FLEXIBLE BUDGETS:
1. The expenses budgeted for production of 10,000 units
in a factory are furnished below
Per unit .Rs.
Materials
70
Labour
25
Variable factory overheads
20
Fixed factory overhead (Rs. 1,00,000)
10
Variable expenses (Direct)
5
Selling expenses (10 % Fixed)
13
Distribution expenses (20 % Fixed)
7
Administrative expenses (Rs. 50,000)
5
Total cost of sale per unit
155
You are required to prepare a budget for the production of
8,000 units.
2. Prepare a flexible budget for overheads on the basis of
the following data. Ascertain the overhead rates at 50
%. 60 % and 70 % capacity.
At 60%
Capacity
Rs
Variable Overheads:
Indirect Material
3,000
Indirect labour
9,000
Semi-Variable overheads:
Electricity (40% Fixed & 60% Variable )
15,000
Repairs (80% fixed & 20% Variable)
1,500
Fixed overheads:
Depreciation
8,250
Insurance
2,250
Salaries
7,500
Total Overheads
46,500
Estimated Direct Labour hours
93,000
3. The Cost Sheet of a Company based on a budgeted volume of
sales of 3,00,000 units per Quarter is as under:
Rs. Per unit
Direct materials
5.00
Direct wages
2.00
Factory overheads ( 50 % fixed)
6.00
Selling and Administrative overheads (variable)
3.00
Selling Price
18.00
When the budget was discussed it was felt that the company
would be able to achieve only a volume of 2,50,000 units of
production and sales per Quarter.
The Company therefore decided that an aggressive sales
promotion campaign should be launched to achieve the following
improved operations:
Proposal I:
(a) Sell 4,00,000 units per quarter by spending Rs. 2,00,000 on
special advertising
(b) The factory fixed costs will increase by Rs 4,00,000 per Quarter
Proposal II :
(a) Sell 5,00,000 units per Quarter subject to the following
conditions
(b) An overall price reduction of Rs. 2 per unit is allowed on all
sales
(c) Variable Selling and Administration costs will increase by 5 %
(d) Direct Material costs will be reduced by 1 % due to purchase
price discounts
(e) The fixed factory costs will increase by Rs. 2,00,000 more
You are required to prepare a Flexible Budget at 2,50,000 units,
4,00,000 units and 5,00,000 units of output per quarter and calculate
the profit at each of the above levels of output.
4. ABC Ltd is currently operating at 75% of its capacity. In the past
two years, the levels of operations were 55% and 65%
respectively. Presently the production is 75,000 units. The
company is planning for 85% capacity level during 2013-14. The
cost details are as follows:
55%
65%
75%
Rs
Rs
Rs
Direct materials
11,00,000
13,00,000
15,00,000
Direct labour
5,50,000
6,50,000
7,50,000
Factory overheads
3,10,000
3,30,000
3,50,000
Selling overheads
3,20,000
3,60,000
4,00,000
Admin overheads
1,60,000
1,60,000
1,60,000
Total
24,40,000
28,00,000
31,60,000
Profit is estimated @ 20% on sales.
The following increases in costs are expected during the year:
In percentage
Direct materials
8
Direct labour
5
Variable Factory Overheads
5
Variable selling overheads
8
Fixed factory overheads
10
Fixed Selling overheads
15
Administrative overheads
10.
Prepare a flexible budget for the period 2013-14 at 85% level of
capacity. Also ascertain profit and contribution.
CASH BUDGET:
1. Prepare a cash budget for the months of April to September 2012
from the following information given below:
Months
Estimated
Estimated
Wages
sales(Rs)
Purchases
(Rs)
(Rs)
March
40,000
20,000
7,000
April
50,000
30,000
8,000
May
30,000
50,000
6,000
June
50,000
60,000
5,000
July
60,000
30,000
7,000
August
70,000
30,000
6,000
September
40,000
20,000
8,000
Additional Information:
i)
Overheads to be incurred each month Rs 3,000
ii)
Period of credit allowed by supplier’s is one month
iii)
Period of credit allowed to customers is one month
iv)
Estimated sales constitute 50% of credit sales
v)
Company is planning to purchase a machinery for Rs 60,000
to be paid in three equal instalments from June onwards
vi)
Cash balance on 1st April 2012 Rs 6,000.
vii) Management policy to meet deficiency of cash stands as :
a) Upto Rs 25,000 loans from banks
b) Exceeding Rs 25,000 with the issue of debentures.
2. Prepare a cash budget for the six months from January to June from
the following estimated revenue and expenditure:
(in Rupees)
Months
Sales
Purchases Wages Factory
Distribution
overheads overheads
January 36,000
35,000
6,000
3,000
1,800
February 42,000
30,000
7,000
3,500
2,000
March
46,000
28,000
8,000
2,000
2,200
April
40,000
20,000
9,000
2,200
2,200
May
32,000
35,000 10,000
2,500
2,400
June
44,000
30,000 11,000
3,000
2,400
Additional information:
i)
Cash balance on 1st January was 30,000
ii)
Sale commission @10% on total sales to be paid within the
month following actual sales
iii)
Delay in payment of wages ½ month
iv)
Delay in factory overheads and distribution overheads one
month.
3. From the following particulars of a firm, prepare a cash budget for
the six months January –June.
Balance sheet as on December 31
Liabilities
Amount Assets
Amount
Share capital
10,000 Cash
16,000
reserves
90,000 Accounts receivable
10,000
Inventory
49,000
Fixed assets 30,000
Less :Dep’n
5,000
25,000
1,00,000
1,00,000
2. Sales Forecast
January
February
March
20,000 April
40,000 May
50,000 June
July
60,000
90,000
50,000
10,000
3.Salary expenses
January
3,000 April
9,000
February
5,000 May
11,000
March
7,000 June
6,000
4.
Monthly Selling and distribution expenses are expected to be
10% of sales. Depreciation charges are 1 percent per month.
5.
The firm operates on the following terms:
a) Sales are on a 30-day basis. But payments are not received
until the following month
b) All purchases of the firm are in cash
c) The firm purchases enough inventory each month to cover
125% of the following month’s sales. The firm has a policy of
maintaining 20% gross profit margin on sales.
d) A minimum cash balance of Rs 10,000 is to be maintained.
6. New equipment purchased for Rs 5,000 is scheduled for delivery
on March 1 against payment.
7. Indicate the amount of borrowings required to meet the cash
shortfall.
4. The following information is available in respect of a firm:
Balance sheet as on August 1
Liabilities
Amount Assets
Amount
Share capital
59,200 Cash
5,100
Accrued wages
Other liabilities
1.
a)
b)
600 Accounts receivable
2,000 Inventory
Fixed assets 20,000
Less :Dep’n
4,000
61,800
14,700
26,000
16,000
61,800
Assume:
Sales are 40 percent against cash and 60 percent on credit
Of the credit sales, 75% are collected in the first month
following sales and 25 percent second month following sales.
c)
All inventory purchases are paid for during the month in which
they are made.
d)
A basic inventory of Rs 10,000 (cost) is constantly maintained
and the firm follows a policy of purchasing enough additional
inventory each month to cover 1.25 times the following
month's sales. Its gross profit margin is 20% on sales.
e)
A minimum cash balance of Rs 2,000 is to be maintained by
the firm
f)
Accrued wages and the other current liabilities remain
unchanged.
2
Past Sales : June 18,000 , July 20,000.
3.
Sales budget :
August
20,000
November 40,000
September 26,000
December 50,000
October
24,000
January
18,000
February 16,000
4. Monthly expenses:
a) Wages & Salaries Aug 1,400
Nov 2,000
Sep 1,600
Dec 3,000
Oct 1,600
Jan 1,400
b) Rent Rs 400 per month
c) Depreciation Rs 150 per month
d) Other expenses; 1 percent of sales
Prepare a Cash budget for the six months period August to January
also indicating the maximum amount of borrowings.
5. From the following information, prepare a cash budget of a
company for four quarters of a year:
(amt in Rs)
st
nd
Particulars
1
2
3rd
4th
Quarter
quarter
quarter
quarter
Opening cash balance
10,000
Collections from customers
1,25,000 1,50,000 1,60,000 2,21,000
Payments:
Purchase of materials
20,000
35,000
35,000
54,000
Other expenses
25,000
20,000
20,000
17,000
Salaries & wages
90,000
95,000
95,000 1,09,200
Income tax
5,000
---Purchase of machinery
---20,000
a) The company desires to maintain a cash balance of Rs 15,000 at
the end of each quarter.
b) Cash can be borrowed at an interest of 10% pa in multiples of Rs
500; and when it will be repaid, the same too to be made in multiples
of Rs 500 only.
c) Management does not want to borrow cash more than what is
necessary and wants to repay as early as possible. In any event,
loan cannot be extended beyond the four quarters.
d) Interest is computed and paid once the principal is repaid. Assume
that borrowings take place at the beginning of the quarter and
repayments are made at the end of the quarter.
6. Prepare a cash budget for the 3 months ending 30 June 2018
from the following information.
(Amt in Rs)
Months
Sales
Materials
Wages
Overheads
February
14,000
9,600
3,000
1,700
March
15,000
9,000
3,000
1,900
April
16,000
9,200
3,200
2,000
May
17,000
10,000
3,600
2,200
June
18,000
10,400
4,000
2,300
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)
10% of the sales are in cash
Credit terms are :
Debtors: 50% of Credit sales are collected next month and the
balance in the following month.
Creditors: Materials – 2 months ;
Wages-- ¼ month
Overheads – ½ month
Plant & Machinery will be installed in February 2018 at a cost of
Rs 96,000. The monthly instalment of Rs 2,000 is payable from
April onwards.
A dividend @5% on Preference capital of Rs 2,00,000 will be
paid on 1st June.
Advance to be received for sale of vehicles of Rs 9,000 in June
Dividend from investments amounting to Rs 1,000 is expected
to be received in June
Income tax (advance) to be paid in June Rs 2,000
Cash & Bank Balance on 1st April 2002 is expected to be Rs
6,000.
XXX
Functional Budgets:
Sales, Production and Purchases/Production cost budgets
1. Blue diamond market had a total consumption of 80,000 units of a product
during the year ending 31st Dec 2012. The market was served by two
manufacturing units – Belee Ltd and Nelee Ltd enjoying a market share of 40%
and 60% respectively.
You are required to prepare a sales budget of Nelee Ltd for the year showing
cost of production and gross profit by calendar quarter on the information given
below:
a) The total consumption is expected to go up by 20,000 units.
b) Two other firms are expected to enter the market and as result 10%
reduction is expected in the market share of Nelee Ltd.
c) Fifty percent sales of the firm will probably be evenly divided between the
first and last calendar quarters of the year, with twice as many sales being
made in the second quarter as in the third quarter and,
d) The estimated selling price per unit of the firm is Rs 20 with the following
cost details:
Direct materials
Rs 8
Direct wages
Rs 4
Variable overheads
100 percent of direct wages
Fixed overheads
Rs 80,000
2. Super sweet company manufactures two products Y and Z and request you to
prepare production budget and materials cost budget from the following
information furnished below:
a) Sales division reports that the demand for Y and Z products of the company
during the budget period will be:
Budget period
Products
Y (units)
Z (units)
Quarter 1
12,000
20,000
Quarter 2
10,000
23,000
Quarter 3
13,000
10,000
Quarter 4
15,000
12,000
Total
50,000
65,000
b) The department of production submitted the following details of raw
materials and its estimated cost:
i)
Product Y requires 2 units and 3 units of material A and B
respectively
ii)
Product Z requires 3 units and 1 unit of material A and B respectively.
iii)
The estimated cost of material A and B is Rs 6 and Rs 3 per unit
respectively.
c) The desirable balance of stock at the commencement and at the end of
quarters are :
i)
Finished stock:
Quarter
Opening Balances
Closing balances
Products
Y (units)
Z (units)
Y (units)
Z (units)
I
2000
1200
1300
2200
II
1100
1800
1500
1700
III
3200
2200
1000
2000
IV
1800
1700
800
1400
ii)
Quarter
I
II
III
IV
Raw materials:
Opening Balances
Y (units)
6000
5400
7000
3500
Closing balances
Products
Z (units)
Y (units)
Z (units)
12000
5000
3000
8000
7000
6000
11000
6500
5000
7000
4000
4000