Budgeting and Budgetary Control

1. The following are the budget estimates of plant servicing department in a manufacturing company:
Items of Cost Planned at 6000 service hour (Rs.) Planned at 9000 service hour (Rs.)
Salaries 28,000 28,000
Indirect Materials 42,000 63,000
Miscellaneous Costs 16,000 20,500
Required: Prepare a flexible budget for the department for 7,000, 8,000 and 9,500 service hours.

2. The following are the estimated sales of Philips Company for eight months ending 30-10-2008.
April 2008 12,000 units
May 2008 13,000 units
June 2008 9,000 units
July 2008 8,000 units
August 2008 10,000 units
September 2008 12,000 units
October 2008 14,000 units
November 2008 12,000 units
As a matter of policy, the company maintains the closing balance of finished goods and raw materials as follows:
(i) Finished goods – closing stock of a month will be 50% of the estimated sales for the next month (ii) RM –
closing stock of a month will be equal to estimated consumption for the next month. Each unit of production
consumes 2 kg of raw material costing Rs. 6 per kg. Prepare the following budgets for the half year ending 30-
9-2008: (i) Production budget (monthwise in units) (ii) RM purchase budget (monthwise in units and cost).

3. The monthly budget for factory overheads for two levels of activity were as follows:
60% 100%
Budgeted Production (Units) 600 1000
Rs. Rs.
Wages 1200 2000
Consumable Stores 900 1500
Maintenance 1100 1500
Power and Fuel 1600 2000
Depreciation 4000 4000
Insurance 1000 1000
Total 9800 12000
You are required to prepare a budget for 80% capacity.

4. GMR Ltd. has supplied the following summary of its operating results for the year ending 31 st March 2007:
Sales (40,000 Units) 48.00
Less: Trade Discount (2.40)
Net Sales 45.60
Cost of Sales:
Direct Materials 14.40
Direct Wages 12.60
Factory Overhead 6.30
Administration Overhead 3.60
Selling and Administration Overhead 4.50
The following changes are to be incorporated in the budget for the year ending 31 st March 2008:
(i) Sales quantity to be increased by 25% (ii) Material prices to increase by 15%
(iii) Direct wage rates to go up by 12% (iv) Factory Overhead will increase by 15%. In addition, a new
facility will be added to the factory laboratory at a recurring cost of Rs. 12,500 per annum.
(v) Administration and selling and distribution overhead are estimated to go up by 10% and 14% respectively.
(vi) There will be no change in the rate of trade discount (vii) There will be no change in inventory
You are required to present the budget for the year ending 31st March 2008 showing the details of total cost,
sales and profit.
5. A factory is currently running at 50% capacity and produces 5000 units at a cost of Rs. 90 per unit as per
details given below:
Material 50
Labour 15
Factory Overheads 15 (Rs. 6 fixed)
Administrative Overheads 10 (Rs. 5 fixed)
The current selling price is Rs. 100 per unit. At 60% working, material cost per unit increases by 2% and selling
price per unit falls by 2%. At 80% working, material cost per unit increases by 5% and selling price per unit falls
by 2.5%. Prepare a flexible budget showing profits of the factory at 60% and 80% working and offer your
comments.

6. The following information relating to the third and last quarter of 2003-04 are furnished by a company which
manufactures and sells a single product:
Third Q Last Q
(Actual) (Estimate)
Sales ₹6,24,000 ₹6,60,000
Inventory of raw materials and finished goods:
Op Bal Cl Bal Cl Bal
Raw Material A (kg) 25,000 23,500 25,000
Raw Material B (kg) 12,650 13,400 15,000
Finished Goods (Units) 670 700 1000
Unit Cost Data: Raw Material A: 10 kg @ ₹3 = ₹30; Raw Material B: 5kg @ ₹2 = ₹10
Direct Labour (M/C Time 5 Hours @ ₹4): Machine Shop = ₹20; Assembly 2 Hours @ ₹5 (labour time) = ₹10
Production Overheads: Machine Shop @ ₹12 per machine hour; Assembly @ ₹10 per labour hour
Selling and Administration Overhead: 20% of Production Cost; Profit Margin: 10% on Selling Price
Production and sales occur evenly during the budget period. You are required to prepare for the last quarter of
the year. (a) Production Budget (in Units) (b) Purchase Budget (quantity and value) (c) Production Cost Budget

7. A company normally collects cash from credit customers as follows: 50 percent in the month of sale, 30 percent
in the first month after sale, 18 percent in the second month after sale, and 2 percent are never collected. Sales,
all on credit, are expected to be as follows:
₹
January 5,00,000
February 6,00,000
March 4,00,000
April 5,00,000
Calculate the amount of cash expected to be received from customers during (a) March, (b) April.

8. From the following forecast of income and expenditure prepare a Cash Budget for the three months ending
on June, 2008
Month Sales ₹ Purchase ₹ Wages ₹ Misc. ₹
February ‘08 1,20,000 84,000 10,000 7,000
March ‘08 1,30,000 1,00,000 12,000 8,000
April ‘08 80,000 1,04,000 8,000 6,000
May ‘08 1,16,000 1,06,000 10,000 12,000
June ‘08 88,000 80,000 8,000 6,000
Additional Information: (i) Sales: 20% realized in the month of sales, discount allowed 2%, balance realized
equally in two subsequent months. (ii) Purchases: These are paid in the month following the month of supply
(iii) Wages: 25% paid in arrears following month (iv) Misc. Expenses: Paid a month in arrears (v) Rent: ₹1000
per month paid quarterly in advance due, in April (vi) Income Tax: First Instalment of advance tax, ₹25,000 due
on or before 15th June to be paid within the month (vii) Income from Investment: ₹5,000 received quarterly in
April, July etc., (viii) Cash in hand, ₹5,000 in April 1, 2008