Control 159

and Budgetary
Budgeting
stration15,

ashi Ltd. plans the 1,08,000 units;

1,20.000 units:following estimates regarding quarter
quarter Third mates regarding productions-First
and 1,S8,000
irst quarter
First of the rter1,32,000 units; Fourth quarter 1,56,000 units
n's
inthe

e 18.000
following
units of product
18.000units inin ear. beginning of the First quarter of the
year. At the beg
current year,

nlal to one-sixth of the salesAstock t the end of each quarter, the company plans to0 have an
for the next
ate a production budget quarter.
Golution
estimating production unit.
the nits of every arter.

PRODUCTION BUDGET
(Production in units)
Particulars First Second Third Fourth Total
quarter quarter quarter quarter
Sales budget Rs. Rs. Rs. Rs. Rs.
l Closing stock at the 1,08,000 L,20,000 1,32,000 1,56,000 5,16,000
Hd:
end of each quarter
(Being 1/6 or the sale of next
quarter) 20,000 22,000 26,000 23,000 91,000
Less: Opening stock
Total 1,28,000 1,42,000 1,58,000 1,79,000 6,07,000
Estimated or budgeted 18,000
20,000 22,000 26,000 86,000
llustration 16.
production 1,10,000 1,22,000 1.36,000 1,53,000 5,21,000
As per sales budget the
budgeted sales for the year 2010-1 l
EY,The normal loss in production is 5%. are 41,000 units of
Estimated stock of X and 30,000 units
Opening stock
X-8,500 units; Y-5,000 units production forecast should remain as
Closing stock
X-15,000 units;
Prepare production budget forecast for Y-13,000 units
2010-11.
Solution

PRODUCTiON BUDGET
Particulars Units *
X Total
Sales requirements Rs. Rs.
Rs
Add: Closing stock forecast 41,000 30,000 71,000
15,000 13,000 28,000
Total 56,000 43,000
Less: Opening stock forecasts 99,000
8,500 5,000
Net production requirement 13,500
47,500 38,000 85,500
Add: Normal Loss being 5% of Total or 5/95 of Net
2,500 2,000 4,500
Total production 50,000 40,000 90,000
i) Production budget-Production budget pre-estimation of the factory cost or cost
cost cost is a
ofproduction of the budget production. Production targets are fixed by the sales budget and the
production
budget. For production cost budget, the production targets are the same as has been set by the production
budget. Production cost budget is the combination of the following four budgets
(a) Material budget,
(b) Labour budget;
(c) Production overheads budget; and
(d) Plant utilisation budget.
160 Cost Accounting
of all ma
budget, first of
preparing production budget, cost
al
(a) Material budget-In the process of of
shows estimated requirement made
materials needed
thein overheads for ththe
prod tion material
uget is prepared. This budget materials are dget.
budget. Foll
Following pre.
for indirect
during the budget period. Estimates

estimations are made in this budget : direct materials for production of

of different
of different
() Estimation of the requirement
commodities.
of each of the direct materiale
of opening and closing stock
(2) Estimation of the quantity
material.
for the purchase and receipt of direct
(3) Time period of direct materials.
for purchase of required quantity
Financial requirements
(4)
direct material budget 16
tne
estimation of quantity of
The main problem arising
in preparing while estimating the quantitu
oeec
into consideration
factors should be taken
material. Following
materials requirements for the
material budget is ascertained on the basio
material--Required budgeted quantity of per
(1) Required quantity of show the per unit requirements. Budae
concern will
unit material consumption.
Past records of the and, thus, total quantity of mas
unit material consumption al
of production will be multiplied by per

required will be estimated. Hence, conSumption

Estimate units toPerunit
Estimated quantity of of direct nmaterials
materials rquired be produced
in store and some in
material is wasted
procec.

materials-Generally, some of
(2) Wastage of the quantity of materials wac
materials required sted
the estimated quantity of
production. For determining the basis of past records.
units can be estimated on
will have to be deducted waste of materials, stock position of
the required quantity the
(3) Stock position-While estimating be estimated as per past records
.On
concern should be studied. The minimum and
maximum level stock of
materials can be estimated.
this basis the opening and closing stock of
of materials, the time gap between
the required quantity
(4) Supply time-While estimating be studied. Material in stock should h
of the materials should
placing an order and receipt of the supply stock.
the minimum level of
becomes less than
kept in such a way that it never In every market there is
conditions should also be studied. a time
(5) Price tendencies--Market iun
down and at sometime due to shortage of supply prices g0
when due to heavy supply the prices
go
at a time of low prices provided the
should be drafted in such a way that material is purchased
Budget plan It this is the position, then, maximum
concern has enough funds to purchase
and enough space to store.
level of stock should be kept acco dingly.

Material budget may be divided into two parts :

(1) Material quantity budget showing the estimated quantity of materials required during the budget

period.
(2) Material purchase budget showing the estimated amount required for the purchase of direct
materials.

Illustration 17.
Prepare a materials budget of AB Co. Ltd. based on production budget : -
Comsumption for a batch of 1,000 units of product
Material Material Rate Product A Product B
seriels per kg.
Rs. kg Kg
101 50 50 70
107 50 10 15
110 30 10
 161
Budgeting and Budgetary Control
111 10
20
115 40
6 10
125 40
4
5
eted production of product A and B is
80Kg. 125Kg.
Estimat

11,000 and 10,000 units.

MATERIAL BUDGET
Estimated Material Nos.
units to be 101 Kg.
Product

produced
107 Kg.110Kg. 111 Kg.15 Kg. 125 Kg.
11,000 550 110| 110 66 44
B 10,000 700 150 50 200 100 50
Total 21,000 1,250 260 160 200 166 94
RaleperKg. Rs.50 Rs. 50 .30
material Rs. 10 Rs.40 Rs. 40
mst
of each Rs.6,250 Rs. 1,300 Rs. 4,800 Rs.
2,000| Rs. 6,640 Rs. 3,760
ihustration18,

is estimated that on lst Jan., 2009. The Alpha

Mining Co. Ltd. will have the following raw
naterialinventory:

A
Type of material
B C D E Total
700 Units 15 Tons
Quanlity

1,500 Kg. 800 Gallon 10,500 Units

Rs.3
Rate
Rs.35 Rs. 0-75 Re. 100
Re. 0-20
Amount
Rs. 2,100 S25 1,125 800 2,100 6,650
The management summarised the comsumption of different types of raw material for various
in the following manner-
departments
Departments
Material III IV
A (units) 4,500 3,000 500
B (Tons) 11 3 4
CKg) 600 700 1,350
D (Gallons) 350 700
E (Units) 5,600 6,300 1,500 800
On 31st March, 2011 the following inventory is desired
A-800 units; B-7 Tons; C-1,050 Kg: D-750 Gallons; and E 600 Units.
Assuming that all prices will remain constant, prepare the purchase budget.
Solution:
PURCHASE BUDGET

Materials Units Opening ExpectedClosing Requirements Budget

stock consumption stock Rate amount
Rs. Rs.
A Units 700 8,000 800 8,100 3-00 24,300
B 15 18 7 10 35-00 350
Tons
0-75 1,650
Kg. 1,500 2,650 1,050 2,200
166 Cost Accounting

Variable costs
Direct selling expenses:
Representatives commission '**'* '**' ****

Travelling expenses
Selling office expenses:
Commission of salesman

Advertisement:
Paper publicity
Distribution cost: ' * * * ' *

Running cost of delivery vans

Carriage outwards
****

Total ' '

Illustration 19.
overheads budget for January to Marchh,
Your are required to prepare a selling and distribution 2011
from the informations given below:-
Rs. per month

Advertisement
10,000
Salaries of sales department
10,000
Fixed expenses of sales department 7,5000
Salesman's remuneration:
Salaries and dearness allowance
30,000
Commission: @ 1% onsales
Carriage outwards: 5%o ofsales
sales
Agent's commission: 4%
on

Sales during January to March, 2011

is estimated as follows
calculated on total sales ?
Why agent's commission is
sales Rs. 80,000
January Rs. 8,00.000 including agents
sales Rs. 1,00,000
February Rs. 9,00.000 including agents
Rs. 10,00,000 including agents sales Rs. 1,05,000
March
Solution:
SELLING & DISTRIBUTION OVERIHEAD BUDGET
(forJan./March, 2011)
January February March Total
Rs. Rs. Rs. Rs.
Estimated sales 8,00,000 9,00,000 10,00,000 27,00,000
Fixed overheads
Advertisement 10,000 10,000 10,000 30.000
Sales department's salaries 10,000 10,000 10,000 30,000
Fixed expenses of sales department 7,500 7,500 7.500 ,500
Salesman's remuneration and D.A. 30,000 30,000 30,000 90,000
Total 57,500 57,500 57,500 1,72,500
 Redemption ofshar
of shares or
Budgeting and Budgetary
lebentures Contr
Purchaseo f assets

Repayment of loans '****

****
Paymento f taxes '***

Other payments

Total
Cash balance
fpstration2 0

to have Rs.
firm expects 25.000 in Bank on Tst
OansM -May to .

Sales
1. The
following informations areMa
May, 2011. Prepare firm's cash
budget for three
Purchase given to you
Rs. Rs. Wages Factory exp. Office exp.
50.000 Rs.
Rs.
Sales exp.
March 30.000 6.000
Rs. Rs.
56,000 5.000
April 32,000 6.500
4,000 3.000
60.000 5,500
May 35,000 7.000
4000 3,000
80.000 40,000 6.000 4,000
June
9,000 3,500
July 90,000 40,000 7,500 4,000
9,500 4,500
Valt are also
given following the 8,000 4,000 4,500
o l e c t e
in the informations:-)
month following that of sale.
(i) Goods is
20% of sales is for
cash, remaining amount it
paid in nth.
next montl (iv) Company paid purchased on 2 month's
dividend of Rs. 10.000 to credit. (iii) All expenses
to
5.000 its employees in the month of shareholders and bonus of Rs.
May. (v) A plant has been
eIt will cost Rs. 80,000. (iv) Income-tax
n June.
Rs. 25,000 is ordered and is expected to be
payable in July. received
Solution:

CASH BUDGET
(Budget period: May to July, 201)
Particulars
May June July
Opening balance Rs. Rs. Rs.
Receipts: 25,000 7,800 - 60,700

Cash sales
Credit sale (80% of previous 12.000 16,000 18,000
months)
44,800 48,000 64,000
Payments: Total81,800 71,800 21,300
Purchase (of 2 months before)
Wages (of I month before) 30,000 32,000 35,000
6,500 7.000
Factory expenses (of I month before) 9.000
Office expenses 5,500 6.000 7.500
(of I month before)
4,000 4,000 4,000
Selling expenses (of I month before)
3,000 3,500
Dividend to shareholders 4,500
Bonus to employees 10,000
15,000
Plant
80,000
Income-tax 25,000
Total 74,000 1,32,500 85,000
Closing balance 7,300-60,700 63.700