BUDGETING AND CONTROL

TEOH BEI NING

981014016152
Contents

Introduction ....................................................................................................................... 3

Task 1 ................................................................................................................................ 4

Task 2 ................................................................................................................................ 7

Task 3 ................................................................................................................................ 9

Summary ......................................................................................................................... 13

Reference ........................................................................................................................ 14

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Introduction

Budget is an estimate prepared for definite future period either in terms of financial or

non financial terms. Budget is prepared for any course of action or business or state or

Nation, as a whole. The budget is usually expressed in terms of total volume.According

to ICMA, England, a budget is as follows "financial and or quantitative statements

prepared and approved prior to a defined period of time, of the policy to be pursed

during the period for the purpose of attaining a given objective".

It is in other words as “detailed plan of action of the business for a definite period of

time". Budget it is a statement of financial affairs/quantitative terms of an activity for a

defined period, to achieve the enlisted objectives.

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Task 1

The master budget is the aggregation of all lower-level budgets produced by a

company's various functional areas, and also includes budgeted financial statements,

a cash forecast, and a financing plan. A master budget is an expensive business

strategy that documents expected future sales, productions levels, purchases, future

expenses incurred, capital investments, and even loads to be acquired and repaid. In

other words, the master budget includes all other financial budgets as wells as a

budgeted income statement and balance sheet. Besides, a master budget is a document

that integrates all the individual budgets prepared by the different departments within a

company.

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 Master Budget for the year ending of Pushpack & Co

particulars Amount Amount

Sales :

Toughened glass 200000

Bent Toughened glass 300000

500000

Less: Cost of Production:

Direct Materials 300000

Direct Wages 12000

Prime Cost 312000

Factory Overhead:

Variable:

stores and spares 10000

light and power 2000

repairs and maintance 4000 16000

Fixed:

work manager’s salary 3600

foremen salary 2400

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depreciation 6000

sundries 1200 13200 341200

work’s cost 341200

gross profit 158800

Less: administration, selling& 7000

distribution overheads

Net Profit 151800

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Task 2

A cash budget is an estimation of the cash flows for a business over a specific period of

time. This budget is used to assess whether the entity has sufficient cash to operate. A

cash budget is a budget or plan of expected cash receipts and disbursements during the

period. These cash inflows and outflows include revenues collected, expenses paid, and

loans receipts and payments. In other words, a cash budget is an estimated projection of

the company’s cash position in the future.

Cash Budget from January to June

Particulars January February March April May June

Opening Balance 5000 9000 14900 13500 12350 16550

Estimates Cash

Receipts:

cash sales 5000 5500 7000 9000 7500 10000

credit sales - 5000 5500 7000 9000 7500

second call - - 5000 - - -

share premium - - 1000 - - -

Total Cash

Receipts (A) 10000 19500 33400 29500 28850 34050

Estimates Cash

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Payments:

materials - - 10000 7000 7000 11000

wages 1000 2100 2250 2300 2150 2250

production

overheads - 1600 1650 1700 1750 1600

Selling &

Distribution

overheads - 400 450 450 500 450

sales commission - 500 550 700 900 750

purchase of - - 5000 5000 - -

machinery

Total Cash

Payment (B) 1000 4600 19900 17150 12300 16050

Closing Balance 9000 14900 13500 12350 16550 18000

(A-B)

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Task 3

A fixed budget is a kind of budget where the income and the expenditure are pre-

determined. Irrespective of any fluctuation or change, this budget would remain static.

Companies that are static, execute the same sort of transactions can greatly benefit from

a fixed budget. But wherever there are fluctuations, a fixed budget doesn’t turn out to be

the most suited one.

Flexible budget, on the other hand, is a budget that is flexible as per the needs of the

hour. For example, if the company sees that it can sell off more of its products by

expending more in advertisement costs, a flexible budget would help execute that.

That’s why a flexible budget is very effective for companies who go through a lot of

changes during a particular period. It is much more complex than the fixed budget too.

There are three methods to prepare flexible budget. There are Tabular Method ,

Charting Method and Formula Method. Tabular method is about a flexible budget is

prepared for different levels of activity showing different activity or capacity levels in

horizontal columns and budgeted figures against different activity or capacity levels in

the vertical columns. The expenses are usually recorded under three groups, namely,

variable, semi-variable and fixed. Budgeted figures for any level of activity not

specifically covered in the flexible budget can be obtained by interpolation.

About Charting method, it is about an estimate of expenses is made for different levels

of activity by classifying the expenses into three categories, namely, variable, semi-

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variable, and fixed. The estimated expenses are plotted on a graph paper on Y-axis and

level of activity is plotted on X-axis. The budgeted expenses corresponding to the level

of activity attained can then be read out from the chart and the performance of

departmental heads can be assessed.

The last method is Formula method. This is about a budget is prepared for the expected

normal level of activity and variable cost per unit of activity is ascertained.

Flexible Budget

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 Particulars 50% capacity 60% capacity 70%capacity

Variable overheads:

indirect material 2500 3000 3500

indirect labour 7500 9000 10500

Semi- variable overheads

electricity 13500 15000 16500

repairs and maintenance 1450 1500 1550

fixed overheads:

depreciation 8520 8250 8250

insurance 2250 2250 2250

sales 7500 7500 7500

total overheads 42950 46500 50050

estimated direct labour 77500 93000 108500

hours

overhead rate Re.0.55 Re 0.50 Re 0.46

1. Electricity: Rs. 15,000 is the cost of electricity at 60 % capacity, of which 40% are

fixed overheads, i.e., Rs.6,000 and variable is Rs. 9,000 :

For 60 % capacity variable overheads

= Rs.9,000

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For 50 % capacity variable overheads

=9000/60 x 50=Rs 7500

Therefore electricity cost at 50 % capacity =6000+ 7500 =Rs 13500

For 70 % capacity, variable overheads = 9000/60 x 70= Rs 16500

Therefore electricity cost at 70 % =Rs 10500+Rs 6000=Rs16500

2. Repairs and Maintenance: Rs. 1,500 is the cost of repairs and maintenance at 60 %

capacity, of which 80% is fixed overhead, i.e., Rs. 1,200 and variable is Rs. 300 :

For 60 % capacity variable overhead = Rs 300

For 50 % capacity variable overhead = 300/60 x 50= Rs250

Therefore the total cost of repairs and maintenance at 50 %

= Rs. 1,200 + Rs. 250 = Rs.1,450

For 70 % capacity, the variable overhead = 300/60 x 70= Rs350

Therefore the total cost of repairs and maintenance

= Rs. 1,200 + Rs. 350 = Rs. 1,550

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Summary

The master budget is the sum total of all the divisional budgets that is prepared by all

the divisions. Further, it also includes the financial planning, cash-flow forecast and

budgeted profit and loss account and balance sheet of the organization. It is the goal of

the organization to reach a level in a particular period. Normally master budget is

prepared for a year.

Sometimes, it may be misunderstood that master budget is one large budget of the

organization. However, it is not the case. Master Budget is the summary of the

divisional budget. It is a continuous financial plan.

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Reference

1. https://crushthecpaexam.com/accounting-glossary/what-is-a-master-budget/

2. https://www.myaccountingcourse.com/accounting-dictionary/master-budget

3. https://www.accountingtools.com/articles/2017/5/14/master-budget

4. https://efinancemanagement.com/budgeting/master-budget

5. https://www.myaccountingcourse.com/accounting-dictionary/cash-budget

6. http://www.yourarticlelibrary.com/cost-accounting/flexible-budget/flexible-budget-

importance-and-methods-of-preparation/56044

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