L24 Problems On Bud Getting

-------------Problem Set on Budgetary Control -----------Problem 2 – (ICWA) Prepare Production Budget for each month and summarized Production Cost Budget for six months period ending 31st December 2003 from the following data of product X. a) Units to be sold for different periods are as follows July 2003 1100 August 1100 September 1700 October 1900 November 2500 December 2300 January2004 2000 b) There will be no work in progress at the end of the month c) Finished goods equal to half the sales for the nest month will be in stock at the end of each month (including June 2003) d) Budgeted production and production cost for the year ending 31st December 2003 are as under Production Units 22000 Direct material Cost Rs.10 Direct Wages per unit Rs.4 Total Factory Overheads 88000 (Apportioned to the product) ------------------------------------------------------------------------------------------------------Problem 3 – A factory is currently working at 50% capacity and produces 10,000 units at cost of Rs.180 per unit as per following details. Rs. Material 100 Labor 30 Factory Overheads 30 (40% Fixed) Administrative Overheads 20 (50% Fixed) Total 180 The selling price at present is Rs. 200 per unit. At 60% capacity working material cost per unit increases by 2% and selling price per unit falls by 2%. At 80% working material cost increases by 5% and selling price falls by 5%. Prepare flexible budget to show the profits and losses at 60 % & 80% capacity utilization. -----------------------------------------------------------------------------------------Problem 4 – The Nikko Ltd. allocates resources to its R&D activities based on the profit performance of the firm. The pattern set by the company for this is as under Basic/Initial Allocation – Rs 300000 If profits increase by 5% Plus 100000 If profits increase by 25 % Plus 300000 If profits increase by 40 % Plus 400000 The capacity of the company is 200000 units pa The normal capacity to produce/sale is 50% i.e. 100000 units, fixed cost is 300000, the variable cost pu is 12 and selling price is Rs.20 Further given that For capacity utilization from 51-70% selling price will drop to Rs.19 For capacity utilization from 71-80% selling price will drop to Rs.18.50 Based on above data prepare flexible sales budget for the company and then compute the probable allocation for R&D center under various options. -------------------------------------------------------------------------Problem –5 The Delhi Electric Supply Co Ltd. Has a business of supplying electrical goods to various Government and non-government companies. The controller in collaboration with the economist, has developed the following equation that , he says, will forecast sales quite well, based on past pattern of behavior: Monthly sales (Amount) = Rs. 1,00,000 + (Rs 2000 * Orders Received in prior Month) The sales manager is confused and seeks your advice. He presents you with the following data regarding actual and forecast numbers of orders. The forecasts have been quite accurate. August

(Actual )

200

September (Forecast)

300

October

450

November

700

December 650 The sales manager wants sales and income budget for months Sep-Jan. The cost accountant informs you that the cost of goods sold ids 60% of sales and fixed cost is 2,00,000 per month. You are required to help the sales manager. =========================================================

Problem 1. Sales Budget A manufacturing company submits the following figures for the first quarter of 2003 and targets for next quarter. a.Prepare sales budget for first quarter of 2004. Particulars Sales (Units) Jan Feb Mar Selling Price per Unit Target for Ist Quater Increase in Quantity Sales Price Increase

Product X

Product Y

Product Z

35000 30000 40000 15

40000 35000 45000 25

20000 20000 20000 45

25% 5%

15% 15%

15% 30%

b. Given 8 hours a shift and company runs in two shifts Company is carrying stock of 120000 units of material A and 110000 of material B and expects to keep closing stock of 10% of current quarters requirement Prepare the purchase and labor budget Material & labor requirement of the products are given as under Prod X

Prod Y

Prod Z

Material A Material B

2 3

5 1

Price/Rate 2 Rs.1 p.u. 4 Rs.2 p.u.

Labor Hrs

0.5

0.3

0.25 Rs.20 per Hr

Solution – Sales Budget for Ist Quarter of 2004 Month Prod.X Prod.Y Prod.Z Quantity Price Quantity Price Quantity Price 25% Up 5% Up Amount 15% Up 15% Up Amount 15% Up 30% Up Amount Jan 43750 15.75 689063 46000 28.75 1322500 23000 58.5 1345500 Feb 37500 15.75 590625 40250 28.75 1157188 23000 58.5 1345500 Mar 50000 15.75 787500 51750 28.75 1487813 23000 58.5 1345500 Total

131250

15.75 2067188 138000

28.75 3967500

69000

Added problem – (Self Structured) Material Purchase and Labor Budget Material & labor requirement of the products are given as under Prod X

Prod Y

Prod Z

Price/Rate

58.5 4036500

Material A Material B

2 3

5 1

Labor Hrs

30 min

20 min

2 4

Rs.1 p.u. Rs.2 p.u.

15 min Rs.20 per Hr

Given 8 hours a shift and company runs in two shifts for 25 days in a month. Company is carrying stock of 120000 units of material A and 110000 of material B and expects to keep closing stock of 10% of current quarters requirement Prepare the purchase and labor budget Purchase Budget for Ist Quarter Labor Budget Total Prodn. Material A Material B Labor Hrs Product X 131250 262500 393750 65625 Product Y

138000

690000

138000

46000

Product Z

69000

138000

276000

17250

Requirement

1090500

807750 Total Hrs

128875

Less Opening Stock

120000

110000 Amount

2485500

Add Closing Stock

109050

80775

Total Requirement Rate Total Value

1079550 1 1079550

778525 2 1557050

A labor can put number of hours in a quarter = Hrs in day * days in a Month * Mths in a Quater = 8 * 25 * 3 = 600 Total man Hours Required for the Quarter are = 128875 Total Labor force required = 128875/600 = 214 ======================================== Problem 2 – (ICWA-Inter) Prepare Production Budget for each month and summarized Production Cost Budget for six months period ending 31st December 2003 from the following data of product X. e) Units to be sold for different periods are as follows July 2003 1100 August 1100 September 1700 October 1900 November 2500 December 2300 January2004 2000 f) There will be no work in progress at the end of the month g) Finished goods equal to half the sales for the nest month will be in stock at the end of each month (including June 2003)

h) Budgeted production and production cost for the year ending 31st December 2003 are as under Production Units 22000 Direct material Cost Rs.10 Direct Wages per unit Rs.4 Total Factory Overheads 88000 (Apportioned to the product) Solution – Monthly Production Budget July- Dec 2003 Particulars July August September October November December Total Expected sales 1100 1100 1700 1900 2500 2300 10600 Add Closing Stock 550 850 950 1250 1150 1000 5750 Less Opening Stock *550 550 850 950 1250 1150 5300 Net Production

1100 1400 1800 2200 2400 2150 11050 * 50% of July sales is closing stock for JUNE = Opening Stock for July

Summarized Production Cost Budget For production of 11050 units Total Production Required 11050 Units Direct Material Cost @ Rs 10 Rs 110500 Direct labor Cost @ Rs. 4 44200 Factory Overheads** 44200 Total Production Cost 198900 ** Factory O/H for full year production of 22000 units are Rs. 88000 Share of O/H = (11050/22000)*88000= 44200 (Treating them as variable else if we treat as fixed then exactly HALF will be taken for this six months)

Problem 3 – A factory is currently working at 50% capacity and produces 10,000 units at cost of Rs.180 per unit as per following details. Rs. Material 100 Labor 30 Factory Overheads 30 (40% Fixed) Administrative Overheads 20 (50% Fixed) Total 180 The selling price at present is Rs. 200 per unit. At 60% capacity working material cost per unit increases by 2% and selling price per unit falls by 2%. At 80% working material cost increases by 5% and selling price falls by 5%. Prepare flexible budget to show the profits and losses at 60 % & 80% capacity utilization.

Solution – FLEXIBLE BUDGET – Income Budget Particulars A. No of Units B. Selling Price p.u. C. Variable Cost p.u. I) Direct material ii) Direct wages iii) Factory O/H (60% of 30) iv) Admn. O/H (50% of 20) Total (C ) D. Total V.C.( C * A) E. Fixed Cost iii) Factory O/H (40% of 30)=12 iv) Admn. O/H (50% of 20)=10 Rs 22 p.u. at current level F. Total Cost G. Sales Revenue H. Profit

Capacity Utilization 50% 10000 200

60% 12000 196

80% 16000 190

100 30 18 10 158

102 30 18 10 160

105 30 18 10 163

1580000

1920000

2608000

220000

220000

220000

1800000 2000000 200000

2140000 2352000 212000

2828000 3040000 212000

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Problem 4 – (Self Set Problem) The Nikko Ltd. allocates resources to its R&D activities based on the profit performance of the firm. The pattern set by the company for this is as under Basic/Initial Allocation – Rs 300000 If profits increase by 5% Plus 100000 If profits increase by 25 % Plus 300000 If profits increase by 40 % Plus 400000 The capacity of the company is 200000 units pa The normal capacity to produce/sale is 50% i.e. 100000 units, fixed cost is 300000, the variable cost pu is 12 and selling price is Rs.20 Further given that For capacity utilization from 51-70% selling price will drop to Rs.19 For capacity utilization from 71-80% selling price will drop to Rs.18.50

Based on above data prepare flexible sales budget for the company and then compute the probable allocation for R&D center under various options. Solution – Income Budget and R&D Budget Total capacity Normal Capacity Fixed Cost

200000 100000

50% 100000 20

60% 120000 19

70% 140000 19

80% 160000 18.5

2000000 12 1200000 300000 500000

2280000 12 1440000 300000 540000

2660000 12 1680000 300000 680000

2960000 12 1920000 300000 740000

Sales Units Selling Price Sales Rs. VC Total VC Fixed Cost Profits % increase in Profit R&D Allocation R&D Allocation

8 36 48 Basic Up by 5% Up by 25% Up by 5% 300000 100000 300000 400000 300000 400000 600000 700000

==================================================== Problem –5 (KJ16.24) The Delhi Electric Supply Co Ltd. Has a business of supplying electrical goods to various Government and non-government companies. The controller in collaboration with the economist, has developed the following equation that , he says, will forecast sales quite well, based on past pattern of behavior: Monthly sales (Amount) = Rs. 1,00,000 + (Rs 2000 * Orders Received in prior Month) The sales manager is confused and seeks your advice. He presents you with the following data regarding actual and forecast numbers of orders. The forecasts have been quite accurate. August (Actual ) 200 (Forecast September ) 300 October 450 November 700 December 650 The sales manager wants sales and income budget for months Sep-Jan. The cost accountant informs you that the cost of goods sold ids 60% of sales and fixed cost is 2,00,000 per month. You are required to help the sales manager. Solution – Budgeted Income Statement for DESCL Particular September

October

November

December

January

Sales

Fixed Component Variable Compon. (Rs 2000 * Orders of Last Mth) Total Sales Less Cost Of Goods Sold 0.60 % of sales

100000 400000

100000 600000

100000 900000

100000 1400000

100000 1300000

500000

700000

1000000

1500000

1400000

300000

420000

600000

900000

840000

Contribution Less Fixed Cost Income

200000 200000 0

280000 200000 80000

400000 200000 200000

600000 200000 400000

560000 200000 360000

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