Budgetary Control

1. An ice cream manufacturer is in the process of preparing budgets for the next few
months, and the following draft figures are available.

Sales forecast
June 6,000 cases
July 7,500 cases
August 8,500 cases
September 7,000 cases
October 6,500 cases

A case has a standard cost of Rs. 15 and a standard selling price of Rs. 25.
Each case uses 2 1/2 kg of ingredients and it is policy to have stocks of ingredients at the end
of each month to cover 50% of next month's production. There are 5,800 kg in stock on 1
June. There are 750 cases of finished ice cream in stock on 1 June and it is a policy to have
stocks at the end of each month to cover 10% of the next month's sales.
You are required to :
(a) prepare a production budget (in cases) for the months of June, July, August and September;
(b) prepare an ingredients purchase budget (in kg) for the months of June, July, August; and
(c) calculate the budgeted gross profit for the quarter June to August.

2. J K Ltd has recently completed its sales forecasts for the year to 31 December, 2006. It expects to sell two

products --- J and K--- at prices of Rs. 135 and Rs. 145 each respectively.

Sales demand is expected to be :

J 10,000 units
K 6,000 units
Both products use the same raw materials and skilled labour but in different quantities per
unit :
J K
Material X 10 kg 6 kg
Material Y 4 kg 8 kg
Skilled labour 6 hours 4 hours
The prices expected during 2006 for the raw materials are :
Material X Rs. 1.50 per kg
Material Y Rs. 4.00 per kg
The skilled labour rate is expected to be Rs. 6.00 per hour.
Stocks of raw materials and finished goods on 1 January, 2006 are expected to be :
Material X 400 kg @ Rs. 1.20 per kg
Material Y 200 kg @ Rs. 3.00 per kg
J 600 units @ Rs. 70.00 each
K 800 units @ Rs. 60.00 each

All stocks are to be reduced by 15% from their opening levels by the end of 2006 and are
valued using the FIFO method.
The company uses absorption costing, and production overhead costs are expected to be:
Variable Rs. 2.00 per skilled labour hour
Fixed Rs. 315,900 per annum
You are required to prepare for the year to 31 December , 2006 JK Ltd's:
(a) production budget (in units);
(b) raw material purchases budget (in units and Rs.);
(c) production cost budget ; and
(d) Statement showing budgeted gross profit

3. X ltd. produces & markets three products-Chairs,Tables & Benches.The company is interested in
presenting it’s

budget for the quarter ending 31st March 17. It expects to sell 4,200 chairs,800 tables and 500 benches during
the

said period at the selling price of Rs.500,Rs.1000 and Rs.800 per unit respectively.The following information
is

available for the purpose:

Chairs Tables Benches

Timber per unit(in cu. ft.) 0.5 1.2 2.5

Upholstery p.u.(in sq. yds.) 0.25 - -

Carpenter’s time 45 60 75

(minutes per unit)

Fixer & finishers time 15 15 30

(minutes per unit)

Timber costs Rs.200 per cu. ft. & upholstery costs Rs.300 per sq.yd.

Carpenter gets Rs.100 per hour while the fixer & finisher gets Rs.50 per hour.
Inventory levels planned:

Timber Upholestery Chairs Tables Benches

(Cu.ft.) (Sq. Yds.) (Nos.) (Nos.) (Nos.)

Opening 600 400 400 100 50

Closing 650 260 200 300 50

Variable factory overheads are absorbed at 40 % of direct labour costs.

Fixed factory overheads are Rs.30,000 per month to be apportioned on the basis of Direct labour cost of the
products.

Administration and selling overheads are budgeted at Rs.40,000 per month

Required: Prepare the necessary functional budgets in quantities as well as in Rupees.

Present a statement showing :

(i)Variable cost of manufacture per unit of all three products

(ii)Statement of productwise gross profit &

(iii)Budgeted net income statement for the said quarter.

4 .Vardhan Industries manufactures razor blades .It provides the following information with respect to it’s
sales and purchases at the end of December 2016.

Sales (Rs.) Purchases(Rs.)

November 2016 (Actual) 1,00,000 55,000

December 2016 (Estimated) 1,20,000 60,000

January 2017(Forecasted) 1,20,000 60,000

February 2017 (Forecasted) 1,40,000 75,000

 March 2017 (Forecasted) 1,40,000 75,000

 20 % of sales are expected to be cash sales. The credit terms are 2/20 net 30. About 40 %
customers are expected to take benefit of the cash discount incentive.No bad debt losses are
expected
 Suppliers offer one month credit.
 Rs.5000 is expected as interest on investments in March 2017.
 Wages and manufacturing expenses per month are expected to be 10 % of sales whereas
administration and selling expenses (fixed) are expected to be 20,000 per month ,both payable in
the same month ,in addition to 5 % commission on sales payable in the month following the month
of sale.
 Loan taken of Rs. 50,000 is due for repayment in January 2017.
 Certain loose tools costing Rs.23,000 are proposed to be purchased in February 2017 for cash.
 Opening cash balance is Rs.25,000.It is the policy of the company to maintain a minimum cash
balance of Rs.20,000 at the end of every month . Deficit ,if any, needs to be financed by short term
loans at 10 % p.a. , to be borrowed in multiples of Rs.1000. Interest is payable at the end of every
quarter.
 The management wishes to repay the loan taken ,if any, as early as possible.

From the above information prepare a cash budget for the period January to March 2017

5. The following data and estimates are available for ABC Ltd for June, July and August:
June July August
Rs. Rs. Rs.
Sales 45,000 50,000 60,000
Wages 12,000 13,000 14,500
Overheads 8,500 9,500 9,000
The following information are available regarding direct materials:
June July August September
Rs. Rs. Rs. Rs.
Opening stock 5,000 3,500 6,000 4,000
Material usage 8,000 9,000 10,000
Notes:
(1) 10% of sales are for cash, the balance is received in the following month. The amount
received in June for May's sales is Rs. 29,500.
(2) Wages are paid in the month they are incurred.
(3) Overheads include Rs. 1,500 per month for depreciation. Overheads are settled in the
following month. Rs. 6,500 is to be paid in June for May's overheads.
(4) Purchases of direct materials are paid for in the month purchased.
(5) The opening cash balance in June is Rs. 11,750.
(6) A tax bill of Rs. 25,000 is to be paid in July.

You are required to:

(a) calculate the amount of direct material purchases in each of the months of June, July and
August;
(b) prepare cash budgets for June, July and August;

6.The following details are available for the production of 8000 units in the year 2019. Prepare budget for 10,000
and 12,000 units for 2020.
Rs.
Materials 40,000
Wages 30,000
Factory expenses (20 % fixed) 20,000
Administration 40,000
expenses(fixed)
Selling expenses 30,000

1. For the next year material cost is likely to go up by 2 % per unit.

2. Wages are paid at piece rate of Rs.3 per unit in addition to fixed benefits. The fixed benefits paid to labour
are likely to go up by 10 % in the next year.
3. Administration expenses may go up by 5 % due to normal increment, etc.
4. Selling expenses rise by 5 % against increase of 20 % or any part thereof above 8000 units. Selling price is
to be reduced by 10 %, if production above 10,000 units is to be sold.