Cost & Management

Accounting

Budgeting
Lecture-34
Mian Ahmad Farhan (ACA)
Example
Shadon Ltd has three sales division at Town A, B C. It sells two
products X and Y. The budgeted sales for the month of Jan at each
place given below:

Town Product Quantity Per unit

A X 50,000 16
Y 35,000 10
B Y 55,000 10
C X 75,000 16
 Budgeted sales during the Feb is as follow:

Town Product Quantity Per unit

A X 62,500 16
Y 37,500 10
B Y 62,500 10
C X 77,500 16
 Budgeted sales during the Feb is as follow:

Town Product Quantity Per unit

A X 4,000 16
Y 2,500 10
B X 12,500 16
C Y 9,000 10
 Required information = given information x %age of required
information
%age of given information
Production Cost Budget
1- Sale at 120% of cost Rs. 96,000
2- Normal sales at 120% of cost Rs. 60,000
Sales at cost 20,000
Sales at 90% of cost 27,000
1,07,000

3- Sales producing 20% gross profit on sales Rs. 1,50,000

Cost of goods sold = 96,000 / 120 x 100
= Rs. 80,000
 Cost of goods to be sold xxx
+ Cost of closing finished goods xxx
Cost of goods available for sale xxx
- Cost of opening finished goods inventory xxx
Cost of goods to be produced
Normal sales at cost
60,000 / 120 x 100 = 50,000
Sales at cost 20,000
Sales below cost
2,70,000 / 90 x 100 = 30,000
Cost of goods to sold 1,00,000
Gross profit = 1,50,000 / 100 x 20
= Rs. 30,000

Sales 1,50,000

Less Gross Profit 30,000

Cost of goods to be sold 1,20,000
 Example

Total budgeted sales

Rupees Units
Goods are sold at 120% of cost
Cost of goods sold 3,60,000 /120 x 100 3,00,000 2,500
+ Cost of closing finished goods stock 40,000 500
Cost of goods available for sale 3,40,000 3,000
- Cost of opening finished goods stock 60,000 (600)
Cost of goods to be produced 2,80,000 2,400
 Solution

Direct material consumed 2,400 units x Rs. 30 72,000

Direct labor cost 2,400 units x Rs. 40 96,000

Variable FOH cost 2,400 units x Rs. 20 48,000
Fixed FOH cost 64,000

2,80,000
Cost per unit = 2,80,000 / 2,400 = 11.67 per unit
Direct Material Cost Budget
It is prepared both in units and quantity

Importance of material budget

1. It helps in determining minimum and maximum
stock level
2. It helps to the purchasing department in
developing and purchasing schedule.
3. It helps in financial arrangements.
 Example
One unit of finished goods requires consumption following materials:

Material A 2 kg
Material B 10 pieces
Material C 0.5 Liters
Solution
Raw material consumption plan:

Material A 2400 x 2 kg = 4,800 @ Rs 5 = 24,000

Material B 2400 x 10 Pcs = 24,000 @ Rs 1.50 = 36,000
Material C 2400 x 1/2 Ltr = 1,200 @ Rs 10 = 12,000
72,000
Solution
Quantity Budget for Material A
(Kg)
Units to be consumed 4,800
+ Closing units in inventory 1,200
Material available for use 6,000
- Opening units in inventory 1,000
5,000
Solution
Quantity Budget for Material B
(Pcs)
Units to be consumed 24,000
+ Closing units in inventory 4,000
Material available for use 28,000
- Opening units in inventory 3,000
25,000
Solution
Quantity Budget for Material C
(Ltrs)
Units to be consumed 1,200
+ Closing units in inventory 300
Material available for use 1,500
- Opening units in inventory 100
1,400
Cost of material A = 5,000 @ Rs 5 = 25,000
Cost of material B = 25,000 @ Rs 1.5 = 37,500
Cost of material C = 14,000 @ Rs 10 = 14,000