost(A+B) 930800 1091000 1251200 1358000 _____________________________________________________________________________________________________________________
Forecast of profits 19200 59000 123800 167000

QUESTION
29). From the following data, prepare a flexible budget for production of 40000 and 75000 units, distinctly showing variable cost and fixed cost as well as total cost. Also indicate element – wise cost per unit. Budgeted cost per unit is as follows

Direct material 95
Direct labour 50
Production overhead 40
Production overhead(fixed) 5
Admin overhead(fixed) 5
Selling overhead(10% fixed) 10
Distribution overhead 15
Flexible Budget

1,00,000 units 40000units 75000units
________________________________________________________________________________

Direct Material @ 95 9500000 3800000 7125000
Direct labour @ 50 5000000 2000000 3750000
Prod overhead @40 4000000 1600000 3000000
Selling overhead
10*90/100 @ 9 900000 360000 675000
Distribution overhead
15*80/100 @ 12 1200000 480000 900000 —————————————————————————————–
Variable cost 20600000 8240000 15450000 ——————————————————————————————
Fixed cost

Production overhead@5 500000 500000 500000
Admin overhead@12.50 500000 500000 500000
Selling overhead@1 100000 1000000 100000
Distribution overhead@3 300000 3000000 300000
—————————————————————————–
Total fixed cost 1400000 1400000 1400000
—————————————————————————-
Total cost 22000000 9640000 16850000
QUESTION
30). A large retail stores makes 25% of its sales for cash and the remainder on 30 days net. Due to faulty collection practice, there have been losses from bad debts to the extent of 1 % of credit sales on average in the past. The experience of the store tells that normally 60 % of credit sales are collected in the month following the sale, 25% in the second following month and 14 % in the third following month. Sales in the preceding three months have been January 2007 Rs.80,000, February Rs.1,00,000 and March Rs.1,40,000. Sales for the next three months are estimated as April Rs.1, 50,000, May Rs.1, 10,000 and June Rs.1, 00,000. Prepare a schedule of projected cash collection .

Solution:

Statement of expected Cash Receipts

Collection form
Cash sales
Collection from Debtors :
January
February
March
April
May
Total April
37500
8400
18750
63000


127650 May
27,500

10,500
36,350
67,500

1,31,750 June
25,000


14,700
28,125
49,500
1,17,325
Assume that the credit policy is enforced strictly ,what would be the cash receipts.

Cash sales : Debtors
March
April
May
Total 37,500
1,05,000


1,42,500 27,500

1,12,500

1,40,000 25,000


82,500
1,07,500
Forecasts of cash payments: The items of expenditures differ from business to business. The
normal items which come under the lists are :
1. Cash purchases
2. Payment to creditors or suppliers
3. Payments to Bills payable
4. Payment to employees in the nature of wages, salaries
5. Manufacturing, selling and distribution and administration expenses
6. Repayments of bank load and special obligations such as bonus, donations, advances
7. Interest and dividend payments
8. Capital expenditures for acquiring assets of enduring benefit
9. payment of tax liability
10. other expenses of periodic nature
The quantum of amount likely to be spend on the above each item is generally determined with reference to functional budgets of the concerns. The policy of the management will also play a crucial role. It is the policy which determines the ratio of cash purchases and credit purchases.
In many cases, the time lag affects the amount of expenditures to be incurred in a particular period. The formula adopted for the expenses payable in next month is : month’s amount x time lag

QUESTION
31). The following are the forecasts relating to wages and factory expenses.
July Aug Sept Oct Nov
Wages 32,000 32,000 32,000 40,000 32,000
Factory expenses 5,000 5,000 5,000 5,000 5,000
The lag in payment of wages is 1 / 8 month and that in case of factory expenses 1/ 2 month.
Estimate the amounts of wages and factory expenses payable in each month of September to
November.

Solution

Statement showing the disbursements of cash

Particulars
Wages:
Aug 32,000
Sept 32,000
Oct 40,000
Nov 32,000 Sept

4,000
28,000


Oct


4,000
35,000
– Nov



5,000
28,000 32,000 39,000 33,000 Factory expenses
Aug 5,000
Sept 5,000
Oct 5,000
Nov 5,000
2,500
2,500



2,500
2,500



2,500
2,500 5000 5000 5000
QUESTION
32). The following information is provided in respect o DR Ltd. Prepare a Cash Budget for April, May and June 2007.
Months Details Sales Purchases Wages Expenses (in Rupees)
Jan Actual 80,000 45,000 20,000 5,000
Feb Actual 80,000 40,000 18,000 6,000
March Actual 75,000 42,000 22,000 6,000
April Budget 90,000 50,000 24,000 7,000
May Budget 85,000 45,000 20,000 6,000
June Budget 80,000 35,000 18,000 5,000

Additional information:
a. 10 % of the purchases and 20 % of sales are for cash
b. The average collection period of the company is 1 / 2 month and the credit purchases are
paid regularly after one month.
c. Wages are paid half monthly and the rent of Rs.500 included in expenses is paid monthly.
Other expenses are paid after one mo nth lag.
d. Cash balance on April 1, 2007 may be assumed to be Rs.15,000.

Solution
Cash budget for the month ending June 2007

Particulars

RECEIPTS
Opening Balance
Cash Sales
Collection from Debtors
Total , say A April
15,000
18,000

66,000
99,000 May
27,200
17,000

70,000
1,14,200 June
35,700
16,000

66,000
1,17,700 PAYMENTS
Cash purchases
Payments to creditors
Wages
Rent
Other expenses
5,000
37,800
23,000
500
5,500
4,500
45,000
22,000
500
6,500
3,500
40,500
19,000
500
5,500 Total, say B
CLOSING CASH BALANCE, A – B 71,800

27,200 78,500

35,700 69,000

48,700
QUESTION
33). DR is to start production on January 1, 2008. The prime cost of an unit is expected to be Rs.40
(Rs.16 per material and Rs.24 for labor). In addition, variable expenses per unit are expected to be Rs.8 and fixed expenses per month Rs.30,000. Payment for materials is to be made in the month following the purchases. One third of sales will be for cash and the rest on credit for settlement in the following month. Expenses are payable in the month in which they are incurred.
The selling price is fixed at Rs.880 per unit. The number of units to be produced and sold are expected to be: January 900, February 1,200./ March 1,800. April 2,000. May 2,100. June 2,400.
Draw a cash budget indicating cash requirements.
Solution

Cash budget for six months ending 30th June
Particulars Jan Feb March April May June RECEIPTS
Opening balance
Cash Sales
Collection from Debtors

24,000

34,800
32,000
48,000
37,600
48,000
64,000
32,400
53,333
96,000
5,867
56,000
1.06.667
17,600
64,000
1,12,000 Total, say A 24,000 45,200 74,400 1,16,933 1,56,800 1,93,600 PAYMENTS
Creditors
Wages
Variable Expenses
Fixed Expenses

21,600
7,200

30,000
14,400
28,800
9,600

30,000
19,200
43,200
14,400

30,000
28,800
48,000
16,000

30,000
32,000
50,400
16,800

30,000
33,600
57,600
19,200

30,000 Total, Say B 58,800 82,800 1,06,800 1,22,800 1,39,200 1,40,400 Closing balance :
A – B
Debit ( + ) Credit ( )
34,800
37,600
32,400
5,867
17,600
53,200
QUESTION
34). DR wish to approach his Bankers for temporary overdraft facility for the period from June 1 to
August 30th, 2007. During the period of these three months, DR will be manufacturing mostly for stock. Prepare a cash budget for the above period.

Sales Purchases Wages
April 3.60,000 2,49,600 24,000
May 3,84,000 2,88,000 28,000
June 2,.16,000 4,.86,000 22,000
July 3,.48,000 4,.92,000 20,000
Aug 2,.52,000 5,.36,000 30,000

(a) 50 % of credit sales are realized in the month following the sales and remaining in the second following month.
(b) Creditors are paid in the month following the month of purchase
(c) Estimated cash as on June 1 is Rs.50,000

Solution
Cash budget for the period ending 20th august

Particulars JUNE JULY AUGUST RECEIPTS
Opening balance
Collection from Debtors
50,000
3,72,000
1,12,000
3,00,000
94,000
2.82,000 Total, say A 4,22,000 4,12,000 1,88,000 PAYMENTS
Payments to creditors
Wages
2,88,000
22,000
4,86,000
20,000
4,92,000
30,000 Total, say B 3,10,000 5,06,000 5,22,000 Closing Balance A – B 1,12,000 94,000 3,34,000 Overdraft needed NIL 94,000 2,40,000

QUESTION
35).Bombay Textiles Ltd. wishes to arrange overdraft facilities with its bankers during the period April-June 2010 when it will be manufacturing mostly for stocks. Prepare a cash budget for the above period from the following data indicating the extent of the bank facilities the company will require at the end of each month.

a) Period Sales Purchases Wages

February 1, 80, 000 1, 24, 000 12, 000
March 1, 92, 000 1, 44, 000 14, 000
April 1, 08, 000 2, 43, 000 11, 000
May 1, 74, 000 2, 46, 000 10, 000
June 1, 26, 000 2, 68, 000 15, 000

b) 50% of the credit sales are realized in the following month following the sales and the remaining 50% in the second month following. Creditors are paid in the month following the month of purchase.
c) Cash at bank on 1st April is Rs.25000.

Solution
Cash Budget
For the three months ending June 2010

April (Rs.) May (Rs.) June (Rs.)

A) Opening Balance 25, 000 53, 000 (51000)
Receipts 90, 000 96, 000 54, 000
Sales Realizations (WN: 3) 96, 000 54, 000 87, 000

B) Total Receipts 1, 86, 000 1, 50, 000 1, 41, 000

C) Total Cash Available(A+B) 2, 11, 000 2, 03, 000 90, 000

Payments
Purchases 1, 44, 000 2, 43, 000 2, 46, 000
Wages 14, 000 11, 000 10, 000

D) Total Payments 1, 58, 000 2, 54, 000 2, 56, 000

E) Closing Balance(C-D) 53, 000 (51, 000) (1, 66, 000)

Working Notes
1. It has been assumed that wages are paid on the 1st of following month
2. The company will require overdraft facilities to the extent of Rs. 51, 000 at the end of May and Rs. 1, 66, 000 at the end of June.
3. Sales Realization
For April Month, Sales of March
= Rs.1, 92, 000
=50% of the sales
= 50% * (1, 92, 000)
= Rs. 96, 000
For May Month, Sales of April
= Rs. 1, 08, 000
=50% of sales
=50% *(1, 08, 000)
=Rs. 54, 000

QUESTION

36).From the following data prepare a cash budget for the quarter Oct-Dec 2010. Draft a note from the Management Accountant and a Financial Controller to accompany this statement.
a) Sales: Rs.
August 20, 000
September 25, 000
October 30, 000
November 30, 000
December 32, 000
All the sales are on credit. Half of the dues are collected in the month of sale on which a cash discount of 20% is allowed and the other half is realized in the next month.
b) Materials are purchased for cash on which a rebate of 5% offered by the supplier. If the company buys on credit, payment can be deferred by 1 month by foregoing the rebate. The purchase- budget for the next quarter was: October- Rs.12, 500, November -Rs.15, 000 and December -Rs.18, 000
c) The Direct Labour Budget under—
Department A Department B
(Rs.) (Rs.)
October 3, 000 4, 000
November 3, 000 4, 000
December 3, 200 3, 800
d) The Manufacturing overheads budget is given under
Department A Department B Department C
Rs. Rs. Rs.
October 2, 400 1, 550 800
November 2, 400 1, 550 800
December 2, 500 1, 650 900
The above estimates include the quarter’s provisions for department amounting to Rs. 900 for Department A and Rs.750 for Department B.
e) The General Overhead Budget for the quarter was Rs.3, 500 (out of which Rs.200 was Depreciation and Reserve and Rs.300 for Bad Debts Reserve).
f) An old machine was to be replaced with an additional cash outlay of Rs.7, 000 in the month of December.
g) The cash balance on 1-10-2010 may be taken as Rs.15, 000.
Solution
Cash Budget
Period three months ending December 31st, 2010

Details Months October November December Rs Rs. Rs. Cash Receipts Balance b/d 15, 000 15, 425 15, 975 Collection from customers 24, 500 27, 000 27, 800 Total Cash Available 39, 500 42, 425 43, 775 Cash Disbursement: Accounts Payable- Purchase Of Materials 11, 875 14, 250 17, 100 Wages 7, 000 7, 000 7, 000 Manufacturing Overheads 4, 200 4, 200 4, 200 General Overheads 1, 000 1, 000 1, 000 Machine Purchased — — 7, 000 Total Disbursements 24, 075 26, 450 36, 600
Budgeted Cash Balance C/D 15, 425 15, 975 7, 175
Notes:
1. Collection from Customers: October November December
Rs. Rs. Rs.
Collection on current
Month’s sale (1/2 of sale) 15, 000 15, 000 16, 000
Less Cash Discount (20%) 3, 000 3, 000 3, 200
12, 000 12, 000 12, 800
Add other collections
(1/2 of previous month’s sale) 12, 500 15, 000 15, 000

Total 24, 500 27, 000 27, 800

2. Accounts Payable: As sufficient cash is available materials will be purchased for cash to avail of the rebate of 5%.
3. Payrolls: October November December
Direct Labour:
Department A 3, 000 3, 000 3, 200
Department B 4, 000 4, 000 3, 800
Total 7, 000 7, 000 7, 000
4. Manufacturing Overheads: October November December
Rs. Rs. Rs.
Department A 2, 400 2, 400 2, 500
Department B 1, 550 1, 550 1, 650
Factory 800 800 900

Total 4, 750 4, 750 4, 750
Less Depreciation:
Department A 300 300 300

4, 450 4, 450 4, 450
Department B 250 250 250

4, 200 4, 200 4, 500
5. General Overheads
For the quarter Rs.3, 500
Less: Depreciation Reserve 200
Bad Debts Reserve 300
500
General Overheads for 3 months 3, 000

Monthly Overheads 1, 000
QUESTION

36). A factory is running at 50% capacity and produces 5000 UNITS at a cost of rs 90 per unit as per details given below

Material 50
Labour 15
Factory overhead 15(Rs 6 fixed)
Admin overheads 10(Rs 5 fixed)
The current selling price is Rs 100 per unit. At 60% working, material cost per unit increases by 2% and selling price per unit falls by 2%. At 80% working, material cost per unit increases by 5 percent and selling price per unit falls by 2.5%. Prepare a flexible budget showing profits of the factory at 60% and 80 % working.
Solution:
50% capacity, 5000 units 60% capacity, 6000 units 80% capacity, 8000 units per unit Total(lakhs) per unit Total(lakhs) per unit Total(lakhs) Raw material 50 2.50 51 3.06 52.50 4.20 Labour 15 0.75 15 0.90 15.00 1.20 Factory overhead(Rs 9 variable) 09

0.45 9 0.54 09.00 0.72 Admn overheads(Rs 5 variable) 5

0.25 5 0.30 05.00 0.40 1) Total variable cost 79 3.95 80 4.80 81.50 6.52 Factory overhead (Rs 6 fixed) 6 0.30 —- 0.30 —– 0.30 Admn overheads(Rs 5 fixed) 5 0.25 —- 0.25 —– 0.25 2) Total fixed cost 11 0.55 09 0.55 07.00 0.55 3) Total cost(1+2) 90 4.50 89 5.35 88.50 7.07 4) Profit 10 0.50 09 0.53 09.00 0.73 5) Sales 100 5.00 98 5.88 97.50 7.80
1. G.S.Ltd manufactures a single product for which market demand exists for additional quantity. Present sales of R.s 60,000 p.m utilizes only 60% capacity of the plant. Marketing manger assures that with the reduction of 10% in the price he would be in a position to increase the sale by about 25% to 30%.The following data are available:
1) Selling price Rs 10 per unit
2) Variable cost Rs 3 per unit
3) Semi-variable cost Rs 6000 fixed+5o paise per unit
4) Fixed cost Rs 20,000 at present level estimated to be Rs 24000 at 80% output.
You are required to prepare
1) The operating profits at 60%, 70% and 80% levels at current selling price and
2) The operating profits at proposed selling price at the above levels.
Sol:
Statement of cost and profit (at current price)
60% capacity 6000 units 70% capacity 7000 units 80% capacity 8000 units Fixed cost
Semi variable cost: fixed
Variable @50ps perunit

Total cost
Sales

Profit 20000
6000
3000
18000 20000
6000
3500
21000 20000
6000
4000
24000 47000
60000
50500
70000 54000
80000
13000 19500 26000
Statement of cost and profit (at proposed profit)
60% capacity 6000 units 70% capacity 7000 units 80% capacity 8000 units Total cost
Sales@ Rs 9 per unit

Profit 47000
54000
50500
63000 54000
72000 7000 12500 18000

QUESTION

37). Prepare a cash budget for three months ending 30th june 2005from the information given below:-
(a) Month Sales Materials Wages Overheads

February 14000 9600 3000 1700
March 15000 9000 3000 1900
April 16000 9200 3200 2000
May 17000 10000 3600 2200
June 18000 10400 4000 2300

(b) Credit terms are:
Sales and debtors – 10% of sales are on cash, 50 % of credit sales are collected next month and balance in the following month:
Creditors – materials 2 months
Wages 1/4 month
Overheads 1/2 month
(c) Cash and bank balances on 1st April, 2005 is expected to be Rs 6000.
(d) Other relevant information are :
(1) Plant and machinery will be installed in February 2005 at a cost of Rs 96000.the monthly instalment Rs 2000 is payable from april onwards.
(2) Dividend @ 5 % on preference share capital of Rs 200000 will be paid on 1st june.
(3) Advance to be received for sale of vehicles Rs 9000 in June
(4) Dividend from investment amounting to Rs 1000 are expected to be received in june
(5) Income tax to be paid in june is Rs 2000.

Solution:
CASH BUDGET
For three months ending 30th june, 2005
April
Rs May
Rs June
Rs Total
Rs Balance B/F 6000 3950 3000 6000 Receipts-: Sales* 14650 15650 16650 49950 Dividend – – 1000 1000 Adv against vehicle – – 9000 9000 Total 20650 19600 29650 62950 Payments-: Creditors 9600 9000 9200 27800 Wages 3150 3500 3900 10550 Overheads 1950 2100 2250 6300 Instalment for plant 2000 2000 2000 6000 Pref. Dividend – – 10000 10000 Income tax advance – – 2000 2000 Total 16700 16600 29350 62650 Closing balance 3950 3000 300 300
Working notes:-
1) Calculation of collection from debtors:-

February March April May June Sales 14000 15000 16000 17000 18000 Cash sales 1400 1500 1600 1700 1800 Credit sales 12600 13500 14400 15300 16200 50% collection in next month – – 6750 7200 7650 50% collection in following month – – 6300 6750 7200 Total collection – – 13050 13950 14850 Cash sales – – 1600 1700 1800 Cash receipts from sales – – 14650 15650 16650

QUESTION
38). A department of Tek India co. Attains a sales of Rs 600000 @ 80% of its normal capacity. Its expenses are given below:-

Office salaries 90000
General expenses 2% of sales
Depreciation 7500
Rent and rates 8750
Selling cost:
Salaries 8% of sales
Travelling expenses 2% of sales
Sales office 1% of sales
General expenses 1% of sales
Distribution cost:
Wages 15000
Rent 1% of sales
Other expenses 4% of sales
Draw up flexible administration selling & distribution cost budget, operating at 90%, 100%, & 110% of its normal capacity.
Solution
80%
Rs 90%
Rs 100%
Rs 110%
Rs Sales 600000 675000 750000 825000 Administration cost: Office salaries 90000 90000 90000 90000 General expense 12000 13500 15000 16500 Depreciation 7500 7500 7500 7500 Rent and rates 8750 8750 8750 8750 (A) Total admin. cost 118250 119750 121250 122750 Selling cost: Salaries 48000 54000 60000 66000 Travelling expenses 12000 13500 15000 16500 Sales office 6000 6750 7500 8250 General expenses 6000 6750 7500 8250 (B) Total selling cost 72000 81000 90000 99000 Distribution cost: Wages 15000 15000 15000 15000 Rent 6000 6750 7500 8250 Other expenses 24000 27000 30000 33000 (C) Total dist. Cost 45000 48750 52500 56250 Total cost (A+B+C) 235250 249500 263750 278000
QUESTION
39). The manager of repairs and maintenance department in response to a request submitted the following budget estimate for his dept. That are to be used to construct a flexible budget to be used during the coming budget year:
Details of cost planned at 6000 planned at 90000
Direct repair hours direct repair hours
Employee salary 30000 30000
Indirect repair material 40200 60300
Misc. Cost etc. 13200 16800
(a) Prepare a flexible budget for department up to the activity level of 10000 repair hours
(b) What would be the budget allowance at 8500 direct repair hours
(a)
Flexible budget for the period

Direct repair hours 6000
Rs 7000
Rs 8000
Rs 9000
Rs 10000
Rs Employee salary 30000 30000 30000 30000 30000 Indirect material 40200 46900 53600 60300 67000 Misc. Cost : fixed 6000 6000 6000 6000 6000 Variable 7200 8400 9600 10800 12000 Total 83400 91300 99200 107100 115000
(b) Budget allowance for 8500 repair hours
= fixed cost + variable cost for 8500 repair hours
= 36000 + (8500 hrs * 7.90)*
= Rs 103150

Working note:-
(1) Employee salary is fixed cost and thus same at all levels
(2) Indirect repair material is variable cost @ 6.70 per hour
(3) Misc. Cost is semi variable. It is separate into fixed and variable components as follows:
Variable
=difference in cost/ difference in hours
= 16800-13200/9000-6000
= Rs 1.20 per repair hours
Fixed
= 13200-(6000 * 1.20)
= 6000
Total fixed cost = employee salary + Misc. Cost
= 30000+6000
=36000
Total variable cost = indirect material + Misc. Cost
= 6.70 + 1.20
= 7.90 per hour

QUESTION
40). Abc company wishes to arrange overdraft facilities with its bankers during the period of april to june of a particular year when it will be manufacturing mostly for stock. Prepare a cash budget for the above period from the following data, indicating the extent of banking facilities.
a. Month Sales Purchases Wages
February 180000 124000 12000
March 192000 144000 14000
April 108000 243000 11000
May 174000 246000 10000
June 126000 268000 15000

b. 50% of the credit sales are realized in thr month following the sales and the remaining sales in the following second month, creditors are paid in the following month of purchase
c. Cash at bank on 1 april estimated at rs.25000
Soln
Cash budget of ABC company
Particulars April May june a. Cash inflows Collections During month of sale – – – During second month 50% 90000 96000 54000 During third month 50% 96000 54000 87000 Total 186000 150000 141000 b. Cash outflows Purchases 1 month lag 144000 243000 246000 Wages paid same month 11000 10000 15000 Total 155000 253000 261000 Net cash balance 31000 -103000 -120000 Cash at start of month 25000 56000 -47000 Cash balance 56000 -47000 -167000 Overdraft facilities req – -47000 -120000

QUESTION
41). From the following info prepare cash budget of a business firm for the month of april
a. The firm makes 20%cash sales. Credit sales are collected 40%, 30%, 25% in the month of sales, month after and second month after sales. The remaining 5% becomes bad debts.
b. The firm has a policy of buying enough goods each month to maintain its inventory at 2 and 1 and half times the following month’s budgeted sales
c. The firm is entitled to 2% discount on all its purchases if bills are paid within 15 days and the firm avails of all such discounts.
d. Cost of goods sold without considering the 2% discount is 50% of the selling price. The firm record inventory net of discounts.
Sales
January actual – 100000, February actual- 120000, march actual 150000, april budgeted- 170000, may budgeted- 140000
Inventory on march 31st is rs. 225400, cash on march 31st rs. 30000, gross purchases in march rs. 100000. Selling, general and admin expenses budgeted for april rs. 45000 includes rs.10000 depreciation.
Soln
Cash budget for april
Particulars
a. Cash inflows
Balance in beginning
Cash sales 20% of 170000
Collection from debtors
Feb 25% of 96000
March 30% of 120000
April 40% of 136000

Total cash receipts

b. Cash outflows
Payment for purchases
March 100000*98%*1/2
April 29400*1/2
Selling expenses 45000- 10000
Total cash outflows

c. Budgeted cash balance in april Amount
30000
34000
24000
36000
54400
178400
49000
14700
35000
98700
79700
Working notes
Purchase budget for april

Gross Net Desired ending inventory 175000 171500 Add cost of sales in april 85000 83300 Total reqs 260000 254800 Less beginning inventory 230000 225400 Required purchases 30000 29400

QUESTION
42). A large retail store makes 25% of its sales for cash and the remainder on 30days terms. Due to faculty collection practice there have been losses from bad debts to the extent of 1% of credit sales on an average in the past. The experience of the company tells that normally 60% of credit sales are collected in the month following the sales, 25% in the second following month and 14% in the third following month. Sales for jan is rs. 80000, feb rs. 100000, march rs. 140000. Sales for april, may, june are estimated as 150000, 110000 and 100000.
Prepare a schedule of expected cash collections during april, may, june.
Soln
Schedule of cash receipts
Particulars jan Feb mar april May June Total sales 80000 100000 140000 150000 110000 100000 Cash sales 25% 20000 25000 35000 37500 27500 25000 Credit sales 75% 60000 75000 105000 112000 82500 75000 Cash sales 37500 27500 25000 First month following sales 63000 67500 49500 Second month 18750 26250 28125 Third month 8400 10500 14700 Cash inflows 37500 27500 25000 First 63000 67500 49500 Second 18750 26250 28125 Third 9000 11250 15750 Total 128250 132500 118375 QUESTION
43). The Baja company ltd operates a system of flexible budgetary control and you are required to prepare level of activity at 70% 80% and 90%
a. sales based on normal level activity of 70% (350000 units) at rs 200 each. If output is increased to 80% and 90% selling prices are to be reduced by 2.5% and 5% of the original
b. Variable cost are rs 100 per unit (70% is the cost of raw materials). In case output reaches 80% level of activity or above , the effective purchase of raw material will be reduced by 5%
c. Variable overheads : salesmen’s commission is 2% of sales value
d. Semi variable overheads ( total) at 350000 units are rs 1200000: they are expected to increase by 5 % if output reaches a level of activity of 80% and by further 10 % if it reaches the 90% level.
e. total fixed overheads are rs 20000000 which are likely to remain unchanged up to 100% capacity.
The preliminary budget for a company with four departments is as under :
Department Direct ohds allocation Apportioned ohds % Direct labour hours 1 14200 10 60000 2 7200 30 200000 3 16400 20 120000 4 22600 40 150000
It was decided to establish a new department (5) and to re organize the existing departments. The following alterations were agreed to in making a revised budget :
a. A sum of Rs 15000 being additional overheads, will be allocated directly to department (5)
b. Am amount of rs 6600 being overheads will be allocated directly to department (3) will now be transferred to department to department (5)
c. Rs 30000 additional overheads expected to be incurred due to re organization will be apportioned as follows :

Department 1 2 3 4 5
Proportion % 10 20 – 10 60

d. Revised direct labour hours are expected to be :

Departments Hours
1 69600
2 200000
3 100000
4 160000
5 90000
You are required to calculate :
a. The department direct labour hour rates of overheads based on the preliminary budget
b. The department direct labour hour rates of overheads based on the received budget.
c. The overheads chargeable at the revised rates to one unit of product X for which the following hours are spent in each department

Department 1 3 4 5
Hours 6 4 8 3
* A new company commences business on July 1st and deposits rs 10000 in the bank. This sum will be insufficient to finance its operations over a period of six months, and you are asked to prepare a cash budget from July to December to determine the monthly overdraft limits to seek from company bankers.
Data supplied
a. Sales are made to one distributor only on 30 days term. 3% discount and cheques are received on the first date of the month following the due date.
b. Plant purchases totalling Rs 5000 are to be made in July
c. Budget figures are :
July august september October november December Purchases 5000 4000 3000 4000 4000 5000 Wages 4000 5000 4000 4000 5000 4000 Cash exp 400 500 400 400 500 400 Sales 60000 7000 8000 8000 9000 12000
All purchases are made on net 30 days terms and cheques are posted to creditors on the last day.

draw up a production cost budget.
Solution
a. Direct labour hour rates of overheads o9f departments based on the preliminary budget
Departments overheads Direct Labour Direct Labour 4 / 5 Direct allocation Apportioned Total (2 +3) 1 2 3 4 5 6 1 14200 17600 31800 60000 .53 2 7200 52800 60000 200000 .30 3 16400 35200 51600 120000 .43 4 22600 70400 93000 150000 .62 60400 176000 236400 530000
b. departmental overheads rates of departments 1-5 based on the revised budget
departments
Total overheads Adjustments Revised budgets (2 +3)
Revised direct labour Revised labour hour rates 1 2 3 4 5 6 1 31800 +3000 34800 69600 .5 2 60000 +6000 66000 200000 .33 3 51600 -6600 45000 100000 .45 4 93000 +3000 96000 160000 .6 5 39600* 39600 90000 .44 6 236400 45000 281400 619600 *(15000+ 6600+18000)

c. overheads chargeable at the revised rates to one unit of product X
Department Direct labour- hr rate Direct labour – hrs needed Overheads chargeable (2*3) 1 2 3 1 1 .5 6 3.00 2 .45 4 1.80 3 .60 8 4.80 4 .44 3 1.32 10.92
d. total costs (a+b+c) 55.40 63.15 70.8
budgeted loss 5.5 3.15 14.2
flexible Budget of Bajaj Company ltd
Particulars Amount in lakhs Percentage of capacity 70% 80% 90% Sales 700 780 855 Less expenses
A variable cost
Material

245

266

299.25 Other vc @30/unit 105 120 135 Salesman commission2%. 14
364 15.16
401 17.10

451.35 Semi variable 120 126 132 Fixed overhead expenses 200 200 200 Total cost 684 727.6 783.35 Budgetary profit 16 52.4 71.6
QUESTION
44). The royal industries has prepared its annual sales forecast ,expecting to achieve sales of Rs 3000000 next year .the controller is uncertain about the pattern of sales to be expected by the month and asks you to prepare a monthly budget of sales.
The following sales data pertain to the year ,which is considered to be representative of a normal year.
Month Sales Month Sales January 132000 July 260000 February 115000 August 330000 March 100000 September 340000 April 140000 October 350000 May 180000 November 200000 June 225000 December 150000 Prepare a monthly sales budget for the coming year on the basis of the above data.

Solution
Total sales 2500000
Budgeted sales(next year ) 3000000
Budgeted increase in sales 500000

Percentage increase in sales
(Rs 500000/2500000) * 100 20%

Based on this rate of increase ,the monthly sales can be forecast as being 20% higher than for the previous year.
Month Sales forecast Month Sales forecasts January 132000 July 312000 February 138000 August 396000 March 120000 September 408000 April 168000 October 420000 May 216000 November 240000 June 270000 December 180000
QUESTION
45).Readymade textiles ltd makes and sells baby suits .it has brisk sales in the oct-dec period as shown by the following sales budget( in units)
July 5000 oct 8000
August 5000 nov 10000
September 5500 dec 12500
The firm’s normal inventory policy has been to have a 2 month supply of finished product on the hand .the production manager has criticized the policy because it requires wide swings in production ,which ads to costs. he estimates that unit-variable manufacturing cost is Rs 2 higher than normal for each unit produced in excess of 9000 units per month .the finance manager also supports the production manager on this. He estimates that it costs the firm Rs 1.00 per unit per month in ending inventory ,consisting of insurance ,financing, and handling costs. He stresses that these costs are variable.
All the managers agree that the firm should have 22500units on hand by the end of oct. the production manager wants to spread the required production over the four months
1) prepare a production budget for the july-oct following the firms current policy .inventory on the 1st july is 10000 units
2) prepare a production budget using the production managers preference.
3) Determine which budget gives lower costs

Solution
9.10) production budget -current policy (jul-oct)(units)
Month Sales Planned inventory Desired production Closing opening (col.2+3-4) 1 2 3 4 5 July 5000 10500 10000 5500 August 5000 13500 10500 8000 September 5500 18000 13500 10000 Oct 8000 22500 18000 12500 Total 36000 2) the total production for the four months is 36000 units .the production manager wishes to produce an equal amt each month ,so the required monthly production would be 9000 units(36000/4)
3) determination of additional carrying cost due to additional inventory-current policy
July August Sept Oct Opening inventory 10000 14000 18000 21500 Add production 9000 9000 9000 9000 Total units available 19000 23000 27000 30500 Less sales 5000 5000 5500 8000 Ending inventory 14000 18000 21500 22500 Ending inventory(current policy) 10500 13500 18000 22500 Change in inventory increase/(decrease) 3500 4500 (3500) Total carrying cost at the rate of Rs 1 per unit 3500 4500 (3500) Net increase in carrying cost Rs 4500
Calculation of savings in production cost using production manager’s preference
Production for which additional costs are incurred:
Sept-current policy 10000
-revised policy 9000 1000
Oct -current policy 12500
-revised policy 9000 3500
Total 4500
Savings in production cost from revised policy (4500*2) 9000
Net savings (9000-4500) 4500

QUESTION
45) Productions of a factory for the year are as follows
Direct wages 80000
Direct material 1,20000
Product overhead: fixed 40000
Variable 60000

During the forthcoming year it is anticipated that:
a) the average rate of direct labour remuneration will fall from Re 0.80 per hour to Re 0.75 per hour,
b) production efficiency will be reduced by 5%
c) price per unit of direct material and of the other materials and services which comprise overheads will remain unchanged and
d) production in the coming year will increase by 33 1/3 %

Solution
Production cost budget for the next year
Amount Direct wages(140000*0.75) 105000 Direct material : present 120000 Add additional expenses (increase in 1/3 capacity)
40000 160000 Production overhead : fixed 40000 Variable(140000*0.60) 84000 124000 Total production cost 389000
Working notes
determination of direct wages
Direct labour hours (last year) (total wage bill /labour rate per hour )=(Rs 80000 / Re 0.80) =100000.due to decline in efficiency, labor hours to carry out the present volume of production will be more by the 5%,i.e. 105000hours. Since there is an increase in capacity by the one third, Total direct labour hours required during the year would be 105000 + 33 1/3 =140000 hours
determination of variable overheads
Existing variable overheads rate per hour (total variable overheads /no of hours)
= (60000 / 100000) =Re 0.60 per hour
QUESTION
46). In a year, 15 workers are working in a dept. on a single shift basis. Statutory holidays in that year are 18. Normal maintenance requires 250 hrs./ p.m. The capacity utilization during last 5 years.
Labour hour (LHR)
2001: 38,000
2002 : 31,000
2003: 30,900
2004: 26,000

Solution
Maximum capacity = 365 days × 15 workers × 8 hrs p.day = 43,800 LHR
Practical capacity = { 365- (52+18) days } × 15 workers × 8 hrs. p. day – 250 hrs p.m. ×12
= 32,400 LHR
The capacity utilization during last 5 years.
Years
2000 30,000 LHR
2001 38,000 ” (too high)
2002 31,000 ”
2003 30,900 ”
2004 26,000 ” (too low)
Normal capacity of 2005 = (30,000 + 31,000 + 30,900 )/ 3 = 30,633 LHR
*While preparing the budget we consider the normal capacity as budgeted production level
*100% of budgeted capacity always implies the normal capacity.

QUESTION
47).The following overheads expenses relate to a cost center operating at 50% of normal capacity. Draw up a flexible budget for the cost center for operating at 75%,100% and 125% of normal capacity. Indicate the basis upon which you have estimated each item of expense for the different operating levels.
Foremen 60 Assistant foremen 40 Inspector 65 Shop labourers 40 Machinery repairs 100 Defective work 25 Consumable stores 20 Over time bonus – Machinery depreciation 110 Total 460
Solution:
Flexible budget for cost center
Expenses 50% 75% 100% 125% Fixed expenses Machinery depreciation 110 110 110 110 Foremen salaries 60 60 60 60 Inspectors 65 65 65 65 Total 235 235 235 235 Variable expenses Machinery repairs 100 150 200 250 Defective work 25 37.5 50 62.5 Shop labour 40 60 80 100 Consumable stores 20 30 40 50 Total 185 277.5 370 462.5 Grand total 530 512.5 605 697.5

Note: by assuming and segregating the cost according to fixed and variable and there is no semi variable expenses are given.
1. Fixed is always constant amount.
QUESTION
49).The cost of an article at a capacity level of 5000 units is given below. For a variation of 20% in capacity above or below this level, the individual expenses vary as indicated.
Material cost 25000 100% variable Labour cost 15000 100% variable Power 1250 80% variable Repairs and maintenance 2000 75% variable Stores 1000 100% variable Inspection 500 20% variable Depreciation 10000 100% variable Administration overheads 5000 25% variable Selling overheads 3000 50% variable Total 62750 Cost per unit 12.55
Find the unit cost of the product at production levels of 4000 and 6000 units.

Solution:
Estimated cost of production under the following unit capacity

capacity 4000 units [-20%] 5000 6000[+20%] Variable expenses materials 20000 25000 30000 labour 12000 15000 18000 stores 800 1000 1200 Fixed expenses depreciation 10000 10000 10000 Semi variable expense Power 20% fix 250 250 250 Power 80% vary 800 1000 1200 Repair&maintanance 25% fix 500 500 500 Repair&maintanance 75% var 1200 1500 1800 Inspection 80% fix 400 400 400 Inspection 20% vary 80 100 120 Administration 75% fix 3750 3750 3750 Administration 25% va 1000 1250 1500 Selling .O.H 50% fix 1500 1500 1500 Selling O.H 50% vary 1200 1500 1800 Total 53480 62750 72020 Cost per unit 13.37 12.55 12
QUESTION
50).Gemini steel ltd manufactures a single product for which market demand exists for additional quantity present sales of Rs 60000 per month utilizes only 60% capacity of the plant. Marketing manager assures that with the reduction of 10% in the price, he would be in a position to increase the sales by about 25% to 30%.
The following data are available:
Selling price 10Rs /unit
Variable cost 3Rs/unit
Semi-variable cost Rs 6000 fixed + 50 paise per unit
Fixed cost Rs 2000 at present level estimated to be Rs 24000 at 80% output.
You are required to prepare the following statement showing:
a. Operating profits at 60% 70% and 80% levels at current selling price and
b. The operating profits at proposed selling price at the above levels
Solution:
Capacity utilized 60% 70% 80% Number of units 6000 7000 8000 1. -Selling price 60000 70000 80000 – Variable cost[3pu] 18000 21000 24000 – Semi variable [f] 6000 6000 6000 -[v]0.5*no of units 3000 3500 4000 -Fixed cost 20000 20000 24000 Profit 13000 19500 22000 2.Proposed selling price 54000 63000 72000 Expected profit 7000 12500 14000
Note: 1. Selling price = no of units * selling price of each product
2. Proposed selling price=[ no of units * actual selling price-10% which is expected]

CUIM_MBAG_MGMT_ACC_CIA_2

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