2. Definition of Budgeting
“A budget is a pre-determined statement of
management Policy during a given period
which provides a standard for comparison
with the results actually”---Brown &
Howard
3. Classification of Budget
Classification of Budget
According to time
Long term
Budget
Short term
Budget
According to Function
Sales Budget
Cash Budget
Production
Budget
R& D Budget
Cost &
Production
Budget
Master
Budget
According to Flexibility
Flexible
Budget
Fixed Budget
4. Problems and Solutions
Questions No:1
I)L td plans to sell 110000 units of a certain
product line in the first fiscal quarter,120000
units in the second quarter,130000 units in the
third quarter and 150000 units in the fourth
quarter and 140000 units in the first quarter of
the following year .At the beginning of the first
quarter of the current year, there are 14000
units of product in stock .At the end of each
quarter ,the company plans to have an
inventory equal to one-fifth of the sales for
the next fiscal year
(Formula: Units to produced=Budget sales+
Desired closing stock- Opening stock)
6. Working Note:
Calculation of closing stock
(This year closing stock will be next
year opening stock)
120000*1/5=24000
130000*1/5=26000
150000*1/5=30000
140000*1/5=28000
7. 2)From the following data, prepare a production
budget for Bajaj ltd.
Stocks for the budgeted Period
Products As on As on Sales
Normal
1St jan 30th june loss in
prdn
R 8000 10000 60000units
4%
S 9000 8000 50000units
2%
T 12000 14000 80000 units
6%
8. Production budget for 6 months ending 30th
juneParticulars R S T Total
Budgeted Sales 60000 50000 80000 190000
Add Closing Stock 10000 8000 14000 32000
70000 58000 94000 222000
Less Opening Stock 8000 9000 12000 29000
Production after loss 62000 49000 82000 193000
Add loss in prod(*) 2583 1000 5234 8817
Production before loss 64583 50000 87234 201817
9. *Working Note
Calculation of Loss for product R
Total production is assumed as 100
(Less) Normal Loss (4%) 4
Net production 96
If net production is 96,Gross production is 100
If net production is 62000,Gross production
=100*62000/96=64583
Similar calculations are made for products S &
T
10. Production Cost budget
3)Your Company manufactures two products A &
B. A forecast of the number of units in the first
seven months of the year below.
It is anticipated that(i) there will be no work- in –
progress at the end of any month(ii) Finished
units equal to half the sales for the next month
will be in stock at the end of each
month(including the previous December)
Month Jan Feb March April May June July
Product A 1000 1200 1600 2000 2400 2400 2000
Product B 2800 2800 2400 2000 1600 1600 1800
11. Budgeted production and production costs the
whole arrear are as follows:
Prepare for the Six months ending 30 th June
, a production budget for each month and
summarized production cost budget
Particulars Product A Product B
Production (units) 22000 24000
Per unit:
Direct Material
Direct Labour
10
5
15
10
Total factory overhead
Apportioned
88000 72000
12. Particulars Jan Feb Mar April May June
Product A
Add: Closing Stock
(Half the sales for
Next month)
1000
600
1200
800
1600
1000
2000
1200
2400
1200
2400
1000
1600 2000 2600 3200 3600 3400
Less: Opening Stock
(half the sales for
current month)
500 600 800 1000 1200 1200
Budgeted Production 1100 1400 1800 2200 2400 2200
Product Budget (for Six months ending 30th June
13. Total Budgeted production for six
months:1000+1400+1800+2200+2400+2200
=11100 units
Summarized Production Cost production
Product A(out put 11100 units
Direct Material 10 111000
Direct Labour 5 55500
PRIME COST 15 166500
(+)Factory O/H * 4 44000
Total 19 210900
*Working Note:
Product A
Factory overheads per unit=Annual Overhead/Annual Output
88000/22000=4
14. Purchase Budget
4)The sales director of a manufacturing company reports that
next year he expects to sell 50000 units of a particular
product.
The production manager consults the storekeeper and casts
figures as follows:
Two kinds of raw materials A & B ,are required for
manufacturing the product. Each unit of the product
requires 2 units of A and 3 units of B. The estimated opening
balances balances at the commencement of the next year
are:
Finished product :10000 units
Raw materials :12000 units; B-15000 units
The desirable closing balances at the commencement of the
next year are :
Finished product 14000 units (A:13000 units, B:16000 units)
Prepare production budget and materials purchase budget for
the next year.
16. Materials Purchase or procurement Budget (units)
Material A Material B
Estimated consumption 108000(2*54000)
162000(3*54000)
Add Desired closing stock 13000 16000
121000 178000
Less Opening Stock 12000 15000
Estimated purchases 109000 163000
17. Sales Budget
5.P Ltd Manufactures two brands of pen Hero & Zero .The
sales department of the company has three departments
areas of the country.
The sales budget for the year ending 31.12.2008 were:
Hero:- Dept I -300000;Dept II- 562500;Dept III-180000
Zero:-Dept I 400000; Dept II-600000 and Dept III-20000.
Slaes prices are Rs 3 and Rs1.20 in all departments.
It is estimated that by forced sales promotion the sale of Zero
in department I will increase by 175000.It is also expected
that by increasing production and arranging extensive
advertisement ,Dept III will be enabled to increase the sale
of Zero by 50000.
It is recognized that the estimated sales by Dept II represent
an unsatisfactory target. It is agreed to increase both
estimates by 20%
18. Sales Budget
Selling
Price
Hero
Qty
Rs 3 Zero
Qty
Rs 1.20 TOtal
Dept I 300,000 900,000 575000(iiia) 690000 1590000
Dept II 675000(i) 205000 720000(ii) 864000 2889000
Dept III 180000 540000 70000(iiib) 84000 624000
Total 1155000 3465000 1365000 1638000 5103000
Working Note: Hero Zero
1) Dept II 562500*20%=112500 ii)Dept II 600000*20%=120000
562500+112500=675000
600000+120000=720000
iii)Zero brand
a)Dept I 400000+175000=575000
b)Dept III 20000+50000=70000
19. Cash Budget
6.From the particulars given below prepare a cash budget for
the month june 2008:
a)Expected Sales: April Rs200,000;May Rs220000;June
Rs190000
Credit allowed to customers is two months and 50% of the
sales of every month is on cash basis
b)Expected purchases: April Rs 120000; June 110000
40% of the purchase of every month is on cash basis and the
balance is payable next month
c)Rs 2000 is payable as rent every month
d)Time lag in of overhead is ½ month
Overhead: for may Rs12000; june Rs11000
e)Depreciation for the year is Rs12000
f)Interest receivable on investment during june & dec Rs
3000 each
20. Cash budget for the month of june 2008
Opening Balance 42500
(+)Receipts:
Cash Sales Rs95000(190000*50%)
Debtors Rs100000(1/2 of 200000)
Interest on investmentRs3000 198000
(-) Payments: 240500
Cash purchase Rs44000(110000*40%)
Creditors Rs72000(120000*60%)
Rent Rs2000
Overheads: May 6000
June 5500 Rs11500 129500
Closing Balance 111000
21. 7.Prepare a cash budget for 3 months ending 30th june
Month March April May June
Sales 60000 70000 80000 90000
Purchases 35000 40000 55000 60000
General exp 5000 6000 7000 8000
Adjustments:
a)20% of the sales are on cash basis ant the balance on credit
b)3% of the credit sales are returned by ht customers ,2% of the total
debtors constitute bad debts.,50% of the good debtors are collected in
the month of sales and rest in the next
c)Creditors are paid in the month of purchase
d)No time lag applies to the payment of general expenses
e)Salaries of Rs5000 p.m payable for the month of April & may and
Rs6000 thereafter
f)Rent of Rs1000 p.m is paid in addition to general expenses.
g)Cash in hand estimated on 1st April Rs10000.This is the minimum
desired cash balance at the end of each month. Any excess balance
being put in bank fixed deposits
22. Workings:-
Calculation of receipts from debtors
Particulars March April May June
Total sales
(-)Cash sales (20%)
60000
12000
(60000*20%
)
70000
14000
(70000*20%
)
80000
16000
(80000*20%
)
90000
18000
(90000*20%
)
Credit sales 48000 56000 64000 72000
(-)Sales returns& Bad
debts(3%+2%)5%
2400
(48000*5%)
2800
56000*5%
3200
(64000*5%)
3600
(72000*5%)
Good Debtors 45600 53200 60800 68400
Receipts from debtors:
(50%within the month of
sales)
22800
(45600*50%
)
26600
(53200*50%
)
30400
(60800*50%
)
34200
(68400*50%
)
Receipts in the next month:
(50% of previous month) -----
22800 26600 30400
23. Solution:
Cash budget for 3 months ending 30th june
Particulars April May June
Opening Balance
Receipts:-Cash sales
Debtors(see
working)
10000
14000
49400
10000
16000
57000
10000
18000
64600
Total Receipts(A) 73400 83000 92600
Payments:-Creditors(I
month)
35000 40000 55000
General Expenses
Salaries
Rent
6000
5000
1000
7000
5000
1000
8000
6000
1000
Total payments
Add Cash to be maintained
47000
10000
53000
10000
70000
10000
Total cash Required(B) 57000 63000 80000
Excess amount put in F.D 16400(73400- 20000(83000- 12600(92600-
24. Flexible Budget
8.Draw up a flexible budget for overhead expenses on the basis of
the following data and determine the overhead rates at 70% 80%
and 90% plant capacity
At 70%
Capacity
Rs
At 80%
Capacity
Rs
At 90%
Capacity
Rs
Variable Overheads:
Indirect Labour
Stores including spares
12000
4000
Semi-variable Overheads:
Power(30%Fixed,70% Variable)
20000
Repairs and maintenance
(60% fixed,40%variable)
2000
Fixed Overheads:
Depreciation
Insurance
Salaries
11000
3000
10000
Total Overheads 62000
Estimated direct labour hours:1240000hrs
25. Solution : Flexible Budget
At 70% Capacity Rs At 80%
Capacity Rs
At 90% Capacity
Rs
Variable Overheads:
Indirect Labour
Stores including spares
10500(12000*70/80)
3500(4000*70/80)
12000
4000
13500(12000*90/80)
4500(4000*90/80)
Semi-variable Overheads:
Power(30%Fixed,
(70% Variable)
6000
12250(14000*70/80)
6000(20000*30
%)
14000(20000*70
%
6000
15750(14000*90/80)
Repairs and maintenance:
(60% fixed,
40%variable)
1200
700(800*70/80)
1200(2000*60%)
800(2000*40%)
1200
900(800*90/80)
Fixed Overheads:
Depreciation
Insurance
Salaries
11000
3000
10000
11000
3000
10000
11000
3000
10000
Total overheads 58150 62000 65850
Estimated direct labour
hours
Direct labour hr rate
108500(124000*70/8
0)
124000
Rs 0.500
139500(124000*90/
80
26. 9The expenses for budgeted production of 10000 units in a factory are
furnished below
Particulars per unit
Material 70
Labour 25
Varialble overheads 20
Fixed overheads(Rs100,000) 10
Variable overheads(direct) 5
Selling expenses(10% fixed) 13
Distribution expenses(20% fixed )7
Administration expenses 5
Total cost per unit 155
Prepare a budget for production of
a)8000 units b)6000 units c)Indicate cost per unit at both the levels
Assume that administration expenses are fixed all levels of production
27. Flexible budget
Particulars 10000 units 8000 units 6000 units
Per unit Total amt Per unit Total amt
Production
Expenses
Materials
Labour
Overheads
Direct variable exp
70
25
20
5
700000
250000
200000
50000
70
25
20
5
560000(70*8
)
200000(25*8
)
160000(20*8
)
40000(5*8)
Fixed overheads
(Rs100000) 10 100000 12.50
100000/8000
100000
Selling expenses:
Fixed 10%
Variable
1.30(13*10%)
11.70(13*90%)
13000
117000
1.625
(13000/8000)
11.70
13000
93600
(11.70*8000)
Distribution expe
Fixed(20%)
Variable (80%)
1.40(7*20%)
5.60(7*80%)
14000
56000
1.750
(14000/8000)
5.60
14000
44800
