Budgeting - Functional

Q. 1 Sales and Production Budget (ICMAP May 2001)

A manufacturing company submits the following figures for the first quarter of the year 2000:
Sales in units: Product A Product B Product C
January 25,000 30,000 10,000
February 20,000 25,000 10,000
March 30,000 35,000 10,000
Selling price per unit 10 20 40

Target for first quarter of 2001

Sales quantity increase 20% 10% 10%
Sales price increase Nil 10% 25%
Stock position on 1st Jan. 2001
as % of Jan. 2001 sales 50% 50% 50%
Stock position as on 31st March
2001 (units) 20,000 25,000 5,000
Stock position end Jan & Feb. % of
subsequent month's sales 50% 50% 50%

Required:
Prepare Sales and Production Budget for the first quarter of 2001. Show workings.

Q. 2 A biscuit manufacturer produces and sells three types of cookies –plain, chocolate and
ICMA lemon. Following data is available for preparing the budget:
Feb Sales assumptions:
2013 Product Quantity (Boxes) Price Per Box (Rs.)
Plain 10,000 5.00
Chocolate 20,000 6.50
Lemon 15,000 8.00
Raw material assumptions per box:
Flour Sugar Butter Cocoa Lemon
Unit cost per kg (Rs. 4 6 6 50 8
Quantities used (kgs):
Plain 0.4 0.1 0.2
Chocolate 0.3 0.3 0.2 0.3
Lemon 0.3 0.4 0.2 0.2
Inventory assumptions:
Finished goods inventory in boxes:
Plain Chocolate Lemon
1-Mar-12 1,200 2,300 1,750
31-Mar-12 1,050 2,500 1,600
Raw materials inventory in kgs:
Flour Sugar Butter
1-Mar-12 730 820 320

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 31-Mar-12 750 800 250
No inventory is held for cocoa and lemon.

Required:
Using the information given above, prepare budgets for:
(a) Product-wise sales revenue. 02
(b) Production quantities of each product. 03
(c) Materials requirement (quantities of each raw material). 04
(d) Materials purchases in quantity and value. 06

Q3 The management of Triple A has recently completed sales budget for the Calendar year 2017.
ICMAP The expected sales price of the two products `X' and `Z' are Rs. 300 and Rs. 400 each
Aug-16 respectively. Sales demand is expected to be 20,000 units for Product-X and 12,000 units for
Product-Z.

Both products use the same raw materials and skilled labour but in different quantities per unit,
details are as under:

Material-AA Material-BB Direct Labour

Products (kgs) (kgs) (Hours)
X 20 10 8
Z 5 9 15

The prices expected during 2017 for the raw materials are:
Material-AA: Rs. 3 per kg
Material-BB: Rs. 5 per kg
The direct labour rate is expected to be Rs. 10 per hour.

Stock of raw materials and finished goods on January 1, 2017 are expected to be:
Material-AA 800 kgs @ Rs. 2.80 per kg
Material-BB 600 kgs @ Rs. 5.20 per kg
Product-X 1,000 units @ Rs. 70.00 each
Product-Z 1,200 units @ Rs. 60.00 each

It is planned that all stocks are to be reduced by 20% from their opening levels by the end of
2017 and are valued by using FIFO method.

The company uses absorption costing, and the production overhead cost is expected to be:
Variable Rs. 4.00 per direct labour hour
Fixed Rs. 950,000 per annum

Required:
You are required to prepare the following for the calendar year 2017:
Production budget (in units) 02
Raw material purchases budget (in units and Rupees) 03

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 Production cost budget 03

Q. 4 Production Budget ( ICMAP Dec. 2003 )

A company is preparing the budget for the next year, ending December 31, 2004.
Forecasts for the year and standard data are given below:
Finished Products U V W
Sales value at standard price (Rs) 800,000 1,280,000 2,400,000
Inventory (Units) Jan.1, 2004 3,000 7,000 9,000
Inventory (Units) Dec.31, 2004 8,000 17,000 19,000

Direct
Direct
materials
materials
inventory
inventory Jan. 1, 2004 Dec. 31, 2004
A 150,000 240,000
B 60,000 96,000
C 70,000 112,000
D 90,000 144,000

To meet the expected increase in sales, inventories are to be increased.

Standard cost data per unit of product includes the following:

Direct Standard U V W
Materials Price / unit Units Units Units
A 0.20 9 12
B 0.30 2 7
C 0.50 6 5 3
D 0.10 4 9

Direct Standard U V W
Labour Rate / hour Hours Hours Hours
Deptt. 1 8.00 0.5 0.3 0.6
Deptt.2 6.00 0.5 0.3 0.6

Other data:
Direct labour hours 127,000.
Fixed production overhead Rs. 1,143,000, absorbed on direct labour hours basis.
Administrative expenses are absorbed at the rate of 50% of production cost.
Marketing expenses are absorbed at the rate of 25% of production cost.
Profit is calculated at a rate of 12.5% of selling price.

Required:
(i) Production budget ( preparing 'standard cost / profit card' for calculating
number of units of budgeted sales of each product) Marks: 6

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 (ii) Direct material budget. Marks: 4
(iii) Material purchased budget. Marks: 4
(iv) Direct labour cost budget. Marks: 3

Q. 5 Preparation of Functional Budget

D limited is preparing its annual budgets for the year to 31 December 20x5.
It manufactures and sells one product, which has a selling price of Rs. 1500.
The marketing director believes that the price can be increased to Rs. 1600
with effect from July 1 20x5. and that the sales volume for each quarter of
20x5 will be as follows:
Sales volume
Quarter 1 40,000
Quarter 2 50,000
Quarter 3 30,000
Quarter 4 45,000

Sales for each quarter of 20x6 are expected to be 40,000 units. Each unit of
the finished product which is manufactured requires four units of component
R and three units of component T, together with a body shell S. These items
are purchased from an outside supplier. Currently prices are:

Component R Rs. 80 each

Component T Rs. 50 each
Shell S Rs. 300 each

The prices of components are expected to increase by 10% with effect from
April 1, 20x5; no change is expected in the price of shell.
Assembly of the shell and components into the finished product requires 6
labour hours; labour is currently paid @ Rs. 25 per hour. A 4% increase in
wage cost is anticipated to take effect from October 1, 20x5.
Variable overhead costs are expected to be Rs. 100 per unit for the whole of
20x5; fixed production overhead costs are expected to be Rs. 24,000,000 for
the year and are absorbed on a per unit basis. Stocks on 31-12-20x4 are
expected to be as follows:

Finished units 9,000 units

Component R 3,000 units
Component T 5,500 units
Shell S 500 units

Closing stock at the end of each quarter are to be as follows:

Finished units 10% of next quarter's sales
Component R 20% of next quarter's production requirement
Component T 15% of next quarter's production requirement
Shell S 10% of next quarter's production requirement

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 Required:
Prepare the following quarterly budgets of D Ltd for the year ending 31-12-x5.
a Sales budget in units and amount
b Production budget in units
c Material usage budget in units
d Material purchase budget un units and in amount
e Production cost budget

Q6 Crescent Engineering Limited manufactures and supplies auto parts to the automotive
Feb 18 manufacturers in the town. Crescent Engineering is divided into two manufacturing
departments i.e. `Manufacturing' and `Assembly'. Assembly of finished products i.e.
`Tail Lights' and `Fog Lights' is done from the parts transferred from the Manufacturing
Department.
The budgeted sales volume and price for the month of February 2018 is as follows:
Products
Tail Light Fog Light
Units 40,000 48,000
Price per unit (Rupees) 7,500 4,500

Finished products budgeted at the end of February 2018, is 1,500 units for Tail Lights
and 2,500 units for Fog Lights, with no stock reported at beginning of the month for
both products. The transferred parts i.e. 'A100' and 'B200' from Manufacturing
Department are used in the finished products in the quantities shown in the below
chart:
Products Price per Unit
Parts Tail Light [Units] Fog Light [Units] [Rupees]
A100 7 3 190
B200 5 4 270

The unit process is for just-in-time (JIT) delivery of the parts, the Assembly Department
do not hold any stock of parts. The standard direct labour times and labour rates and
the budgeted monthly manufacturing overhead costs for the Manufacturing and
Assembly Departments for the month of February 2018 are given below:
Manufacturing Assembly
Department Department
Standard direct labour time (per unit):
Tail Lights (Minutes) 25 10
Fog Lights (Minutes) 18 12
Labour rates (Rs. per hour) 750 900
Manufacturing overhead costs for the month (Rupees) 92,625,000 30,600,000

Every month, a predetermined direct labour hour recovery rate is computed in each
department for manufacturing overhead and applied to items produced in the month.
The selling overhead of Rs. 51,600,000 per month is applied to products based on
a predetermined percentage of the budgeted sales value in each month.
Required:
(a) Prepare summaries of the following budgets for the month of February 2018:
(i) Parts received and usage (units and value) 05

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(ii) Direct labour hours and value 02
(iii) Departmental manufacturing overhead recovery rates 02
(iv) Selling overhead recovery rate 02
(v) Stock value at the month end 02
(b) Tabulate the standard unit cost and profit of each of Tail Lights and Fog Lights
for the month of February 2018. 06
(c) Prepare a budgeted statement of profit or loss for the month, which clearly
incorporates the budget values obtained in part (a) above. (Ignore taxation) 03

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dar year 2017.

,000 units for

ntities per unit,

y the end of

ected to be:

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9
10
g 31-12-x5.

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