UNIT-4

BUDGETARY CONTROL
ILLUSTRATION.01

The expenses budgeted for the production of 10,000 units in a factory is furnished below

Elements of cost Cost per unit

Material 70
Labour 25
Variable overheads 20
Fixed overheads ( 1,00,000) 10
Variable Expenses (direct) 5
Selling expenses (10% fixed) 13
Distributed expenses (20% fixed ) 7
Administrative expenses ( 50,000/- fixed for all levels) 5
TOTAL 155

Prepare a budget for the production of 6,000 units and 8,000 units

ILLUSTRATION.02

ABC .ltd prepared a budget for the production of 10,000 units of the only commodity manufactured
by them

Elements of cost Cost per unit

Direct material 2.52

Direct labor 0.75
Direct expenses 0.1
Works overheads (60% fixed ) 2.5
Administrative overhead ( 80% fixed) 0.5
Selling overheads ( 50% fixed ) 0.2

Prepare a flexible budget for the production of 8,000 units and 6,000 unit

ILLUSTRATION.03

With the following data for a 60% level activity , prepare a flexible budget for the production at 80%
and 100% activity
Production at 60% Capacity is 600 units
 Elements of cost Cost

Direct Material 120 per unit

Direct labour 50 per unit
Other expenses 20 per unit
Factory expenses 60,000(40%fixed)
Administrative expenses 40,000(60% fixed)

ILLUSTRATION.04

Happy limited , working at 50% capacity manufactures 10,000 units of a product, at 50% capacity the production
cost is Rs180 and sales prices is Rs200 . The breakup of the total cst is as follows

Elements of cost Cost per unit

Direct material 100
Direct wages 30
Factory overheads(40% fixed) 30
Administrative overheads (50% fixed) 20

At 60% working , raw material cost goes up by 2% and sales price falls by 2% . At 80% working raw material
cost increases by 5% and
salesprice and sales price decreases by 5%
prepare a statement to show profitability at 60% and 80% capacity

ILLUSTRATION.05

Cost of an article at a capacity level of 7,500 units is given under A. For variation of 20% capacity above or b
this level the individual expenses vary as indicated under 'B' below

Elements of cost B
A
Materials 37,500 100% Varying
Labour 22,500 100% Varying
Repairs and maintenance 1,875 80% Varying
Power 3,000 75% Varying
Stores 1,500 100% Varying
Inspection 750 20% Varying
Depreciation 15,000 100% Varying
Administartive overheads 7,500 25% Varying
Selling overheads 4,500 50% Varying
Total Cost 94,125
 Find at the cost of the product at production levels of 6,000 units and 9,000 units

ILLUSTRATION.06

From the information given below prepare a budget at 60% and 80% capacities

60% 75% 80%

Variable overheads
Indirect Material -- 7,500 --
Indirect Labour -- 22,500 --
Semi variable overheads
Electricity (40% fixed) -- 37,500 --
Repairs and maintenance (80% fixed) -- 3,750 --
Fixed overheads
Salaries -- 100,000 --
Insurance -- 5,000 --
Depreciation -- 25,000 --

The direct wages at 75% working amounts to Rs 40,250.

Calculate the total overhead rates as a percentage on direct wages at these capacities

ILLUSTRATION.07

Prepare a flexible budget for overheads on the basis of data given below . Ascertain overhead rate at
50% and 70% capacity

50% 60% 70%

Variable overheads
Indirect materials -- 6,000 --
Indirect labour -- 18,000 --
Semi variable overheads
Electricity (40% fixed) -- 30,000 --
Repairs and maintenance (20% fixed) -- 3,000 --
Fixed overheads
Depreciation -- 16,500 --
Insurance -- 4,500 --
Salaries -- 15,000 --
Total overheads 93,000
Estimated direct labour hours -- 186,000 --
ILLUSTRATION.08

With the help of the following 60% activity prepare a flexible budget for 90% activity and 75% activity

Element of cost at 60% capacity

Direct material 160,000
Direct labour 40,000
indirect material 48,000
Deperciation 60,000
Indirect labour 40,000
Rent 12,000
Electric power (40% fixed) 8,000
Repairs and mintenance (40% variable) 20,000
Insurance on Machinery 12,000

ILLUSTRATION.09

A company manufactures a standard product the variable cost per unit is as follows

Materials Rs.5
Labour Rs.3
Expenses Rs.2
The semi variable costs are
Repairs and maintenance Rs.235
Power Rs.156
Indirect labour Rs.570
The variable cost per unit included in semi-variable are
Repairs and maintenance Rs.0.05
Power Rs.0.08
Indirect labour Rs.0.10
The fixed costs are
Depreciation Rs.3,000
Insurance Rs.2,000
Salary Rs.5,000

The above costs are incurred at 70% capacity producing 700 units.
Prepare a flexible budget at 80% and 90% capacity assuming the selling price is Rs 30 per unit

ILLUSTRATION.10
The budget output of a factory specialization in the production of single product at optimum capacity
of 6,400 units per annum amounts to Rs 2,00,000 as detailed below

Fixed cost Rs.45,000

Variable cost
Power 4,500
Repairs 2,000
Miscellaneous 500
Direct material 45,000
Direct labour 103,000
Rs.1,55,000
Total cost Rs.2,00,000

having regard to possible impact on sales turnover by market trends, the company decided to have
a flexible budget with a production target 3,200 units and 4,800 units
Prepare a flexible budget for production level of 50% and 75% assuming selling price per unit is
maintained at Rs40 as at present ,Indicate the effect on net profit, administration , selling and
Distribution continue at Rs.4,000.
 CASH BUDGET

PARTICULAR APRIL MAY JUNE

A.Cash Receipts
Opening balance xxx xxx xxx
Cash sales xxx xxx xxx
Receipts from debtors xxx xxx xxx
Commission received xxx xxx xxx
Interest on investement xxx xxx xxx
Loans Raised xxx xxx xxx
Other Receipts xxx xxx xxx
Total receipts xxx xxx xxx

B.Cash payment
Cash purchases xxx xxx xxx
Payment to creditors xxx xxx xxx
Wages xxx xxx xxx
Factory overheads xxx xxx xxx
Administrative overheads xxx xxx xxx
Selling and dirstribution
overheads xxx xxx xxx
Sales and commission xxx xxx xxx
Bonus paid xxx xxx xxx
Dividend paid xxx xxx xxx
Tax paid xxx xxx xxx
Capital expenditure xxx xxx xxx
other payment xxx xxx xxx
Total payment xxx xxx xxx
Closing balance(A-B) xxx xxx xxx
1) Roy and sons Ltd. wants you to prepare the cash budget for 3 months from April to June
2014. The following information is given:

Months Credit sales Credit Wages overheads

purchase
January 160000 85000 32000 18000
February 185000 92000 37000 21000
March 210000 100000 42000 23000
April 245000 120000 49000 27000
May 178000 90000 35000 19000
June 182000 98000 36000 20000

Additional information:
a) Period of credit allowed to debtors is 2 months
b) Period of credit allowed by creditors is 1 month
c) Lag in payment of wages and overheads is 1 month
d) Expected cash sales every month is 15,000
e) Expenditure on machinery is payable in April 50,000
f) Expected cash balance in April is 10,500.3) From the following forecast of the income
and expenditure, prepare a cash budget for the months January to April 2014:

2) A company is expecting to have Rs. 32000 cash in hand on 1-01-2014 and it requests you to
prepare cash budget for the three months, January to march 2014. The following information
is supplied to you.

Months Sales Purchases Wages Manufacturing Administration Selling

(credit) (credit) Expenses Expenses expenses
2013 Nov 30000 15000 3000 1150 1060 500
Dec 35000 20000 3200 1225 1040 550
2014 Jan 25000 15000 2500 990 1100 600
Feb 30000 20000 3000 1050 1150 620
Mar 35000 22500 2400 1100 1220 570
April 40000 25000 2600 1200 1180 710

Additional information is as follows:

1 the customers are allowed a credit period of 2 months

2 A dividend of 10000 is payable in april
3 A capital expenditure to be incurred: plant purchased on 15th January for 5000; a building has
been purchased on 1st march and the payments are to be made in monthly installments of 2000
each.
4 The creditors are allowing a credit of 2 months
5 Wages are paid on 1st of next month
6 Lag in payment of other expenses is one month
7 Balance of cash in hand on 1st January , 2014 is 15000
3) A company is expecting to have Rs. 32000 cash in hand on 1-04-2014 and it requests you to
prepare cash budget for the three months, April to June 2014. The following information is
supplied to you.

Months Sales(Rs.) Purchases(RS.) Wages (Rs.) Expenses (Rs.)

February 70000 44000 6000 5000
March 80000 56000 9000 6000
April 96000 60000 9000 7000
May 100000 68000 11000 9000
June 120000 62000 14000 9000
Other information:

1. Period of credit allowed by suppliers is 2 months

2. 25% sales is for cash and the period of credit allowed to the customers for credit sales is one
month
3. Delay in payment of wages and expenses is 1 month
4. Income tax 28,000 to be paid in June 2014

4) XYZ Ltd. Wants you to prepare the cash budget for 3 months from April to June 2017. It is
expected to have a cash in hand of Rs. 60000 on 1 stApril 2017. The following information is
provided.

Months Sales Purchases Wages Administration Manufacturing Selling

Expenses Expenses expenses

January 180000 85000 42000 5000 6000 7000

February 165000 100000 32000 7000 10000 12000
March 225000 120000 38000 7000 15000 8000
April 235000 92000 56000 9000 10000 6000
May 192000 98000 26000 12000 6000 8000
June 168000 90000 35000 7000 5000 3000

Additional Information:

a) 30% sales are cash sales and the period of credit allowed to customers is 1 month

b) Period of credit allowed by suppliers is 2 months

c) Lag in payment of wages in 1 month

d) Delay in payment of administrative, manufacturing and selling expenses is 1 month

e) Income tax of 15,000 is to be paid in June

5) X and Y co. wishes to arrange overdraft facilities with bankers during the period April to June
of a particular year, when it will be manufacturing mostly stock. Prepare cash budget for the
above period from the following data, indicating the extent of the bank facilities, the company
will require at the end of each month:

Months Sales (Rs.) Purchases(Rs.) Wages (Rs.)

February 180000 124000 12000
March 192000 144000 14000
April 108000 243000 11000
May 174000 246000 10000
June 126000 268000 15000

a) 50% of credit sales are realised in the month following the sales and the remaining sales in
the second month following : creditors are paid in the month following purchase.
b) cash in bank on 1st april estimated to be 25,000