Budgeting Problems 16-11-2019 PBE Managerial Accounting (MA)

Q.1: Your company manufacturers two products A and B. A forecast of the units to be sold
in the first seven months of the year is given below….

Month Product A Product B

January 1000 2800
February 1200 2800
March 1600 2400
April 2000 2000
May 2400 1600
June 2400 1600
July 2000 1800

It is anticipated that (a) there will be no work-in-process at the end of any month, and (b)
finished units equal to half the sale for the next month will be in stock at the end of each
month (including the previous December)

Budgeted production and production costs for the whole year are as follows:

Particulars Product A Product B

Products (Units) 22000 24000
Direct material / Unit Rs. 12.50 Rs. 19.00
Direct labour / unit 4.50 7.00
Total factory O/H 66000 96000
(apportioned)

Prepare for the six months period ending June 30

(i) Production budget for each month, and
(ii) Summarised production cost budget.
Budgeting Problems 16-11-2019 PBE Managerial Accounting (MA)

Q2: The Delhi Electrical Supply Company Ltd has a business of supplying electrical goods to
various government and non-governmental companies. The controller, in collaboration
with the economist, has developed the following equation that, he says, will forecast sales
quite well, based on past pattern of behavior: monthly sales (amount) = Rs. 1,00,000 + (Rs.
2000 x Orders received in prior month)

The sales manager is confused and seeks your advice. He presents you with the following
data regarding actual and forecast numbers of orders. The forecasts have generally been
quite accurate.

August (actual) 200

September (forecast) 300
October 450
November 700
December 650

In the first week of September, the sales manager would like the forecasts of sales and
income for as many months as you can prepare. The cost accountant informs you that
costs of goods sold is 50 percent of sales and other variable costs is 10 percent of sales. The
total fixed costs amount to Rs. 2,00,000 per month.

You are required to prepare the budgeted income statement for as many months as you
can.
Budgeting Problems 16-11-2019 PBE Managerial Accounting (MA)

Q3: The following data relate to the working of a small factory at Wardha for the current
quarter:

Capacity worked, 50
percent
Fixed Costs:
Salaries Rs. 84000
Rent and Rates 56000
Depreciation 70000
Other administrative 80000 Rs. 290000
expenses
Variable costs:
Materials 240000
Labour 256000
Other expenses 38000 534000
Possible sales at various
levels of working are:
Capacity (%) Sales
60 Rs. 9,50,000
75 Rs. 11,50,000
90 Rs. 13,75,000
100 Rs. 15,25,000

Prepare a flexible budget and show the forecast of profit at 60,75,90 and 100 percent
capacity operations.
Budgeting Problems 16-11-2019 PBE Managerial Accounting (MA)

Q4: XYZ Ltd, has furnished the following particulars relating to estimated sales and costs of
production from February 2015 to June 2015.

Months Sales (Rs.) Materials (Rs.) Wages (Rs.) Overheads (Rs.)

February 2015 20,000 10.200 3,800 1,900
March 2015 21,000 10.000 3,800 2,100
April 2015 23,000 9,800 4,000 2,300
May 2015 25,000 10,000 4,200 2,400
June 2015 30,000 10,800 4,500 2,500

The company has made the following estimates for the above period.
a. Out of the total sales, cash sales will be 10%, the balance being credit sales. 50% of
the credit sales will be collected next month and the balance in the following
month.
b. The period of credit allowed by suppliers of materials is 2 months.
c. 80% of wages will be paid in the month itself and the balance 20% in the following
month.
d. The company will pay 50% of the monthly overhead costs in the month itself and
the balance in the next month.
e. Cash balance as on April 01, 2015 is expected to be Rs. 8,000
f. A machinery will be installed in February 2015 at a cost of Rs. 1,00,000. The
monthly instalment of Rs. 5,000 is payable from April 2015 onwards.
g. Dividend at 10% on preference share capital of Rs. 3,00,000 will be payable on
June 01, 2015. And Income Tax (advance) to be paid in June 2015 is Rs. 5000.
Variance Analysis:
Budgeted Actual
Average Selling Price 4.50 4.20
Quantity Sold 6500 6850
Total Revenue 29,250 28,770

The company produces three different products

Budgeted Sales:

A B C Total
Selling Price 3.00 4.00 7.50 14.50
Quantity Sold 2,000 3,000 1,500 6,500
Total Revenue 6,000 12,000 11,250 29,250

Actual Sales:

A B C Total
Selling Price 3.1607 4.10 8.00 4,200
Quantity Sold 2,800 3,200 850 6,850
Budgeting Problems 16-11-2019 PBE Managerial Accounting (MA)

Total Revenue 8,850 13,120 6,800 28,770