UNIT ‐ 5
Module – 8
Budgets & Budgetary
Control
Practical Problems
(with solutions)
Flexible Budget
(1) Prepare a Flexible budget for overheads on the basis of the following data. Ascertain the
overhead rates at 50% and 60% capacity.
Variable overheads: At 60% capacity (Rs)
Indirect Material 6,000
Labour 18,000
Semi‐variable overheads:
Electricity: (40% Fixed & 60% variable) 30,000
Repairs: (80% fixed & 20% Variable) 3,000
Fixed overheads:
Depreciation 16,500
Insurance 4,500
Salaries 15,000
Total overheads 93,000
Estimated direct labour hours 1,86,000
Solution:
Flexible Budget
Items Capacity
50% 60%
Variable overheads: Rs. Rs.
Material 5,000 6,000
Labour 15,000 18,000
Semi‐variable
Electricity 27,000 30,000
Repairs 2,900 3,000
Fixed overheads:
Deprecation 16,500 16,500
Insurance 4500 4500
Salaries 15,000 15,000
Total Overheads 85,900 93,000
Estimated direct labour hours 1,55,000 1,86,000
Overhead Rate 0.55 0.50
Working Note:
Electricity
At 50% capacity = 18,000 * 50
60
= Rs. 15,000
Rs. 12,000 + Rs. 15,000 = Rs. 27,000
60% capacity = Rs 18,000 + Rs. 12,000 = Rs. 30,000
Repairs
For 60% capacity = Rs.600
=Rs. 2400 + Rs.600 =Rs.3,000
At 50% capacity : = 600/60 * 50
= RS. 500
=Rs.2400 + 500
=Rs.2,900
(2) Prepare a flexible budget for overheads on the basis of the following data. Ascertain the
overhead rates at 60% and 70% capacity.
Variable overheads: At 60% capacity(Rs)
Material 6,000
Labour 18,000
Semi‐variable overheads:
Electricity: 30,000
40% Fixed
60% variable
Repairs:
80% fixed 3,000
20% Variable 3,000
Fixed overheads:
Depreciation 16,500
Insurance 4,500
Salaries 15,000
Total overheads 93,000
Estimated direct labour hours 1,86,000
Solution:
Working:
Repairs
For 60% capacity Fixed 80/100 * 3,000 = Rs.2400
Variable = 20/100 * 3,000 = Rs. 600
=Rs. 2400 + Rs.600 =Rs.3,000
Electricity Exp.:
At 60% capacity Fixed= 40/100 *30,000 = 12,000
Variable = 60/100 * 30,000= 18,000
At 70% capacity: Fixed = 40/100 * 30,000 = Rs. 12,000
Variable = 18,000/60 *70 = Rs. 21,000
Total Rs. =33,000
Flexible Budget
Items Capacity
60% 70%
Variable overheads: Rs. Rs.
Material 6,000 7,000
Labour 18,000 21,000
Semi‐variable
Electricity 30,000 33,000
Repairs 3,000 3,100
Fixed overheads:
Deprecation 16,500 16,500
Insurance 4,500 4,500
Salaries 15,000 15,000
Total Overheads 93,000 1,00,100
Estimated direct labour hours 1,86,000 2,17,000
Overhead Rate 0.50 0.46
(3) The expenses budgeted for production of 1,000 units in a factory are furnished below:
Particulars Per Unit Rs.
Material Cost 700
Labour Cost 250
Variable overheads 200
Selling expenses (20% fixed) 130
Administrative expenses (Rs. 2,00,000) 200
Total Cost 1,480
Prepare a budget for production of 600 units and 800 units assuming administrative expenses
are rigid for all level of production.
Solution: Flexible Budget
Particulars For 600 units For 800 units
Per unit Rs. Total Rs. Per unit Rs. Total Rs.
Variable Cost:
Materials 700 4,20,000 700 5,60,000
Labour 250 1,50,000 250 2,00,000
Variable overheads 200 1,20,000 200 1,60,000
(A) 1,150 6,90,000 1,150 9,20,000
Semi variable cost:
Variable selling expenses 104 62,400 104 83,200
Fixed selling expenses 43.33 26,000 32.50 26,000
(B) 147.33 88,400 136.50 1,09,200
Fixed cost:
Administrative expenses 333.33 2,00,000 250.00 2,00,000
Total Cost(A+B+C) 1,630.66 9,78,400 1,536.50 12,29,200
(4) The budgeted output of a industry specializing in the production of a one product at the
optimum capacity of 6,400 units per annum amounts to Rs. 1,76,048 as detailed below:
Particulars Rs. Rs.
Fixed costs 20,688
Variable costs:
Power 1,440
Repairs etc. 1,700
Miscellaneous 540
Direct material 49,280
Direct Labour 1,02,400 1,55,360
Total cost 1,76,048
The company decides to have a flexible budget with a production target of 3,200 and 4,800 units
(the actual quantity proposed to be produced being left to a later date before commencement
of the budget period)
Prepare a flexible budget for production levels of 50% and 75%. Assuming, selling price per unit
is maintained at Rs. 40 as at present, indicate the effect on net profit.
Administrative , selling and distribution expenses continue at Rs.3,600.
Solution:
The production at 100% capacity is 6400 units, so it will be 3,200 units at 50% and 4,800 units at
75% capacity. The variable expenses will change in that proportion.
Flexible Budget
Particulars 100% 75% 50%
(i)Sales (per unit 2,56,000 1,92,000 1,28,000
Rs.40)
Cost of Sales:
(a)variable costs:
Direct material 49,280 36,960 24,640
Direct Labour 1,02,400 76,800 51,200
Power 1,440 1,080 720
Repairs 1,700 1,275 850
Miscellaneous 540 405 270
Total variable costs 1,55,360 1,16,520 77,680
(b)Fixed Costs: 20,688 20,688 20,688
(ii) Total Costs 1,76,048 1,37,208 98,368
Gross Profit(i)‐ (ii) 79,952 54,792 29,632
Less: Adm., selling and 3,600 3,600 3,600
Dist. Costs
Net Profit 76,352 51,192 26,032
(5) A factory engaged in manufacturing plastic buckets is working at 40% capacity and produces
10,000 buckets per month.
The present cost break up for one bucket is as under:
Materials Rs.10
Labour Rs.3
Overheads Rs.5 (60% fixed)
The selling price is Rs.20 per bucket. If it is desired to work the factory at 50% capacity the
selling price falls by 3%. At 90% capacity the selling price falls by 5% accompanied by a similar
fall in the price of material.
You are required to prepare a statement the profit at 50% and 90% capacities and also calculate
the break‐ even points at this capacity production.
Solution
Flexible Budget
Particulars Capacity
40% 50% 90%
Production and sales 10,000 12,500 22,500
units
Sales price per unit 20 19.40 19.00
Sales Amount 2,00,000 2,42,500 4,27,500
Marginal Cost:
Material: Rs.10 per 1,00,000 1,25,000 2,13,750
unit(at 90% ‐ Rs.9.50
per unit)
Labour 30,000 37,500 67,500
Variable overhead 20,000 25,000 45,000
Total 1,50,000 1,87,500 3,26,250
Contribution 50,000 55,000 1,01,250
Less: Fixed Cost 30,000 30,000 30,000
Profit 20,000 25,000 71,250
Contribution per unit 5 4.40 4.50
BEP (units) (F /C) 6,000 6,818 6,667
CASH BUDGET
(1) Saurashtra Co. Ltd. wishes to arrange overdraft facilities with its bankers from the period August
to October 2010 when it will be manufacturing mostly for stock. Prepare a cash budget for the
above period from the following data given below:
Month Sales Purchases Wages Mfg. Exp. Office Exp. Selling
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) Exp. (Rs.)
June 1,80,000 1,24,800 12,000 3,000 2,000 2,000
July 1,92,000 1,44,000 14,000 4,000 1,000 4,000
August 1,08,000 2,43,000 11,000 3,000 1,500 2,000
September 1,74,000 2,46,000 12,000 4,500 2,000 5,000
October 1,26,000 2,68,000 15,000 5,000 2,500 4,000
November 1,40,000 2,80,000 17,000 5,500 3,000 4,500
December 1,60,000 3,00,000 18,000 6,000 3,000 5,000
Additional Information:
(a) Cash on hand 1‐08‐2010 Rs.25,000.
(b) 50% of credit sales are realized in the month following the sale and the remaining 50% in
the second month following. Creditors are paid in the month following the month of
purchase.
(c) Lag in payment of manufacturing expenses half month.
(d) Lag in payment of other expenses one month.
Solution:
CASH BUDGET
For 3 months from August to October 2010
Particulars August (Rs.) September (Rs.) October (Rs.)
Receipts:
Opening balance 25,000 44,500 (66,750)
Sales 1,86,000 1,50,000 1,41,000
Total Receipts(A) 2,11,000 1,94,500 74,250
Payments:
Purchases 1,44,000 2,43,000 2,46,000
Wages 14,000 11,000 12,000
Mfg. Exp. 3,500 3,750 4,750
Office Exp. 1,000 1,500 2,000
Selling Exp. 4,000 2,000 5,000
Total payments(B) 1,66,500 2,61,250 2,69,750
Closing Balance(A‐B) 44,500 (66,750) (1,95,500)
Working Note:
1. Manufacturing Expense:
Particular August September October
July (4000/2) 2000 ‐‐‐ ‐‐‐
August (3000/2) 1500 1500 ‐‐‐
September (4500/2) ‐‐‐ 2250 2250
October (5000/2) ‐‐‐ ‐‐‐‐ 2500
Total 3500 3750 4750
2. Sales
Particular August September October
June (180000/2) 90000 ‐‐‐ ‐‐‐
July (192000/2) 96000 96000 ‐‐‐
August (108000/2) ‐‐‐ 54000 54000
September (174000/2) ‐‐‐ ‐‐‐‐ 87000
Total 186000 150000 141000
(2) S. K. Brothers wish to approach the bankers for temporary overdraft facility for the period from
October 2010 to December 2010. During the period of this period of these three months, the firm
will be manufacturing mostly for stock. You are required to prepare a cash budget for the above
period.
Month Sales (Rs.) Purchases (Rs.) Wages (Rs.)
August 3,60,000 2,49,600 24,000
September 3,84,000 2,88,000 28,000
October 2,16,000 4,86,000 22,000
November 3,48,000 4,92,000 20,000
December 2,52,000 5,36,000 30,000
(a) 50% of credit sales are realized in the month following the sales and remaining 50% in the
second following.
(b) Creditors are paid in the month following the month of purchase
(c) Estimated cash as on 1‐10‐2010 is Rs.50,000.
CASH BUDGET
For 3 months from October to December 2010
Particulars October (Rs.) November(Rs.) December(Rs.)
Receipts:
Opening balance 50,000 1,12,000 (94,000)
Collection from 3,72,000 3,00,000 2,82,000
Debtors
Total Receipts(A) 4,22,000 4,12,000 1,88,000
Payments:
Payments to 2,88,000 4,86,000 4,92,000
Creditors
Wages 22,000 20,000 30,000
Total payments(B) 3,10,000 5,06000 5,22,000
Closing Balance(A‐B) 1,12,000 (94,000) ‐3,34,000
Working Note : Collection from debtors
Particulars October (Rs.) November(Rs.) December(Rs.)
Sales
August 1,80,000 ‐
September 1,92,000 1,92,000 ‐
October ‐ 1,08,000 1,08,000
November ‐ 1,74,000
3,72,000 3,00,000 2,82,000
(3) TATA Co. Ltd. is to start production on 1st January 2011. The prime cost of a unit is expected to
be Rs. 40 (Rs. 16 per materials and Rs. 24 for labour). In addition, variable expenses per unit are
expected to be Rs. 8 and fixed expenses per month Rs. 30,000. Payment for materials is to be
made in the month following the purchase. One‐third of sales will be for cash and the rest on
credit for settlement in the following month. Expenses are payable in the month in which they
are incurred. The selling price is fixed at Rs. 80 per unit. The number of units to be produced and
sold is expected to be:
January 900; February 1200; March 1800; April 2000; May 2,100 June 2400
Draw a Cash Budget indicating cash requirements from month to month.
CASH BUDGET of TATA LTD.
For 6 months from January to June 2011
Month Jan. Feb. March April May June
Receipts
Opening Balance (34,800) (37,600) (32,400) (5,867) (27,600)
Cash sales 24,000 32,000 48,000 53,333 56,000 64,000
Collection from 48,000 64,000 96,000 1,06,667 1,12,000
Debtors
Total receipts(A) 24,000 45,200 74,400 1,16,933 1,56,800 1,48,400
Payments
Creditors 14,400 19,200 288,00 32,000 33,600
Wages 21,600 28,800 43,200 48,000 50,400 57,600
Variable Exp. 7,200 9,600 14,400 16,000 16,800 19,200
Fixed Exp. 30,000 30,000 30,000 30,000 30,000 30,000
Total Payment(B) 58,800 82,800 1,06,800 1,22,800 1,29,200 1,40,400
Closing Balance ‐34,800 ‐37600 ‐32400 ‐5867 ‐27,600 8,000
(4) Prepare a Cash Budget from the data given below for a period of six months (July to December)
(1) Month Sales Raw Materials
May 75,000 37,500
June 75,000 37,500
July 1,50,000 52,500
August 2,25,000 3,67,500
September 3,00,000 1,27,500
October 1,50,000 97,500
November 1,50,000 67,500
December 1,37,500 ____
(2) Collection estimates:
Within the month of sale: 5%
During the month following the sale: 80%
During the second month following the sale: 15%
(3) Payment for raw materials is made in the next month.
(4)Salary Rs. 11,250, Lease payment Rs. 3750, Misc. Exp. Rs. 1150, are paid each month
(5) Monthly Depreciation Rs. 15,000
(6) Income tax Rs. 26,250 each in September and December.
(7)Payment for research in October Rs.75,000
(8) Opening Balance on 1st July Rs.55,000.
CASH BUDGET
For the six months from July to December
Particulars July Aug. Sep. October Nov. December
Receipts
Opening Balance 55,000 80,100 1,53,950 ‐38450 24150 83000
Collection from 78,750 1,42,500 2,17,500 2,81,250 1,725,00 1,49,375
Debtors
Total receipts(A) 1,33,750 2,22,600 3,71,450 2,42,800 1,96,650 2,32,375
Payments
Payment to 37,500 52,500 3,67,500 1,27,500 97,500 67,500
suppliers
Salary 11,250 11,250 11,250 11,250 11,250 11,250
Lease payment 3750 3750 3750 3750 3750 3750
Misc. expense 1,150 1,150 1,150 1,150 1,150 1,150
Income tax 26,250 26,250
Payment for 75,000
Research
Total Payment(B) 53,650 68,650 4,09,900 2,18,650 1,13,650 1,09,900
Closing Balance 80,100 1,53,950 ‐38,450 24,150 83,000 1,22,475
Note: Depreciation is a non‐cash item. It does not involve cash flow. Hence, depreciation will not be
considered as payment through cash.
(5) Prepare a cash Budget of R.M.C. LTD. for April, May and June 2012:
Months Sales(Rs.) Purchases(Rs.) Wages(Rs.) Expenses(Rs.)
Jan.(Actual) 80,000 45,000 20,000 5,000
Feb.(Actual) 80,000 40,000 18,000 6,000
March (Actual) 75,000 42,000 22,000 6,000
April (Budget) 90,000 50,000 24,000 7,000
May(Budget) 85,000 45,000 20,000 6,000
June(Budget) 80,000 35,000 18,000 5,000
Additional Information:
(i) 10% of the purchases and 20% of sales are for cash.
(ii) The average collection period of the company is ½ month and the credit purchases are paid
regularly after one month.
(iii) Wages are paid half monthly and the rent of Rs. 500 included in expenses is paid monthly and
other expenses are paid after one month lag.
(iv) Cash balance on April 1,2012 may be assumed to be Rs.15,000
CASH BUDGET
(For the months ending April, May & June 2012)
Particulars April (Rs.) May (Rs.) June (Rs.)
Receipts
Opening Balance 15,000 27,200 35,700
Cash Sales 18,000 17,000 16,000
Collection from 66,000 70,000 66,000
Debtors
Total Receipts(A) 99,000 1,14,200 1,17,700
Payments
Cash Purchases 5,000 4,500 3,500
Payment to creditors 37,800 45,000 40,500
Wages 23,000 22,000 19,000
Rent 500 500 500
Other Exp. 5,500 6,500 5,500
Total Payments(B) 71,800 78,500 69,000
Closing balance 27,200 35,700 48,700
