Example – 1 : Sales Budget

ABC & Co manufactures two products X and Y and sells them through two
divisions North and South. For the purpose of submission of sales budget to the
budget committee the following information has been made available:

Budgeted Sales for the current year were:

Product North South

X 400 @ Rs. 9/- 600 @ Rs. 9/-
Y 300 @ Rs. 21/- 500 @ Rs. 21/-
Actual sales for the current year were :
Product North South
X 500 @ Rs. 9/- 700 @ Rs. 9/-
Y 200 @ Rs. 21/- 400 @ Rs. 21/-
Adequate market studies reveal that Product X is popular but under-priced. It
is observed that even if price of X is increased by one rupee, it will find a ready
market. On the other hand Y is over-priced to customers and market could absorb
more if sale price of Y is reduced by one rupee. The management has agreed to give
effect to the above price changes.

From the information based on these price changes and reports from
salesmen, the following estimates have been prepared by Divisional Managers :
Percentage increase in sales over budget is :
Product North South
X + 10% + 5%
Y +20% +10%
With the help of an intensive advertisement campaign the following additional
sales above the estimated sales of divisional managers are possible :

Product North South

X 60 70
Y 40 50
You are required to prepare a Budget for sales incorporating the above
estimates and also show the budgeted and actual sales of the current year.

Example – 2

Alpha Manufacturing Ltd., manufactures three products A, B and Z and sells them
through three divisions – North, South and West.

Sales Budget for the current year based on the estimates of the sales division
managers were ; A – North 36000, South 30,000 and West 24,000; B – North
15,500, South 16,000 and West 17,560; and Z – North 33,000, South 41,000 and
West 18,000. Current sale prices are Rs. 50, Rs. 30 and Rs. 10 for product A, B and
Z respectively in all areas.
Actual sales for the year were A – North 38,200, South 35,000 and West
25,600; B – North 15,800, South 15,850 and West 18,000 and Z – North 33,100,
South 41,050 and West 17,500.
A market research conducted by the management of the company reveals
that by reducing its price by 10%, sale of product A can be increased by 20% in
North and South zones and by 15% in west zone. The survey also indicated that
price of product B can be increased by 10% without affecting its sales. In fact, inputs
by Salesmen indicates that the sale of Product B will increase by 5%, 8% and 10% in
North, South and West Zones respectively. Product Z is properly priced but
extensive advertisement could increase its sale by 5% and 10% in North and West
Zones.
 The management has decided to launch an extensive sales campaign which
will increase the sales of all the products as under:-

A – North 1,500, South 240, West 55; B – North 600, South 1,000, West
1,050 and Z – North 600, South “nil” and West 700.

Prepare a Sales Budget and also show the budgeted actual sales of current
year.

Example – 3 (a) : Production Budget

Bell Flag Company plans to sell 1,08,000 units of its product in the first fiscal quarter;
1,20,000 units in the second quarter; 1,32,000 units in the third quarter and 1,56,000
in the fourth quarter. It also plans to sell 1,38,000 units in the first quarter of the
following year. At the beginning of the first quarter of the current year, there are
18,000 units of product in the stock. At the end of each quarter, the company plans
to have an inventory equal to one-sixth of the sales for the next fiscal quarter.
You are required to prepare a Production Budget (schedule).

Example – 3 (b) : Production Budget & Purchase Budget

The following are the estimated sales of a company for eight months ending 30 th
November of a year:
April – 12,000; May – 13,000; June – 9,000; July – 8,000; August – 10,000;
September – 12,000; October – 14,000; November – 12,000.
As a matter of policy, the company maintains the closing balance of finished
goods and raw materials as follows:
Finished Goods – 50% of the estimated sales for the next month
Raw Materials – Estimated consumption for the next month.

Every unit of production requires 2 kgs of raw material costing Rs. 5 per kg.
Prepare Production Budget (in units) and Raw Material Purchase Budget (in
units and cost) of the Company for the half year ending 30 th September.

Example – 4 : (Direct) Materials Budget

Draw a material procurement budget (physical units) from the following information :

Estimated sales during the next year will be 40,000 units. Materials required
will be 3 units of A and 5 units of B for each unit of finished products sold.

Estimated opening balances at the commencement of next year:

Finished Product 5,000 units Materials on order:

Material A 12,000 units Material A 7,000 units
Material B 20,000 units Material B 11,000 units

Desirable closing balance of materials at the end of next year

Finished Product 7,000 units Materials on order:
Material A 15,000 units Material A 8,000 units
Material B 25,000 units Material B 10,000 units

Example – 5 : (Direct Materials) Purchase Budget

 On 01 Jan 21, Cool Breeze Manufacturing Ltd., had the following raw
materials inventory.

Type of Material Quantity Price (Rs.’000) Amount (Rs.’000)

L 700 UNITS 3 2100
M 15 TONS 35 525
N 1,500 KG 0.75 1,125
O 800 LITERS 1.00 800
P 10,500 UNITS 0.20 2,100
TOTAL 6,650

The management summarised the consumption of different types of raw

material required for production in various departments in the following manner:

Departments
Material
Q-I Q-II Q-III Q-IV
L 4,500 - 3,000 500
M 11 3 - 4
N - 600 700 1,350
O 350 700 - -
P 5,600 6,300 1,500 800

Following inventory as on 31 December 2021 is desired.

L - 800 units
M - 7 Tons
N - 1,050 Kgs
O - 750 Liters
P - 600 units
Assuming that all prices will remain constant, prepare the Purchase Cost Budget for
the year 2021.

Example – 6 : Direct Labour Budget

Bhandari Foods Pvt Ltd manufactures two products using one type of material and
one grade of labour. Details extracted from the company’s records are as under:-

Product A Product B
Budgeted Sales (units) 3,600 4,800
Budgeted material consumption, per unit (kg) 5 3
Budgeted materials cost (per kg) Rs. 12 Rs. 12
Standard hours allowed per unit 5 4
Budgeted wage rate Rs. 8 Rs. 8

a. The target productivity ratio (or efficiency ratio) for the productive hours
worked by the direct workers in manufacturing is 80%; in addition the non-
productive down-time is budgeted at 20% of the productive hours worked.
b. Overtime premium is 50% and is payable if a worker works for more
than 40 hours a week. There are 90 direct workers.
c. There are twelve 5-day weeks in the budget period and it is anticipated
that sales and production will occur evenly throughout the whole period.
d. It is anticipated that stock at the beginning of the period will be :
Product A – 1020 units; Product B – 2400 units; Raw material – 4,300 kgs.
 e. The target closing stock expressed in terms of anticipated activity
during the budgeted period are : Product A – 15 days sales; Product B – 20
days sales; Raw material – 10 days consumption.
Required : Prepare the material purchase budget and the wages budget for
the direct workers, showing the quantities and values, for the next period.

Example – 7 : Overhead Budget

Budget manager of Yardley Chemicals Ltd was tasked to prepare a overhead budget
for the accounting year commencing 1 st April 2021. Since he had to proceed on
emergency leave he could not complete the task. The management desires that you
prepare a budget for the overheads. On searching the desk of the Budget manager
you find the following information:-

Volume of Production (in units) 1,20,000 1,50,000

Expenses :
Indirect Materials (Rs) 2,64,000 3,30,000
Indirect Labour (Rs) 1,50,000 1,87,500
Maintenance Expenses 84,000 1,02,000
Engineering Services 1,98,000 2,34,000
Supervision Cost 94,000 94,000

Calculate the cost of factory overhead at 1,30,000 and 1,40,000 units of production.

Example – 8 : Selling and Distribution Overhead Budget

You are required to prepare a Sales Overhead Budget from the estimates given
below:

Advertisement Rs. 2,500

Salaries of the Sales Department Rs. 5,000
Expenses of Sales Department Rs. 1,500
Counter Salesmen’s salary and Dearness Allowance Rs. 6,000
Commission to Counter Salesmen at 1% of total sales.
Travelling salesmen’s commission at 10% of total sales and expenses at 5%
of total sales.
The sales during the period were estimated as follows :
Counter Sales Travelling Salesmen’s Sales
80,000 10,000
1,20,000 15000
1,40,000 20,000

Example – 9 : Operating Budget

KPK Ltd., has supplied the following summary of its operating results for the year
ending 31 March 2021:
Rs. In Lakhs
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 distribution overhead 4.50

The Following changes are to be incorporated in the budget for the year ending 31
March 2022:
(i) Sales quantity to be increased by 25%
(ii) Material prices to increase by 15%
(iii) Direct wages rates to go up by 12%
(iv) Factory overhead will increase by 15%.
(v) A new facility will be added to factory laboratory at a recurring cost of Rs.
12,500 per annum
(vi) Administration and Selling & Distribution overhead are estimated to go up
by 10% and 14% respectively.
(vii) There will be no change in the rate of trade discount
(viii) There will be no change in the selling price of the product.
You are required to present the budget for the year ending 31 March 2022, showing
the details of total cost, sales and profit. (Assume that only Dir Material and Dir
Wages are the variable elements)

Example – 10

M/s ABC Ltd is presently manufacturing two products during 2021 the details of
which are as under:
Product X Product Y
Selling price per unit ₹ 2.00 ₹ 3.50
Dir Material/ Unit (Rs) ₹ 0.50 ₹ 0.75
Dir Wages / Unit (Rs) ₹ 0.25 ₹ 0.50
Output (Units) 2,00,000 1,00,000

Variable Factory OH is absorbed at 100% of Direct Wages. Other Variable Costs

have been computed as : Product X - ₹ 0.25 / Unit and Product Y - ₹ 0.30/ Unit.
Fixed Factory Overheads are ₹ 1,00,000. Fixed Selling & Distribution Overheads
are ₹ 80,000.

During the year 2022, it is expected that the demand for Product X will fall by 25%
and for Product Y by 50%. It is decided to manufacture another Product Z, the cost
for which is estimated as given below:
Product Z
Selling price per unit ₹ 1.75
Dir Material/ Unit ₹ 0.40
Dir Wages / Unit ₹ 0.25
Output (Units) 2,00,000

It is anticipated that the other Variable Costs per unit for Product Z will be same as
for Product X.
Prepare a budget showing the current position and the position for 2022 (Assume
that the entire output is sold). Comment on the comparative results

Example – 11

Amanda Printing Pvt Ltd ended with the following profit/loss during the year 2020:
(All figures in lakhs of ₹)

Sales - 35.58
Less : Expenses – Raw Materials - 7.42
Stores - 4.88
Other Expenses - 20.40
 Interest - 2.00
Depreciation - 2.00 36.70
Loss for the year - 1.12

The press had been working at 60% capacity during 2020. Of the “Other expenses”
of Rs. 20.40 lakhs, 25% is variable. In the year 2021 production/ sales volume at
80% capacity is expected to be achieved. Fixed cost is however expected to
increase by Rs. 1.20 lakhs. Draw the 2021 Budget.

Example – 12

The cost of an article at a capacity level of 5000 units is given under Column A
below. For a variation of 20% in capacity above or below this level, the individual
expenses vary as indicated under Column B below:

Item A (₹) B
Material Cost 25,000 100% varying
Labour Cost 15,000 100% varying
Power 1,250 80% varying
Repairs and maintenance 2,000 75% varying
Stores 1,000 100% varying
Inspection 500 20% varying
Depreciation 10,000 100% varying
Administration Overhead 5,000 25% varying
Selling Overhead 3,000 50% varying
Total 62,750
Cost per unit Rs. 12.55
Find the unit cost of the product under each individual expenses at production levels
of 4000 units and 6000 units.

Example – 13: Cash Budget

From the following data forecast the cash position at the end of April, May and
June 2022.

Month Sales (Rs) Purchases Wages (Rs) Sales

(Rs) Expenses (Rs)
February 1,00,000 90,000 10,500 2,500
March 1,10,000 1,00,000 11,000 2,600
April 60,000 1,10,000 7,000 2,000
May 1,20,000 1,15,000 10,500 3,000
June 80,000 90,000 8,500 2,200

Further information:

1. Sales at 10% realized in the month of sales. Balance equally realized in two
subsequent months.
2. Purchases : Creditors are paid in the month following the month of supply
3. Wages : 20% paid in arrears in the following month
4. Sales expenses paid in the month itself.
5. Income tax of Rs. 30,000 payable in June
6. Dividend of Rs. 12,000 payable in June
7. Income from investments amounting to Rs. 5,000 received half-yearly in
March and September.
8. Cash balance in hand as on 01 April 2022 – Rs. 50,000

Example – 14: Cash Budget

From the following data forecast the cash position at the end of each month.

Month Total Sales Materials Wages (Rs) Production Selling &

(Rs) (Rs) overhead Distribution
(Rs) overheads
(Rs)
January 20000 20000 4000 3200 800
February 22000 14000 4400 3300 900
March 28000 14000 4600 3400 900
April 36000 22000 4600 3500 1000
May 30000 17500 4000 3200 900
June 40000 20000 5000 3800 1000

Additional Info:-
1. Opening Balance of Cash as on January – Rs. 10000
2. A new machine has to be installed for Rs. 20,000 in credit. Payment for the
same will be done in two equal instalments in the month of March and April.
3. Sales commission @ 5% on total sales is to be paid in the month following the
sales.
4. Rs.10,000 being the amount on second call may be received in the month of
March. Share premium amounting to Rs.2000 is also expected to be received
along with the second call.
5. Period of credit allowed by suppliers is two months.
6. Period of credit allowed to customers is one month.
7. Delay in payment of overheads is one month.
8. Wages are paid with half month delay.
9. Assume cash sales to be 50% of total sales.

Example – 15

From the following data prepare a cash budget according to adjusted profit and loss
method.
BALANCE SHEET
As on 31 March 2020

Liabilities Rs Assets Rs
Share Capital 100,000 Premises 50,000
General Reserve 20,000 Machinery 25,000
Profit & Loss Account 10,000 Debtors 40,000
Creditors 50,000 Closing Stock 20,000
Bills Payable 10,000 Bill Receivable 5,000
Outstanding Rent 2,000 Prepaid Commission 1,000
Bank Balance 51,000
Total 192,000 Total 192,000

TRADING, PROFIT AND LOSS ACCOUNT (Projected)

For the year ending 31 March 2021
Rs Rs
To Op Stock 20,000 By Sales 200,000
To Purchases 150,000 By Closing Stock 15,000
To Octroi 2,000
To Gross Profit c/d 43,000
215,000 215,000

To Interest 3,000 By Gross Profit b/d 215,000

To Salaries 6,000 By Misc Receipts 5,000
To Depreciation 7,500
To Rent 6000
Less: Last yr O/S 2000
4000
Add : Outstanding 1000 5,000
To Commission 3000
Add : Prepaid last yr 1000 4,000
To Office Expenses 2,000
To Advt Exp 1,000
To Net Profit c/d 19,500
48,000 48,000
To Dividend 8,000 By Bal profit from L/yr 10,000
To Addition to Reserve 4,000 By Net profit b/d 19,500
To Balance c/d 17,500
Total 29,500 Total 29,500
Closing balance of certain items:

Share capital Rs. 120,000; 10% Debentures Rs. 30,000

Creditors – Rs.40,000; Debtors – Rs. 60,000;
Bills Payable – Rs. 12,000; Bills Receivable – Rs. 4,000;
Furniture – Rs. 15,000; Plant Rs.50,000 (both these assets to be purchased
by the end of accounting year)

Example – 16 (Over draft facilities)

Based on the following information prepare a cash budget for XYZ Ltd :

Quarter Q1 Q2 Q3 Q4
Opening balance 10,000
Collection from customers 1,25,000 1,50,000 1,60,000 2,21,000
Payments
35, 35, 54,
Purchase of materials 20,000 000 000 200
20, 20, 17,
Other Expenses 25,000 000 000 000
95, 95, 1,09,
Salary and wages 90,000 000 000 200

Income tax 5,000 - - -

20,
Purchase of machinery - - - 000

The Company desires to maintain a cash balance of Rs. 15,000 at the end of
each quarter. Cash can be borrowed or repaid in multiples of Rs. 500 at an interest
of 10% per annum. Management does not want to borrow cash more than what is
necessary and wants to repay as early as possible, In any event, loans cannot be
extended beyond four quarters. Interest is computed and paid when principal is
repaid. Assume that borrowing take place at the beginning and repayments are
made at the end of the quarters.

Example – 17

G Ltd manufactures two products called ‘M’ and ‘N’. Both products use a common
material Z. The raw material Z is purchased@ Rs. 36 per kg from the market. The
company has decided to review inventory management policies for the forthcoming
year. The following information has been extracted from departmental estimates for
the year ended 31 March 2018 (the budget period):

Product M Product N
Sales (units) 28,000 13,000
Finished goods stock increase by year -end 320 160
Post-production rejection rate (%) 4 6
Material Z usage (per completed unit, net of wastage) 5 kg 6 kg
Material Z wastage (%) 10 5
Additional information:
o Use of raw material Z is expected to be at a constant rate over the period.
o Annual cost of holding one unit of raw material in stock is 11% of the material
cost.
o The cost of placing an order is Rs.320 per order.
o The management of G Ltd has decided that there should not be more than 40
orders in a year for the raw material Z.

Required :
1. Prepare functional budgets for the year ended 31 st March 2021 under the
following headings:
a. Production budget for Products M and N (in units)
b. Purchases budget for Material Z (in kgs and value)
2. If there is a sole supplier for the raw material Z in the market and the supplier
do not sell more than 4000 kg of material Z at a time. Keeping the
management purchase policy and production quantity mix into consideration,
calculate the maximum number of units of Product M and N that could be
produced.