VISWANADHAM BULUSU SMA -ABS 9866666655

Business budgets and budgetary control

The following are the some of the important functional budgets:
Sales budget, production budget, raw material purchase budget, cash budget, overhead budget
and human resources budget etc.
Capacity budgets: fixed budget and flexible budget.
 Production budget = sales budget + desired closing stock – existing opening stock.
 Raw material purchase budget = raw material required for production budget + desired
closing stock – existing opening stock.
 Cash budget = opening cash balance + estimated cash receipts – anticipated cash
payments.
NOTE: - Budget should be prepared based on previous budget by taking into consideration the
anticipated changes.
#1) Aaryan LTD. has 3 products X, Y & Z and sells them through 3 divisions north, south and
west.
Current year’s performance and anticipations are as given below:
Division Budget Actual Increase in sales estimates
By div. manager Due to intensive
(As a % on sales) advertisement
X Y Z X Y Z X Y Z X Y Z
North 1,520 1,800 1,650 1,620 1,300 1,500 10% 10% 5% 150 60 60
South 1,250 750 2,050 1,380 800 1,700 5% 5% 10% 24 100 ---
West 1,750 800 600 2,000 700 800 5% 10% 15% 6 105 70
Selling price per unit product X Rs. 12, Y Rs. 8 and Z Rs. 10. It is estimated that price of the
product is required to increase by Re.1; price of product is to be reduced to Rs. 7 and that of Z is
properly priced. Prepare sales budget for the forth coming year.

#2) Raj co. plans to sell 1,08,000 units of a certain product in qrt.1, 1,20,000 units in qrt2,
1,32,000 units in qrt.3, 1,56,000 units in qrt4 and 1,38,000 units in the qrt.1 of the following
year. At the beginning of the quarter 1 is 18,000 units of product in stock. At the end of each
quarter the company plans to have an inventory equal to 1/6th of the sales of the next quarter.
Prepare a production budget.

#3) Prepare a production and production cost budget for the six months ended 31 December
2004. Units to be sold in July - 1,100, August – 1,100, September – 1,700, October – 1,900,
November – 2,500, December – 2,300, and in January, 2005 – 2,000 units. Finished units equal
to half of the next month sales should be maintained at the end of each month.
Budgeted production and production cost for the year ended 31st December 2004 is production
22,000 units, material Rs.10 per unit, wages Rs. 4 per unit and total factory overhead
apportioned to the product is Rs. 66,000.

#4) Sales director of a manufacturing company reports that next year he expects to sell 54,000
units of a certain product. The production manager consults the store keeper and costs the

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figures as given: two kinds of raw materials are used in manufacturing the product. Each unit
requires 4 units of material A and 6 units of material B. the expected opening balances at the
commencement of the next year are finished product 10,000 units, material A 24,000units and
material B 30,000 units. The desired closing balance at the end of the next year are finished
product 14,000 units, material A 13,000 units and B 16,000 units. Draw a material budget.

#5) Ram co. manufactures products X & Y. During the year ended December 2004 it is
estimated to sell 30,000 Kg of Product X at Rs. 15 and 1,50,000 Kg of Y at Rs. 8 per kg. The
materials P, Q & R are mixed in the proportion of 3:5:2 in a Kg to manufacture X product per Kg.
Material Q & R are mixed in the proportion of 1:2 in a Kg for product Y per Kg.
The budgeted inventories are: material P – Opening 4,500, closing 3,000, Q – opening 3,000,
closing 6,000, material R – opening 4,000, closing 9,000, Product X – opening 3,000, closing
1,500 and product Y – opening 4,000 and closing 4,500. The costs per Kg of material P Rs.12, Q
Rs.10 & R Rs.8. prepare a material cost budget.
#6) Prepare selling overhead budget from the details given below:
Qrt. Total sales salesmen Mail 1) Sales men receive a commission of 5% on sales
(Rs) Order order they obtain them and 3% on mail orders.
1 15, 00,000 80% 20% 2) Dispatch and billing expenses at 5% on sales
2 18, 00,000 70% 30% 3) Salesmen salary 36,000 p.a. and travelling
3 20, 00,000 50% 50% expenses 40,000 p.a. which are paid evenly
4 17, 50,000 80% 20% through the year.
4) Advertising 1, 00,000 of which 50% for Qrt.2, 30% for Qrt.3 and the balance for Qrt.4.
#7) Based on the following information of Aaryan Ltd. prepare cash budget.
Particulars Q1 Q2 Q3 Q4
Opening balance 20,000 - - -
Collections from debtors 1,50,000 3,00,000 3,20,000 4,42,000
Payments to creditors 40,000 70,000 70,000 1,08,400
Miscellaneous expenses 50,000 40,000 40,000 34,000
Salaries 1,80,000 1,90,000 1,90,000 2,18,400
Income tax 10,000 - - -
Purchase of machinery - - - 40,000
The company desires to maintain a minimum cash balance of Rs. 15,000 at the end of each
quarter. Cash can be barrowed or repaid in multiples of Rs.500 at an interest of 10% p.a. but
the interest to be paid when the principle is paid.

#8) The direct labour requires of three of the products are estimated as follows:
Operation Hourly Products (Time in minutes)
Rate (Rs) 1 2 3
1 2.00 18 42 30 The factory works 8 hrs a day and 6 days in
2 2.50 -- 12 24 a week. The budgeted quarter contains 13
3 3.00 9 6 -- weeks of which 124 hrs estimated to be
Budgeted sales 9,000 15,000 12,000 lost due to leave and holidays. Prepare
Opening stock - 5,000 4,000 a man power budget showing direct labour,
Closing stock 1,000 --- 2,000 direct labour cost and number of workers.

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#9) you are required to prepare a flexible budget at 70%, 80% & 90% capacity from the details
given below and also calculate the overhead recovery rate.
At 80% capacity: variable expenses are indirect labour Rs. 12,000 and stores Rs. 6,000.
Fixed expenses are Depreciation Rs. 10,000, insurance Rs. 6,000 and salaries Rs. 20,000.
Semi – variable expenses are Power Rs. 40,000 (30% fixed), repairs and maintenance Rs. 4,000
(60% fixed). Estimated direct labour hours are 1, 24,000.
#10) The expenses are estimated per unit at 10,000 units of production:
Material 60, labour 40, variable expenses 15, fixed expenses 30, direct expenses 5, selling
expenses 30 (10% fixed) administrative expenses 5, and Distribution expenses 10 (20% fixed).
Prepare a budget for 6,000, 7,000 & 8,000 units showing the costs as marginal, fixed and total
cost. Also show the profit at various levels and advise it the selling price per unit is Rs. 230.
#11) The following data related to a manufacturing company for 6 months ended December
2005. At 50% capacity (Rs. in Lakhs):- Fixed expenses: wages and salaries 8.4, rent rates and
taxes 5.6, depreciation 7 and administrative overhead 8.9. Variable expenses: material 24
labour 25.6 and other expenses 3.8. Semi – variable expenses: repairs 2.5, indirect labour 9.9,
sales department salary 2.9 administrative overhead 2.6. It is estimated that the semi variable
expenses remains constant between 45% - 65% of capacity, increase by 10% between 65% –
80% capacity and by 20% between 80% - 100% capacity. Sales at various levels are: 50%
capacity – 85 Lakhs, 60% capacity- 100 Lakhs, 75% capacity – 120 Lakhs, 90% capacity – 150
Lakhs and 100% capacity – 170 Lakhs. Prepare budget at above capacities. (ICWAI)
#12) A factory is currently running at 50% capacity and produce 5,000 units at a cost of Rs. 90
per unit as material Rs. 50, labour Rs. 15, factory overhead Rs. 15 ( Rs. 6 fixed), AOH Rs. 10 (RS.
5 Fixed) and selling price Rs. 100.
At 60% capacity material cost per unit increases by 2% and selling price per unit falls by 2%. At
80% capacity material cost per unit increases by 5% and selling price per unit falls by 5%.
Estimate the profit at 60% and 80% working and offer you comment.
#13) The following details related to Aalekhya LTD.
Particulars Q1 Q2 Q3 Q4 Raw material required per unit 2 Kg
Working days 65 60 55 60 Op. stock of R.M. 4,000Kg (cost Rs. 4,000)
Production per day 100 110 120 105 Cl. Stock of R.M. 2,000 Kg.
R.M. purchased (% by Issues are priced on FIFO basis.
weight of annual total)30 50 20 ----
R.M. cost per Kg. (Rs.) 1.00 1.05 1.125 ----
Calculate: A) quarterly and annual purchase of raw material by weight and value.
B) closing quarterly stock by weight and value. (ICWAI inter)
#14) A manufacturing firm is currently operating at 60% capacity. At this level of operation the
following cost details are given below:
Variable expenses: indirect material 63,000, indirect labour 45,000 and others 21,600.
Semi – variable expenses: maintenance expenses 36,000(60% fixed), electricity 18,000(40%
fixed). Fixed expenses: AOH 81,000 rent 18,000, depreciation 54,000 and insurance 27,000.
Prepare a flexible budget for 50%, 75%, 90% and 100% levels of capacity of operation. At 60%
capacity the available labour hours are 2,10,000. (OU, MBA – March 2004)
#15) The following relation ship pertaining to this year budgeted activity Falcon crisp Ltd.

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What are budgeted fixed cost for the year? The total cost is 1,29,000 and 1,54000 at a direct
labour hours of 3,00,000 and 4,00,000 respectively. (MBA, OU March 2000).
#16) The manager of a repairs and maintenance department in response to a request,
submitted the following budgeted estimates for his department that are to be used to construct
a flexible budget to be used during the coming budget year. (MBA, OU 2003)
Details of cost direct repair hours a) prepare a flexible budget for the
6,000hrs 9,000hrs department upto 20,000 repairs hrs.
Salaries 30,000 30,000 (use increment of 1,000 hrs)
Indirect repair material 40,200 60,300 b) what would be the budget
Misc. cost 13,200 16,800 allowance at 8,500 labour hrs.
#17) A glass manufacturing company requested you to prepare a master budget for the next
year. Sale of product X Rs. 6,00,000, Product Y Rs. 10,00,000, direct material at 60%, direct
wages for 20 workers at Rs. 150 per month each. Indirect labour – works manager salary Rs.
1,000 P.M., foremen Rs. 800 P.M., stores and spares 2.5% on sales, depreciation on machinery
Rs. 12,000, light and power Rs. 5,000, repairs and maintenance Rs. 8,000, other sundries are at
10% on wages, administrative expenses Rs. 10,000P.a., SOD Rs. 18,000P.a.

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