Revenue Budget

Product Units
Borolene 5000
Shovolene 4000

Production Budget

Product Sales units

Borolene 5000
Shovolene 4000

Direct Material Production Budget

Material Borolene units required

O 1.5
P 1.75
Q 1

Direct Material Purchase Budget

Material Production Requirement

O 15800
P 16050
Q 7600

Direct Labor Budget

Product Production unit
Borolene 5400
Shovolene 4400

Overhead Budget
Product Production unit
Borolene 5400
Shovolene 4400
 Costing
Borolene
Direct Material Cost 71550
Direct Labour Cost 259200
Prime Cost 330750
Mfg Overhead Cost 324000
Total Cost 654750
Units 5000
Cost/unit 130.95

Value of Opening Stock

Opening Stock
Borolene 1100
Shovolene 800

Value of Closing Stock

Closing Stock
Borolene 1500
Shovolene 1200

P & L account on 31 Mar 2021

Revenue 2000000
Closing stock 404325
Total Income 2404325

Material Cost 129050

Labour Cost 567200
Overhead cost 654000
Opening Stock 282645
Total Expenses 1632895

Net Income 771430

 Price Revenue
240 1200000
200 800000
Total Revenue 2000000

Opening Stock Closing Stock Production

1100 1500 5400
800 1200 4400
Total Units 9800

Borolene Production Total Req for Borolene Shovolene units required Shovolene Production
5400 8100 1.75 4400
5400 9450 1.5 4400
5400 5400 0.5 4400

Opening Stock Closing Stock Procurement Price/unit

1100 1600 16300 4
1200 1300 16150 3
900 1000 7700 2
Direct Material Cost

Hours/unit Rate/hour Total Cost

4 12 259200
5 14 308000
Direct Labor Cost 567200

Hours/unit Rate/hour Total Cost

4 15 324000
5 15 330000
 Overhead Cost 654000

Shovolene Total
55000 126550
308000 567200
363000 693750
330000 654000
693000 1347750
4000
173.25

Cost/Unit Total Cost

130.95 144045
173.25 138600
Value of opening stock 282645

Cost/Unit Total Cost

130.95 196425
173.25 207900
Value of closing stock 404325
Total Req for Shovolene Total Req for Production Price/unit Total Price
7700 15800 4 63200
6600 16050 3 48150
2200 7600 2 15200
39450 Direct Material Cost 126550

Total Price
65200
48450
15400
129050
Month Monthly Forecasted Sales (Rs)
June 500000
July 550000
August 580000
September 590000

cash 70%
redit 30%
May Sales 400000

Sales Budget Schedule

May June July Aug Sep

Sales 400000 500000 550000 580000 590000

Cash Sales 280000 350000 385000 406000 413000

Credit Sales/ Acc Receivables 120000 150000 165000 174000 177000
Total 400000 500000 550000 580000 590000

Cash Collection
Cash 280000 350000 385000 406000 413000
Credit Collection 120000 150000 165000 174000
Total Cash Collected 280000 470000 535000 571000 587000
Bombay Shirts Company uses Egyptian Cotton in the production of shirts . During June 2020 Bombay Shirts
Company purchased and used 6800 square yards in the production of 6200 shirts at a total cost of Rs
3600000 . The standards allows one yard at Rs 680 per yard for each shirt.
You are to calculate material price variance and material usage variance of this operation of Bombay Shirts
Company.
actual price 529.41176471
actual qty 6800
actual price*actual qty 3600000

actual price*actual qty budgeted price*actual qty

3600000 4624000
1024000
price variance
favourable

Total Variance 616000 favourable

hirts . During June 2020 Bombay Shirts
n of 6200 shirts at a total cost of Rs
h shirt.
ance of this operation of Bombay Shirts

budgeted price 680

budgeted qty 6200
budgeted price*budgeted qty 4216000

budgeted price*budgeted qty

4216000
-408000
material usage variance
unfavourable
(a) Funkool Toys, manufactures and sells 16,000 units of Burberry Dolls , in 2019. The full cost per unit is Rs 300.
Yahoo Toys earns a 20 % return on the Investment in the company Rs 20 lakhs in 2019.
(b) Calculate the selling price per unit of the Burberry Doll in 2019.
(c) If the selling price in requirement (a) represents a markup percentage of 37.5% % on variable cost per unit,
calculate the variable cost per unit of Burberry Doll in 2019.
(d) Calculate Burberry Dolls operating income if it had increased the selling price to Rs 330. At this price
Burberry Dolls would have sold 15000 units of Doll. Assume no change in total fixed costs. Should Burberry
Doll increase the selling price to Rs 330?

Units 16000
cost/unit 300
Investment 2000000
ROI 20%

Selling Price Units 16000

Cost 300
Overall Expenses 4800000
ROI 400000
Revenue 5200000
SP per unit 325

Variable Cost
Selling Price 325
mark up 37.50%
Var Cost 236.3636

Fixed Cost
Total Cost 4800000
Total VC 3781818
Total FC 1018182
cost per unit is Rs 300.

variable cost per unit,

Rs 330. At this price

osts. Should Burberry

Case 1 Case 2
Part D

units 16000 15000

price/unit 325 330
Revenue 5200000 4950000
Var Cost 3781818 VC/unit 236.3636 3545455
Contribution 1418182 1404545
Fixed Cost 1018182 1018182
Operating Income 400000 386363.6

Difference 13636.36 Unfavourable

Due to increase in the price, the demand for Burberry dolls has reduced
This affects the operating income in an unfavorable direction.
Hence, the selling price must not be increased to 330
Part A

Rate Variance Rate Variance is the difference between the product of actual labor used and actual labor rate and
(Actual labor used* Actual labor rate - Actual labor used * Budgetd Labor rate)
If it is favorable, it means we have utilized labor cheaply than the budgetd value, thus adding value

Efficiency Variance Efficiency Variance is the difference between the product of actual labor used and budgeted labor
(Actual labor used* budgetd labor rate - Budgeted labor used * Budgetd Labor rate)
If it is favorable, it means we have utilized labor efficiently than the budgetd value, thus adding va

Part B

Standard Costs Standard Costs are the market costs for various activites associated with production planning
They remain the same across the industry in the market and help us prepare a static budget

Expected Costs Whenever there is a market imperfection, there is a possibility of the the standards costs to vary
And when we associate that variance to a particular expectation, we get the expected costs

Part C

Static Budget Variance Static Budget Variance is a part of Level 1 flexible budgeting
This is the difference between the Actual Budget and the Static Budget prepared
Static Budget Variance help us find the surface level favourability of the Budget prepared against t

Static Budget Variance Flexi Budget Variance is a part of Lvele 2 flexible budgeting
This is the difference between the actual budget and the flexi budget in terms of the price and cos
Flexi Budget variance explains the opportunity cost of not using the budgeted price and cost per u
nd actual labor rate and the product of actual labor used and budgetd labor rate

value, thus adding value to operating income

sed and budgeted labor rate and the product of budgeted labor used and budgetd labor rate

d value, thus adding value to operating income

roduction planning
re a static budget

tandards costs to vary

he expected costs

dget prepared against the reality

rms of the price and cost per unit

ted price and cost per unit
 (a)The superintendent of police of Chennai is attempting to predict the costs of operating a fleet of police cars.
Among the items of concern are Fuel Rs 6.0 per kilo metre , and depreciation Rs 10,000 per car per year. The manger
is preparing a flexible budget for the coming year.
Prepare the flexible-budget amounts for fuel and depreciation for each car at a level of 40000, 50000 and 60000 miles.

(b) Madurai Sports Company made 38900 volley ball in a given year . Its manufacturing costs were Rs 267500 variable
and Rs 15000 were fixed costs. Assume that no price changes will occur in the following year and that no changes in
production methods are applicable.
Compute the budgeted cost for producing 46000 basket balls in the next year.

PART A
Fuel 6 per KM VC
Depreciation 10000 per car per year FC

Flexi Budget
Miles 40000 50000 60000
fuel cost/mile 6 6 6
Total fuel cost 240000 300000 360000
Depreciation 10000 10000 10000
Total Cost 250000 310000 370000

PART B
Units 38900
Manufacturing costs 267500 variable
Fixed Costs 15000 fixed
Manufacturing cost/unit 6.8766 282500

Budgeted Cost
Units 46000
Manufacturing cost/unit 6.876607
Total Manufacturing cost 316323.9
Fixed Cost 15000
Total Cost of production 331323.9
ating a fleet of police cars.
r car per year. The manger

00, 50000 and 60000 miles.

ts were Rs 267500 variable

ear and that no changes in
 Budgeted Fixed Costs Per Month Rs 8,00,000
Actual Revenue Rs 17,28,000
Budgeted Selling Price per unit of Output Rs 75.00
Budgeted Variable Costs per unit of Output Rs 35.00
Static Budget in Units 23,000
Actual Units produced and sold. 24,000
Actual Variable Costs Rs 8,64,000

Level 1 Actual Budget

Units 24000
Revenue 1728000
Variable Cost 864000
Contribution 864000
Fixed Cost 800000
Profit 64000

Level 2 Actual Budget Flexi Budget Variance Flexi Budget

Units 24000 0 24000
Revenue 1728000 -72000 1800000
Variable Cost 864000 24000 840000
Contribution 864000 -96000 960000
Fixed Cost 800000 0 800000
Profit 64000 -96000 160000
* red bold numbers represent unfavorble variance

From Level 1 Analysis, we can say that variable cost is creating an unfavorable out come
when more units are produced - may be due to diseconomies of scale. In Level 2 Analysis,
we confirm the above said hypothesis and ocme to a conclusion that by maintaining the
revenue and VC per units, the company would have made profit in the actual sales system
 Static Budget Variance
23000 1000
1725000 3000 favourable
805000 59000 unfavourable
920000 -56000 unfavourable
800000 0
120000 -56000 unfavourable

Sales Volume Variance Static Budget

1000 23000
75000 1725000
35000 805000
40000 920000
0 800000
40000 120000

Actual VC/unit 36 Budgeted VC/unit 35

Actual Revenue/unit 72 Budgeted Revenue/unit 75