BUDGETARY CONTROL

Problem 1

The expenses budgeted for production of 10,000 unit in a factory are furnished below:
Prepare a flexible budget for production of 8,000 units.

Per unit in Rs
Material cost 70
Labour cost 25
Variable factory over head 20
Fixed over head (Rs. 1,00,000) 10
Variable expenses(Direct) 5
Selling expenses (20% fixed) 15
Distribution overhead (10% fixed) 10
Administration expenses (Rs, 50,000) 5

Problem 2

A manufacturing company submits the following figures of product ‘Z’ for the first quarter of 2017.
Sales (in units)
January 50,000
February 40,000
March 60,000
Selling price per unit Rs. 100
Sales target of 1st quarter 2017:
Sales quantity increase 20%
Sales price increase 10%
Prepare sales budget for the first quarter of 2017.

Problem 3

A manufacturing company submits the following figures relating to product X for the first quarter of 2017.

Sales targets: January 60,000 units

February 48,000 units
March 72,000 units
Stock position: 1-1-2017(% of January 2017 sale) 50%
Stock position: 31-3-2017 40,000 units
Stock position: End January & February 50%
(% of subsequent month’s sales)
You are required to prepare production budget for the first quarter of 2017.

Problem 4

A factory is currently working at 50% capacity and produces 10,000 units product P, the unit cost of which is Rs.
180 comprised as follows :-
Rs.
Direct Material 100
Direct Labour 30
Factory Overhead 30 (40% Fixed)
 Administration Overhead 20 (50% Fixed)
The selling price per unit is 200.

If the capacity is increased to 60%, the raw material cost will increase by 2% and selling price falls by 2%. At
80% capacity, raw material cost increases by 5% and selling price falls by 5%.
You are required to work out the total costs and profit for the three capacity levels and prepare a brief note for
the management on the profitability at these levels of performance with your recommendation.

Problem 5

Prepare a quantitative production, material usage & purchases budget from the following data of a month.

Particulars Product A Product B

Budgeted Sales quantity 15000 Units 17,500 Units.
Material consumption p.u
 Material P (Rs.3 per kg) 2 kgs 4 kgs
 Material Q (Rs.2 per kg) 3.125 kgs 1 kgs.

Stocks of products and materials are as under

Particulars Product A Product B Material P Material Q

(in units) (in units) (in kgs) (in kgs)
Opening stock 750 875 12000 8000
Closing stock 1750 3375 ? ?

The company wishes to operate a JIT material inventory system. As an initial procedure, it wishes to maintain
minimum stock of materials equivalent to 2 days consumption. There are 28 working days in a month.

Problem 6

Look- ahead Ltd produces and sells a single product. Its Sales Budget for a calendar year, quarter-wise is as
under:

Quarter I II III IV
Units to be sold 12000 15000 16500 18000

There is an opening stock of 4000 units of the products and closing stock is estimated to be 25% above.
Production is customarily scheduled to provide for 2/3rd of the current quarter’s sales plus 1/3rds of the next
quarter’s sales demand. Thus production anticipates sales volume by about a month.

The standard cost per unit of the product is as under.

 Direct materials 10kgs at Rs.0.50 per kg.
 Direct Labour 1 hour 30 minutes at Rs.4 per hour
 Variable OH @Re.1 per labour hour.
 Fixed OH @ Rs.2 per labour hour based on a budgeted sales volume of 90,000 hours for the year.

Prepare a production budget for the year showing quarter-wise, quantity to be produced, and the costs of materials,
labour and overheads.
If the selling price is Rs.17 p.u, what is the annual budgeted profit?

Problem 5

X Ltd. produces a standard product, the estimated cost of which is given below;
Raw Materials Rs.10 p.u
Direct Wages Rs.8 p.u
 Direct expenses Rs.2 p.u
Variable OH Rs. 3 p.u
Semi-variable OH at 100% activity level (10,000 units) are expected to be Rs.40,000, and these OH vary in steps
of Rs.2000 for each change of output of 1000 units. Fixed OH are estimated at Rs.50,000. Selling price p.u is
expected to be Rs.40. Prepare a flexible budget at 50%, 70% and 90% levels of activity.

Problem 6

From the following data prepare a flexible budget for production of 40,000 units. 60,000 units and 75,000 units
of product X, distinctly showing variable and fixed cost as well as total cost. Also indicate element-wise cost p.u
Budgeted output and budgeted cost per unit:
Budget output 100,000 units
p.u cost
Direct material 90
Direct labour 45
Direct variable expenses 10
Manufacturing variable OH 40
Fixed production OH 5
Administration OH (fixed) 5
Selling OH 10 (10% fixed)
Distribution OH 15 (20% fixed)