Course: CA/CMA-Intermediate

Subject: Cost & Management Accounting

TOPIC: BUDGETARY CONTROL
Time: 3 Hrs. 15 Min. MM: 100 Marks

All questions are compulsory.

Working notes should form part of your answers.

Q1(a): The following information relating to the third and last quarter of 2013 – 14 are furnished by a company which
manufactures and sells a single product:
Third quarter Last quarter
(Actuals) (Estimate)
Sales ₹6,24,000 ₹6,60,000
Inventory of raw materials and finished goods: Opening Balance Closing Balance
Raw Material ‘A’ (kg.) 23,500 25,000
Raw Material ‘B’ (kg.) 13,400 15,000
Finished goods (units) 700 1,000
Unit cost data:
Raw material ‘A’ 10 kg. @ ₹3 = ₹30
Raw material ‘B’ 5 kg. @ ₹2 = ₹10
Direct Labour:
Machine time 5 hours @ ₹4 = ₹20
Assembly 2 hours @ ₹5 = ₹10
Production Overheads:
Machine @ ₹12 per machine hour
Assembly @ ₹10 per labour hour
Selling and Administration O.H. : 20% of production cost
Profit margin : 10% on selling price
You are required to prepare for the last quarter of the year.
(a) Production budget (in units)
(b) Purchase budget (quantity and value).
(8 Marks)

Q1(b): From the following data, prepare a Production Budget for the ABC Co. Ltd.:
Stocks for the Budgeted Period:
Product As on 1st January As on 30th June
A 8,000 10,000
B 9,000 8,000
C 12,000 14,000

Product Normal Loss in Production Requirements to fulfill sales programme

A 4% A 60,000 units
B 2% B 50,000 units
C 6% C 80,000 units
(6 Marks)

Q1(c): G Ltd. manufacturing a single product for which market demand exists for additional quantity. Present sales of
₹6,00,000 utilises only 60% capacity of the plant. The following data are available:
(1) Selling price ₹100 per unit
(2) Variable cost ₹30 per unit
(3) Semi-variable expenses ₹60,000 fixed + ₹5 per unit
(4) Fixed expenses ₹1,00,000 at present level, estimated to increase by 25% at and above 80% capacity.
You are required to prepare a flexible budget so as to arrive at the operating profit at 60%, 80% and 100% levels.
(6 Marks)
Q2(a): From the information given below, prepare a cash budget of the company for the first half of 2016, assuming that
cost would remain unchanged.
(i) Sales are both on credit and for cash, the latter being one-third of the former.
(ii) Realisation from debtors are 25% in the month of sale, 60% in the following month and the balance in the month
after that.
(iii) Company’ policy of selling price is 25% over cost.
(iv) Budgeted sales of each month are purchased and paid for in the preceding month.
(v) Rent payable is ₹2,000 per month.
(vi) Sales forecast for the different months are:
2015 – October ₹1,60,000; November ₹1,80,000; December ₹ 2,00,000
2016 – January ₹2,20,000; February ₹1,40,000; March ₹ 1,60,000; April ₹1,50,000; May ₹2,00,000; June
₹1,80,000 and July ₹ 1,20,000.
(vii) The company has outstanding debentures of ₹2 Lakhs on 1st January carrying interest at 15% per annum payable
on the last date of each quarter on calendar year basis. 20% debentures are due for redemption on 30 June 2016.
(viii) The company has to pay advance tax of ₹54,000 in March.
(ix) Anticipated office costs for the six months are:
January ₹25,000; February ₹20,000; March ₹40,000; April₹35,000; May₹ 30,000 and June ₹45,000.
(x) Opening cash balance is ₹10,000 on January 1, 2016.
(6 Marks)

Q2(b): Gemini Steel Ltd. manufactures a single product for which market demand exists for additional quantity. Present
sales of ₹60,000 per month utilises only 60% capacity of the plant. Marketing Manager assures that with the reduction
of 10% in the price he would be in a position to increase the sale by about 25% to 30%. The following data are available:
(i) Selling Price ₹10 per unit
(ii) Variable Cost ₹3 per unit
(iii)Semi-Variable Cost ₹6,000 fixed + 50 paise per unit
(iv) Fixed Cost ₹20,000 at present level estimated to be ₹24,000 at 80% output.
You are required to prepare the following statements:
(1) The Operating Profit at (a) 60%, (b) 70% and (c) 80% levels at current selling prices, and
(2) The Operating Profits at proposed selling price at the above levels.
(5 Marks)

Q2(c): The information of Z Ltd. for the year ended 31st March 2021 is as below
Particulars Amount in (₹)
Direct Materials 17,50,000
Direct wages 12,50,000
Variable factory overhead 9,50,000
Fixed factory overhead 12,00,000
Other variable costs 6,00,000
Other fixed costs 4,00,000
Profit 8,50,000
Sales 70,00,000
During the year, the company manufactured two products, X and Y and the output and cost were:
X Y
Output (units) 8,000 4,000
Selling price per unit (₹) 600 550
Direct material per unit (₹) 140 157.50
Direct wages per unit (₹) 90 132.50
Variable factory overheads are absorbed as a percentage of direct wages and other variable costs are computed as:
Product X – Rs. 40 per unit and Product Y- Rs. 70 per unit.
For the FY 2021-22, it is expected that demand for product X and Y will fall by 20% & 10% respectively. It is also
expected that direct wages cost will raise by 20% and other fixed costs by 10%. Products will be required to be sold at a
discount of 20%.
You are required to:
(i) PREPARE profitability statement for the FY 2020-21 and
(ii) PREPARE a budget for the FY 2021-22.
(9 Marks)
Q3(a): A factory is currently working at 50% capacity and produces 10,000 units. Estimate the profits of the Company
when it works to 60% and 80% capacity assuming that the company can sell whatever it produces.
At 60% working, Raw Material Cost increases by 2% & Selling Price falls by 2% from base level at 50%.
At 80%, Raw Material Cost increases by 5% and Selling Price falls by 5% from base level at 50%.
At 50% working, the Product Costs ₹180 per unit and is sold at ₹200 per unit.
The unit cost of ₹180 is made up as follows:
Particulars Amount in (₹)
Material 100
Labour 30
Factory Overhead 30 (40% fixed)
Administration Overhead 20 (50% fixed)
What comment can you offer?
(10 Marks)

Q3(b): K Ltd. produces and markets a very popular product called X. The company is interested in presenting its budget
for the second quarter of 2020.
The following information are made available for this purpose:
(i) It expects to sell 1,50,000 bags of X during the second quarter of 2020 at the selling price of ₹1,200 per bag.
(ii) Each bag of X requires 2.5 metre of raw-material Y and 7.5 metre of raw material Z.
(iii) Stock levels are planned as follows:
Beginning of End of
Particulars
Quarter Quarter
Finished Bags of X (nos.) 45,000 33,000
Raw Material Y (metre) 96,000 78,000
Raw Material Z (metre) 1,71,000 1,41,000
Empty Bags (Nos.) 1,11,000 84,000
(iv) Y cost ₹160 per metre, Z costs ₹30 per metre and Empty Bag costs ₹110 each.
(v) It requires 9 minutes of direct labour to produce and fill one bag of X. Labour cost is ₹70 per hour.
(vi) Variable manufacturing costs are ₹60 per bag. Fixed manufacturing costs ₹40,00,000 per quarter.
(vii) Variable selling and administration expenses are 5% of sales and fixed administration and selling expenses are
₹3,75,000 per quarter.
Required:
(i) Prepare a production budget for the said quarter in quantity.
(ii) Prepare a raw-material purchase budget for Y, Z and Empty bags for the said quarter in quantity as well as in rupees.
(iii) Compute the budgeted variable cost to produce one bag of X.
(10 Marks)

Q4(a): KG Ltd is engaged in the production of two products K and G. one unit of product K requires two units of material
A and four units of material B. Each unit of product G needs four units of material A, two units of material B and four
units of material C. Materials C is locally produced in the factory of the company by using two units of material B for each
unit of C.
Material A and B are purchased in the open market. Production of products K, G and C is carried out evenly throughout
the year. At present the company has purchased its 3 months requirements of A and B in one purchase. That is four
purchases per annum.
The other particulars provided by the company are:
Products
Particulars
K units G units
Budgeted sales for the next year 40,000 75,000
Desired stock at the end of the year 5,000 10,000
Expected stock at the beginning of the year 15,000 25,000
Products
A B
Purchase Price per unit (₹) 15 25
Ordering cost per order (₹) 1,000 1,000
Carrying cost per annum 10% 10%
You are required to:
(i) Prepare a production budget and a material requirements budget for the next year.
(ii) Calculate the number of material purchases to be made, if the company wants to purchase materials in optimal
quantity.
(8 Marks)
Q4(b): RS Ltd manufactures and sells a single product and has estimated sales revenue of ₹302.4 lakh during the year
based on 20% profit on selling price. Each unit of product requires 6 kg of material A and 3 kg of material B and processing
time of 4 hours in machine shop and 2 hours in assembly shop. Factory overheads are absorbed at a blanket rate of 20%
of direct labour. Variable selling & distribution overheads are ₹60 per unit sold and fixed selling & distribution overheads
are estimated to be ₹69,12,000.
The other relevant details are as under:
Purchase Price Material A ₹160 per kg
Material B ₹100 per kg
Labour Rate Machine Shop ₹140 per hour
Assembly Shop ₹70 per hour

Finished Stock Material A Material B

Opening Stock 2,500 units 7,500 kg 4,000 kg
Closing Stock 3,000 units 8,000 kg 5,500 kg
Required:
(i) CALCULATE number of units of product proposed to be sold and selling price per unit,
(ii) PREPARE Production Budget in units, and
(iii) PREPARE Material Purchase Budget in units.
(8 Marks)

Q4(c): Why is ‘Zero Base Budgeting’ (ZBB) considered superior to ‘Traditional Budgeting’? Explain.
(4 Marks)

Q5(a): Direct Labour hours per unit (in minutes)

Product
Particulars
1 2 3
Operation 1 18 42 30
2 - 12 24
3 9 6 -
The factory works 8 hours per day, 6 days in a week. The budget quarter is taken as 13 weeks and during a quarter,
lost hours due to leave a holiday is estimated to be 124 hours.
The budgeted hourly rate for the workers manning the operation 1, 2 and 3 are ₹2.00, ₹2.50 and ₹3.00
respectively.The budgeted sales of the products during the quarter are:
Product 1 10,000 units
2 16,000 units
3 15,000 units
There is a carryover of 7,000 units of product 2 and 7,000 units of product 3 and it is proposed to build up a stock at
the end of the budget quarter as follows:
Product 2 1,000 units
3 2,000 units
Prepare a manpower budget for the quarter showing for each operation,
(i) Direct labour hours
(ii) Direct labour cost
(iii) The no. of workers
(9 Marks)

Q5(b): Calculate from the following figures:

(i) Efficiency ratio,
(ii) Activity, Ratio and
(iii) Capacity Ratio:
Budgeted Production 528 units
Standard hours per unit 10
Actual Production 450 units
Actual Working Hours 6,000
(6 Marks)

Q5(c): Distinguish between fixed and flexible budget.

(5 Marks)