Budgeling and Budgetary Control

System 477
oblems
has
ated the
estimate following quarter-wise sales for its
MMLtd product for the year 2004-05
I
Quarter
IV
Sales (units) 5,000 6,250 6,500 7,000

maintained are as under:

stocks to be
The

Particulars Finished goods (units) Raw materials (kg.)

Opening stock 1,200 2,800
Closing stock 1,100 3,500

Fach unit of finished output requires 2 kg. of raw materials. The production pattern in each
1arter is based on 80% of the sales of the current quarter and 20% of the sales of the next quarter.
enüre annual requirement of raw material in the first three
The company proposes to purchase the
quarters.

Quarter Purchase of raw materials as % of total Price per kg.

annual requirement in quantity (Rs
30% 12

50% 3
14
20%

and yearly.
Frepare the purchase budget, quarter-wise
to Prakash Ltd:
4Consider the following information pertaining
June 2004 July 2004
May 2004
Particulars 13,000
12,000 14,000
Expected sales (units) 2,80,000
2,60,000
Estimated wages and other 2,25,000

manufacturing expenses (Rs)

are on
cash. [The debtors
raw
percent of the sales 2 units ot
at Rs 65 per unit. Fifty requires
sells the goods
Prakash LidSells go unit of finished output
next month.1
One
e estimated
ed to be collected the month's sales.
mata Rs 5 next
u and half of re
month's sales
credit.
and is estimated to be purchased atof thatper
includes half month on The creditors a r e
Tproduction in a month same which they
in the month in
The raw aw mato a in the
uired
material requii in month is purchased are paid
pa
paidi nin the no and other expenses and the
next nonth. Wages December,
CuTred,w month of
33. incurred. the ofthese
Work out the cash budget. during and production
games sale
board to the
related
sell 1,50,000 data
Mittal Ltd expected to sell
oh contained
the following
get
mpany's master
games.
478 Management.Accountng
Rs
Particulars 24,00,000

Revenue
sold:
Cost of goods 6,75,000
Direct materials
3,00,000
Direct labour 4,50,000
Variable overhead
9,75,000
Contribution
2,50,000
Fixed overhead
5,00,000
Fixed seling/administration
2,25,000
Operating income

a flexible budget for th.

were 1,80,000 games. Prepare onth of
Actual sales during December
Decembe. balance of Rs 1,00,000 at the en
minimum cash
of maintaining a ha ach
4. Yamini Ltd has a policy and any surplus will
deficit will be financed through bank borrowings,
month. Any balance will be invested in short-term suo
bank borrowing and the
repay the outstanding with the bank to borrow in multinlac
has an agreement bf
For this purpose, the company
a need arises, to a maximum of Rs 2,00,000. The rate of intero.
rest is
Rs 10,000 whenever subject
on the amount
borrowed.
annum
payable monthly
1250%
%perof the sales are on credit and is expected to be collected in the month following the month
of sales. 25% of the purchases are on credit and will be paid in the month following the month of
purchases. Salaries and other expenses are to be paid in the month for which they relate. The
following is the budgeted information for the quarter ending June 2005:

Particulars April 2005 (Rs) May 2005 (Rs) June 2005 (Rs)
Sales 40,000 50,000 1,00,000
Purchases 30,000 40,000 40,000
Salares 60,000 70,000 50,000
Manufacturing and other
administrative expenses 25,000 30,000 10,000
The
closing cash balance for the month of April 2005 is Rs
budgets and find out the cash balance as on 01 1,00,000. Prepare the neces
July 2005.
5. Pawan Lid manufactures 5,000 units of a product PT at a cost of Rs 120 per unit. I t ofy, the
company is utilizing 50% of the total
product is as follows: capacity. The information pertaining to cost per
u
Material
Labour Rs 60
Factory overheads Rs 25
Administrative overheads Rs 15 (40% fixed)
(a) The current Rs 20 (50% fixed)
selling
price of the product is Rs
(bAt 60% capacity level 160 per unit.
Material cost per unit will increase by 30 a
(c At 80% current selling price per unit will reduceby
capacity level 5% and
Material cost per unit will increase by
Work out the uce by4
current selling price per nit will redu
levels. budgeted profit per unit of and 90% capaci
the product of the
company at
 Budgeting and Budgetary Control
Consider
the following data of a System 479
6
Company:
Quarters
1st 2nd
Budgeted direct-labour hours 3rd 4th
60,000 80,000
Variable overhead rate per hour 75,000
Rs 3.00 Rs 3.00 70,000
Fixed manutacturing overhead Rs 3.00 Rs 3.00
Rs 80,000 Rs 80,000 Rs 80,000 Rs 80,000
THved manufacturing Overhead includes depreciation of Rs
fhe cash payments for manutacturing overhead for 35,000 per quarter. Ninety percent
loo 1S made in the
each quarter are
andthe remaining made during the
following quarter. quarter,
How much cashpayments are made for overhead costs during 2nd
Leo Ltd manutactures toy cats with moving parts and a built-in quarter?
voice box.
months are as follows: Projected sales for

Month
Projected sales in units
July 2004
3,500
August 2004
3,900
September 2004 4,200
October 2004 4,500
November 2004 4,800

Each toy requires direct materials from a supplier at Rs 80 for moving parts. Voice boxes are
purchased from another supplier at Rs 20 per toy. Labour cost is Rs 30 per toy and variable
overhead cost is Rs 5 per toy. Fixed manufacturing overhead applicable to production is
Rs 61,000 per month. It is the practice of the company to manufacture an output in a month which
is equivalent to 1.2 times of the following month's sales.
Work out the production budget for the month of August 2004 and the production cost budget
for the month of September 2004.
6. Siva Ltd manufacturers cabinets and outsources handles of the cabinet. Each cabinet requires four

handles. The direct labour time for assembly work is 30 minutes per cabinet. The closingstock of
finished cabinets in a month is estimated to be 50%o of projected unit sales for the next month. The
closing stock of handles in a month is planned to be 60% of the requirement for the second
following month.
The company has furnished the following projected unit sales:

July 2004 300 cabinets

August 2004 310 cabinets

320 cabinets
September 2004
October 2004 350 cabinets
as follows:
for the month of June 2004 is
ginventory of the company
150
Cabinets
800
Handles 2004.
L
Find out tne
the number of handles to be purchased in the month ofJuly
 480 Management Accounting

CONCEPTUAL CASES

1. Sagar Company
sales. Two
popular types are thoi
Sagar Company produces a variety of pillows for catalogue e
Pillow and the Neck Roll. The Standard Pillow sells for Rs 4, and the Neck Roll:sells for Standard
Rs 3.
Sales of the two types of pillows for the coming four quarters are as follows: Proj
Standard Pillow Neck Roll

First quarter 5,000 4,000

Second quarter 6,500 4,500
Third quarter 10,000 8,000
Fourth quarter 5,500 5,000

The president are realistic and can be achieved hu

ofthe company believes that the projected sales the
company.
In the factory, the production supervisor has received the projected sales figures and gathered
information needed to compile production budgets. He found that 300 Standard Pillows and 170 Nerk
Rolls were in inventory on January 1.
Company policy dictates that the ending inventory should equal 20% of the next quarter's sales for
Standard Pillows and 10% of next
quarter's sales for Neck Rolls.
1.Prepare a sales budget for each quarter and for the year in total. Show sales by product and in total
for each time period.
2. What factors
might Sagar Company have considered in preparing the sales
3. Prepare a budget?
of the
separate production budget for each product for each of the first three quarters
year.
2. Indra Company
Indra Company produces stuffed toy animals; one of these is
material and threeounces of Jumbo. Each Jumbo takes 0.10 yards
per ounce.
poly fiberfill. Material costs Rs 3.50
Indra company has per yards and poly fibertill is ke
budgeted production of Jumbo for the next four months as
Month
fo1IOw
October November
Units
December January
40,000 80,000 50,000 60,000
Inventory policy requires that sufficient
material be in ending o
ofthe
following month's production needs and monthly inventory s of the
to
following month's production needs. sufficient poly fiberfill be in
of inventory
equals exactly the amount needed to Inventory material and poly fiberfill at the sauifOctober
satisfy the beg ing of(
Each
is Rs 10.50
Jumbo produced requires (on average) 0.2 inventory policy. abour
per hour. direct labour-hour. The
average cost
1. a
y e a rs h o w i n g
Prepare direct materials purchases
purchases in units and in budget of material for the last
2. rupees for each guarter of tne
year

of yea the
quarter
Prepare a direct materials purchases month and for the quarter in total
3.
showing purchases in units and in budget of poly fiberfill for the last
d
for each month ot
tneeded andthe
Prepare a direct labour budget for rupees
the last and for the quarter
direct labour cost quarter of the year
for each month and
for the showing the hous
quarter in total.
 Budgeting and Budgetary Control
Syster 481
3 ,
J . S . C o m p a n y

1SCompany
manufact
nufactures three models of mattresses:
l15,00
are
and for Sleepeze, 12,000 for Plushette, andSleepeze, Plushette, and Ultima. Forecast sales
2007 provided
007 orovided the
the foll
following information. 5,000 for Ulima. Gene Desai, vice
or has president
afsales,
a for h
Gor
Salaries
a
his office (including himself at Rs 65,000,
(a) administrative ass
marketing research at Rs 40,000,
and a n
next
assistant at Rs 25,000) are budgeted for Rs 1,30,000assistant
year.
reciation on
the offices and
«
b) equipment is Rs 20,000 per year.
Ofmce supplies and other expenses at Rs 21,000 per year.

ertising has been steady at Rs

20,000 per year. However, Ultima is a new product and will
atutire extensive advertising to
educate consumers on the
req unique features of this high-end mat-
a and
ros Gene believes the company should spend 15% of first-year Ultima sales for
print
television campaign.
ACammissions on Sleepeze and Plushette lines are 5% of sales. These commissions are paid to
independent jobbers who sell the mattresses to retail stores.
Last year, shipping for Sleepeze and Plushette lines averaged Rs 50 per unit sold. Gene expects
the Ultima line to ship for Rs 75 per unit sold, since this model features a larger mattress.

1. Suppose that Gene is considering three sales scenarios as follows:

Pessimistic Expected Optimistic

Price Quantity Price Quantity Price Quantity
(Rs) (Units) (Rs) (Units) (Rs) (Units)
Sleepeze 180 12,500 200 15,000 200 18,000
Plushette 300 10,000 350 12,000 360 14,000
Utima 900 2,000 1,000 5,000 1,200 5,000

a revenue
each scenario.
repare budget for the Sales Division for the coming year for
scenarios.
repare a flexible expense budget for the Sales Division for the three

BUSINESS APPLICATION CASES

Parshwa &Company
monitors. Mr Ashish,
rshwa filters for microcomputer lor
Conlrollermpany makes and sells high-quality glare assembled the
master budget and has followng data
oller,pisorespons
n s i b l e for preparing Parshwa's
share of tax.
all employee-related benefits, and the employer's union
rate
ra includes wages, company's
The direct labour
abour saving r March. of March 1,
Also, as the
machinery will be fully operational by direct labour
ontract
ct calls rate
calls fafor an ncrease in direct labour wages that is included in the
2006 sand has a policy or
cu incre inventory by
31 December

in inventory.
r 509%f LS nave 10,000 glare filters insales
Carviing
g 50%% of the
O following month's projected
482 Management Accounting

2007
January February March April
Estimated unit sales 20,000 24,000 16,000 18,000
Sales price per unit Rs 80 Rs 80 Rs 75 Rs 75
Direct iabour hours per unit 4.0 4.0 3.5 3.5
Direct labour hourly rate Rs 15 Rs 15 Rs 16 Rs 16
Direct materials cost per unit Rs 10 Rs 10 Rs 10 Rs 10

1. Prepare the following monthly budgets for Parshwa & Company for the first quarter of 2007.
sure to show supporting calculations.

a) Production budget in units

(b Direct labour budget in hours
(c) Direct materials cost budget
(d Sales budget
2. Calculate the total budgeted contributions margin for Parshwa & Company for the i quarter
2007. Be sure to show supporting calculations