Flexible Budget/Revision of Budget

Problem 9. (Example 14 Page2.33) The Managing Director of XYZ Co. Ltd. has been given the following statement showing the results for a particular month:
Master Budget Actual Variance
Units Produced and 10,000 9,000 -1,000
Sales Sold 80,000 70,000 -10,000
Direct Materials 20,000 18,400 1,600
Direct Wages 30,000 26,224 3,776
Variable Overheads 10,000 9,328 672
Fixed Overheads 10,000 9,900 100
Total Cost 70,000 63,852 6,148
Profit 10,000 6,148 3,852
Note : Figures in the bracket indicates adverse variances
Is the calculation of variances correct? If not, then prepare a flexible budget for the month and compare with the actual results.
Fixed & Flexible Budget:
Problem 8. (Illustration 20 Page2.62) . The budget manager of Sunflower Ltd. is preparing flexible budget for the accounting year
starting from April 1, 2022. The company produces one product namely SFII. Direct material costs Rs.14 per unit.
Direct labour averagesRs.5 per hour and requires 1.6 hours to produce one unit of SFII. Salesmen are paid a commission of Rs.2 per unit
sold. Fixed selling and administrative expenses amount to Rs. 1,70,000 per year. Manufacturing overhead is estimated in the following
amounts under specified volumes :
Volume of production in units 1,20,000 1,50,000
Expenses (Rs.) (Rs)
Indirect material 5,28,000 6,60,000
Indirect labour 3,00,000 3,75,000
Inspection 1,80,000 2,25,000
Maintenance 1,68,000 2,04,000
Supervision 3,96,000 4,68,000
Depreciation of plant and equipment 1,80,000 1,80,000
Engineering services 1,88,000 1,88,000
Total manufacturing overhead 19,40,000 23,00,000

Prepare a total cost budget for 1,40,000 units of production.

VII Fixed & Flexible Budget:
Problem 7. (Example 12 . Page 2.31): ABC Company Ltd. is currently working at 50% capacity and produces 10,000
units. At 60% working, raw material cost increases by 2% and selling price falls by 2%. At 80% working, raw material
cost increases by 5% and selling price falls by 5%. At 50% capacity working, the product costsRs.180 per unit and sold
atRs.200 per unit. The unit cost ofRs.180 is made up as follows:
Rs.
Materials 100
Wages 30
Factory overheads (40% fixed) 30
Administration, selling and distribution (50%
20
Variable)
You are required to prepare a flexible budget showing the estimate of profit when business operates at 60% and 80%
capacity.
Solution
Statement of Flexible budget

Capacity 50% 60% 80%

Production
10,000 12,000 16,000
(units)
Price p.u.(Rs.)
Total (Rs.) Price p.u.(Rs.)Total (Rs.) Price p.u.(Rs.) Total (Rs.)
Selling Price 200 2000000 196.00 2352000 190 3040000
Material 100 1000000 102 1224000 105 1680000
Labour 30 300000 30 360000 30 480000
Prime Cost 130 1300000 132 1584000 135 2160000
Factory Overheads:
Variable 18 180000 18 216000 18 288000
Fixed 12
120000 10 120000 7.5 120000
Total Factory
30
Overheads: 300000 28 336000 25.5 408000
Admn. Selling and Dist.O/H:
Variable 10 100000 10 120000 10 160000
Fixed 10 100000 8.333333333 100000 6.25 100000
Total Admn. 20
Selling and 200000 18.33333333 220000 16.25 260000
Total Cost
Dist.O/H: 180 1800000 178.3333333 2140000 176.75 2828000
Profit 20 200000 17.67 212000 13.25 212000
VI Cash Budget:
Problem 6. (Example 8. Page 2.23) The following data relate to Cosmos Ltd. The financial manager has made the following
sales forecasts for the first five months of the coming year, commencing from 1st April, 2025.

Month Sales (Rs)

April 40,000
May 45,000
June 55,000
July 60,000
August 50,000

Other data:
(i) Debtors’ and creditors’ balances at the beginning of the year are 30,000 and 14,000 respectively. The balances of other
relevant assets and liabilities are :.
Cash Balance 7,500
Stock 51,000
Accrued sales 3,500
(i) commission
40 percent sales are on cash basis. Credit sales are collected in the month following the sale.
(ii) Cost of sales is 60 percent on sales.
(iii)The only other variable cost is a 5 percent commission to sale agents. The sales commission is paid in a month after it is
earned.
(iv) Inventory (Stock) is kept equal to sales requirements for the next two months budgeted sales.
(v) Trade creditors are paid in the following month after purchases.
(vi) Fixed costs are 5,000 per month including 2,000 depreciation
You are required to prepare a cash budget for the months of April, May and June 2025 respectively

Solution Working Notes

(i) Given:
Month Sales
Cash Budget for the Period from April-June, 2025
April 40,000
Particulars April May June For Whole May 45,000
Opening Balance (A) 7,500 33,000 37,000 Quarter
7,500 June 55,000
Receipts: July 60,000
Cash Sales 16000 18000 22000 56000 August 50,000
Collection from debtors 30000 24000 27000 81000
Total Receipts (B) 46000 42000 49000 137000 (ii) Payment of creditors
Total Cash Available 53,500 75,000 86,000 144,500 Particulars April May June
(A+B) Desired ending inventory,
60% of sales of next two 60000 69000 66000
Payments (C): months (Cost of sales )
Add: Cost of sales of
24000 27000 33000
Payments to Creditors 14000 33,000 36,000 83000 current month's sale
Sales Commission (5% Total finished goods
of previous month's 3500 2000 2250 7750 84,000 96,000 99,000
requirement
sales)
Fixed Costs (5,000- 3,000 3,000 3,000 9,000 Less: Opening stock 51,000 60,000 69,000
2,000)
Total Payments (C) 20,500 38,000 41,250 99,750 Purchases 33,000 36,000 30,000
Total Cash Balance 33,000 37,000 44,750 44,750 Payment to creditors (Lag 14,000 33,000 36,000
(A+B-C) period –1 month)
 Excel Applications in Budgeting (Problems taken from Management Accounting Book by Prof. Surender Singh)
I Sales Budget:

Problem 1. (Example 1. Page 2.11) AB Ltd. manufactures two types of product A and B and sells them in X and Y markets. The following
information is available for the year 2023-24

Market Product Budgeted Price Actual Price

Quantity (Rs.) Quantity (Rs.)
X A 4,000 9 5,000 9
B 3,000 41 2,000 41
Y A 6,000 9 7,000 9
B 5,000 41 4,000 41

Sales forecast for the next year reveals that product A is very popular but at the same time underpriced. It is estimated that it will also continue to
find a ready market even if its price is increased by Rs.1. On the other hand, product B is over-priced and it can bring more sales if price is reduced
to Rs.40. The management has approved the plan to give effect to the above price changes. The sales manager has made the following estimates:

% increase in sales over

Product current year's actuals
Market X Market Y
A 10 5
B 20 10

He also estimates that the following additional sales are possible with the help of an intensive advertisement campaign.
Market X Market Y
Product
(Units) (Units)
A 500 650
B 600 600

You are required to prepare the sales budget for the next year, i.e., 2024-25 based on the sales managers estimates both in quantitative and monetary
terms.

Solution

Workings: Calculation of budgeted estimates of sales for 2024-25

Market X (units) Y (units)

Product A: Actual for the year 2023-24 5,000 7,000
Add: Increase of 10 % and 5% for X & Y 500 350
Add: Increase due to advt. campaign (as given) 500 650
Total 6,000 8,000
Product B: Actuals for current year 2023-24 2,000 4,000
Add: Increase of 20% and 10% for X & Y 400 400
Add: Increase due to advt. campaign 600 600
Total 3,000 5,000

Sales Budgets for the Year 2024-25

Product Market X Market Y Total
Unit Price (Rs.) Value (Rs.) Unit Price (Rs.) Value (Rs.) Unit Price (Rs.) Value (Rs.)
A 6,000 10 60000 8,000 10 80000 14,000 140000
B 3,000 40 120000 5,000 40 200000 8,000 320000
9,000 180000 13,000 280000 22,000 460000
II Production
Problem & Production
2. (Example Cost
2. Page 2.13) Budget: company submits the following figures for your considerations.
SR manufacturing

.
Product Product B
Actuals for 4th Quarter of 2023-24: A
Sales (units): January 10,000 12,000
February 8,000 10,000
March 12,000 14,000
Selling price per units (Rs.) 20 40
Estimates for 4th Quarter of 2024-25:
Increase in sales Quantity 10% 20%
Increase in selling price 25% 10%
Opening stock as on Jan. 1, 2025 (% of month's sales) 50% 50%
Closing stock for January and February,2025 (% of subsequent month's sale) 50% 50%
Stock position on 31st March 2025(units) 6,000 8,000
You are required to prepare the sales and the production budgets for the 4th quarter of 2024-25

Solution:
Working : Calculation of Budgeted Estimate of Sales (Quantitative) for 4th Quarter of 2024-25
Product A
Particulars January February March
Actual sales for the last year 10,000 8,000 12,000
Add: 10% increase in sales 1000 800 1200
Total 11,000 8,800 13,200
Product B:
Particulars January February March
Actual sales for the last year 12,000 10,000 14,000
Add: 20% increase in sales 2400 2000 2800
Total 14,400 12,000 16,800

Sales Budget for the 4th Quarter ending 31st March 2025
Product A Product B Total
Month Unit Price (Rs.) Value (Rs.) Unit Price (Rs.) Price (Rs.) Value (Rs.)
January 11,000 25 275000 14,400 44 908600
February 8,800 25 275000 12,000 44 803000
March 13,200 25 275000 16,800 44 1014200
Total 33,000 25 275000 43,200 44 2725800

Production Budget for 4th Quarter ending on 31st March 2025 (Units)
Particulars January February March For Whole
Product A Budgeted Sales 11,000 8,800 13,200 Quarter
33,000
Add :Desired closing stock (50% of Subsequent month's sale and 6,000 units as on 31st March, 2025) 4400 6600 6000 6000
15,400 15,400 19,200 39,000
Less: Opening stock (50% of month's sales as on January 1, 2025) 5500 4400 6600 5500
Production 9,900 11,000 12,600 33,500
Product B Budgeted Sales 14,400 12,000 16,800 43,200
Add :Desired closing stock (50% of Subsequent month's sale and 6,000 units as on 31st March, 2025) 6000 8400 8000 8000
20,400 20,400 24,800 51,200
Less: Opening stock (50% of month's sales as on January 1, 2025) 7200 6000 8400 7200
Production 13,200 14,400 16,400 44,000
III Production & Production Cost Budget:
Problem 3. (Example 3 Page 2.15) XYZ Co. Ltd. has prepared the following estimates of sales in units for the 3rd and 4th Quarter of accounting period 2024-25
Month Units
October, 2024 4,000
November, 2024 4,000
December, 2024 5,000
January, 2025 5,600
February, 2025 6,000
March, 2025 6,800
April, 2025 7,600
There will be no work in progress at the end of the month. The company has a policy of maintaining closing finished goods stock equal to 25% of the next month's
sale at the end of every month. This policy is also expected to be followed for closing stock as on 30th September, 2024. The budgeted production and cost for the
year ending 31st March, 2025 are given as follows:
Annual Production (Units) 60,000
Direct Material cost Per unit Rs.15
Direct Labour cost per unit Rs.10
Annual Factory Overhead to be apportioned to production Rs.3,00,000
You are required to prepare production budget and production cost budget for the six months ending 31st March, 2025.
IV Material Purchase Budget:
Problem 4. Illustration 5.Page 2.44) Mehra Food Products Ltd. has prepared the following sales budget for
the first five months of 2025

Month January February March April May

Sales 10,500 15,000 12,000 10,800 10,500
Budget (in
Units)
The inventory of finished products at the end of every month is to be equal to 25% of the sales estimate for the
next month. In January 2025, it is estimated that there will be 3,700 units of product on hand. There will be no
work in progress at the end of any month
Every unit of product requires two types of materials in the following quantities:
Material A: 4 kg.
Material B: 5 kg.

Materials equal to one half of the next month’s production are to be in hand at the end of the every month. This
requirement is expected to be met on 1st January, 2025. Budgeted prices for the purchase of materials are:

Material A: Rs.5 per kg.

Material B: Rs.4 per kg.

Prepare: (i) Production Budget from January to April, 2025.

(ii) Material purchase budget (in units and cost) from January to March, 2025.
V Sales Overhead Budget:
Problem 5. (Example 7. Page 2.21) From the information given below, prepare the sales overhead budget for the
quarter ending 31st December, 2024
Rs.
Advertisement 1250000
Salaries of Sales Department 1750000
Expenses of Sales Department 350000

Salaries of Counter Salesmen 2400000

Salaries of Travelling Salesmen 1200000

Counter salesmen are entitled to a commission at 2% of sales executed by them. Travelling salesmen are to be paid a
commission of 5% on the sales effected through them and a further 5% towards expenses.

Details of the Sales (Rs.)

Sales Zones Sales at counter Sales by Total Estimated

A 1,20,00,000 Travelling
30,00,000 1,50,00,000
B 90,00,000 Salesman
60,00,000 1,50,00,000
C 80,00,000 80,00,000 1,60,00,000
D 60,00,000 1,00,00,000 1,60,00,000
3,50,00,000 2,70,00,000 6,20,00,000

Solution
Sales Overhead Budget for the period ending 31st December 2024

Sales Zones A B C D Total

Counter's sales ( 12,000,000.00) ( 9,000,000.00) ( 8,000,000.00) ( 6,000,000.00) ( 35,000,000.00)
Sales by Travelling salesman ( 3,000,000.00) ( 6,000,000.00) ( 8,000,000.00) ( 10,000,000.00)( 27,000,000.00)
Total Sales ( 15,000,000.00) ( 15,000,000.00) ( 16,000,000.00) ( 16,000,000.00)( 62,000,000.00)

Variable Overheads
Counter Salesmen ( 240,000.00) ( 180,000.00) ( 160,000.00) ( 120,000.00) ( 700,000.00)
Commission
Travelling at 2%
Salesmen ( 150,000.00) ( 300,000.00) ( 400,000.00) ( 500,000.00) ( 1,350,000.00)
Commission
Travelling @ 5% Expenses
Salesmen ( 150,000.00) ( 300,000.00) ( 400,000.00) ( 500,000.00) ( 1,350,000.00)
@ 5%Variable Overhead (A)
Total ( 540,000.00) ( 780,000.00) ( 960,000.00) ( 1,120,000.00) ( 3,400,000.00)
Fixed Overheads:
Advertisement ( 1,250,000.00)
Salaries of Sales Dept. ( 1,750,000.00)
Expenses of Sales Dept. ( 350,000.00)
Salaries of Counter Salesmen ( 2,400,000.00)
Salaries of Travelling ( 1,200,000.00)
Salesmen
Total Fixed Overheads (B) ( 6,950,000.00)
Total Sales Overhead (A+B) ( 10,350,000.00)