ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

BUDGETING
 Sales Budget
 Production Budget
 Direct Material Budget
 Direct Labour Budget
 Manufacturing Overhead Budget
 Inventory Budget
 Cost of Goods Sold Budget
 Selling and Administrative Expenses Budget
 Cash Budget
 Master Budget
 Flexible Budget

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 1

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

CONCEPT BUILDING QUESTIONS (CBQs)

CBQ#1 Adapted from MATZ & UZRY

Yost Electronics Corporations has two product lines, high-speed printers and electronic type writers. The
company’s Market Research Department prepared the following sales forecast for the coming year:

HIGH-SPEED ELECTRONIC
PRINTERS TYPEWRITERS
Industry’s total sales forecast…………… 25,000 90,000
Company’s share of the market ………….. 20% 10%
Sales price per unit………………………… $1,800 $500

The sales representatives submitted these territorial sales estimates:

New England……………………………….. 1,200 2,000
Middle Atlantic……………………………… 3,000 4,000
Southern States……………………………… 1,800 2,000
Total…………………………………………. 6,000 8,000

To establish an acceptable forecast, the budget director averages the two estimates. The resulting forecast
is then broken down by territories in the same ratio as reflected in the estimates of the sales force.
Required:
A sales forecast showing unit sales and total sales revenue by sales territory and by product lines.

CBQ#2 (A) Adapted from MATZ & UZRY

The Sales Division prepared the following tentative sales budget for the first six months of the coming year:
BUDGETED SALES
PRODUCT
Snapper………………………………. 250,000 cans
Shrimp……………………………….. 150,000
Pea…………………………………… 350,000
The following inventory levels have been decided upon:

a WORK IN PROCESS a FINISHED GOOD

A Beginning a Ending a Beginning Ending
Units % Processed Units % Processed a Units a a Units a
Snappeer 5,000 80 4,000 75 15,000 20,000
Shrimp 3000 70 3,000 75 8,000 5,000
Pea 4000 75 5,000 80 20,000 20,000

Required: A production budget for the six-month period.

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 2

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

CBQ#2(B)
2017 2018
Current Year Next Year
Budgeted Actual Budgeted
Production 30,000 27,500 ?
Sales (Units) 24,000 21,000 ?
Material Cost per unit (of last year) (16 KGs) Rs.800
Labour Cost per unit (of last year) (5 hours) Rs.600

The company maintains the following inventory levels:

Raw Material : Average two months’ consumption based on budgeted production.
Work in Process : 20% of budgeted production units (100% material and 75% conversion)
Finished Goods : Average one months’ budgeted sales .
During 2018, Sales volume would increase by 20%
REQUIRED:
a. Compute Budgeted PRODUCTION and SALES in units for 2018
b. Compute MATERIAL CONSUMPTION and PURCHASES in KGs for 2018
c. Compute LABOUR HOURS required for 2018

CBQ#2(C) Adapted from MATZ & UZRY

Estimated sales% for the first three month period of the coming year of the midland Company are:
DISTRICT JANUARY FEBRUARY MARCH TOTAL
Colorado……………….. 50% 30% 20% 100%
Kansas …………………. 55 30 15 100
Nebraska ………………. 50 25 25 100
Missouri……………….. 50 25 25 100
Estimated unit sales (at $2 per unit) by district for the three months are:

DISTRICT UNIT SALES

Colorado…………………………………. 20,000
Kansas……………………………………. 30,000
Nebraska ………………………………… 10,000
Missouri………………………………….. 40,000
Total……………………………………… 100,000

Opening Stock at January 1st 10,000 units. Company policy expects an inventory of 30,000 units at
the end of each three-month period. The production schedule is:
January…………………………………. 55%
February……………………………….. 30%
March…………………………………... 15%
Required:
(1) An estimate of sales by units and dollars for each of the first three months for each district and
in total.
(2) A schedule of the end-of-months inventories by units.

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 3

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

CBQ#2 (D) Adapted from MATZ & UZRY

The following estimates and information have been gathered as part of the budget preparation of
the Hobbycraft Co. The company manufactures a hobby shop sales item, consisting of two types
of material which the company precuts and pershapes for sale to hobbyists. The sales for the
second and third quarter of the coming year have been estimated as follows:

SECOND THIRD
QUARTER QUARTER
Massachusetts…………………………… 10,000 kits 35,000 kits
Vermont…………………………………. 8,000 25,000
New Hampshire………………………… 5,000 20,000
Total………………………………….... 23,000 Kits 80,000 Kits

It is decided that finished kits inventories are to be 25,000 at the end of the second quarter and
5,000 at the end of the third quarter. The inventory at the beginning of the second quarter will
consist of 8,000 finished kits.

Each kit is packaged in a colorful cardboard box and contains 2 units of Material A and 5
units of Material B. The inventory of materials at the beginning of the second quarter will be:

Boxes 125000
Material A 15,000 units
Material B. 45,000 units

There are sufficient boxes on hand for both quarters, none will be purchased during the two
periods.

Material A can be bought whenever needed and in any quantity desired. The 15,000
units on hand is considered to be the ideal inventory quantity.
Material B must be purchased in quantities of 10,000 or multiples of 10,000. At the
end of both the second and third quarters, a minimum quantity of 30,000 units
should be on hand, or close thereto as the standard purchase quantity will permit.

Required:
(1) Schedule of ending inventories and budgeted production of kits for each quarter.
(2) The budgeted quantities and dollar amounts of purchase requirements for each material.

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 4

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

CBQ#3A ICAP Module ‘D, Spring 2011

(a) The management of Opal Limited (OL) is in the process of preparing next
year’s budget and has gathered the following information:
(i) Sales 180,000 units per month @ Rs. 110 per unit
(ii) Material “A” 75% of finished product @ Rs. 45 per unit
(iii) Material “B” 25% of finished product @ Rs. 30 per unit
(iv) Yield 80%
(v) Labour Rate Rs. 18,000 per month
(vi) Average working hours in a month 200 hours
(vii) Time required for each unit of product 20 minutes
(viii) Variable overhead Rs.15 per unit of raw material consumed
(ix) Fixed Overhead Rs. 10,000,000 per annum

Required:
Assuming there is no beginning or ending inventory of the product, calculate OL’s budgeted gross profit
for the next year. (06)

(b) The Board of Directors of Opal Limited while reviewing next year’s budgeted margins, as
calculated in (a) above, expressed their serious concerns on the projected profits. After careful
analysis of all activities by a cross-functional team of OL, the directors approved a plan of action
to improve the overall performance of the company.
The salient features of their plan are as under:
(i) Import of Material “A” from abroad at a cost of Rs.48 per unit, this is expected to
improve the overall yield by 12.5%.
(ii) Based on a detailed study, the installation of a new system or production has been
proposed. The expected cost of the system is Rs.7.5 million with an expected useful life
of 5 years. An incentive scheme for the workers have also been proposed by allowing
them to share 45% of the time saved for making each unit of product.
The above measures are expected to reduce the average time for making each unit
of product by 30%.
(iii) Introduction of improved management standards which is expected to reduce the
variable overheads by 20%.
(iv) Re-assessment of controllable fixed overhead expenses. This is likely to reduce OL’s
existing fixed overheads by 15%.

Required:
In view of the proceeding improvement plan and the data provided in (a) above, calculate OL’s revised
budgeted gross profit for the next year. (13)

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 5

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

CBQ#3B ICAP Module ‘D, Autumn 2011

Following data is available from the production records of Flamingo Limited (FL) for the
quarter ended 30 June 2011.
Rupees
Direct material 120,000
Direct labour @ Rs. 4 per hour 75,000
Variable overhead 70,000
Fixed overhead 45,000

The management’s projection for the quarter ended 30 September 2011 is as follows:
(i) Increase in production by 10%.
(ii) Reduction in labour hour rate by 25%.
(iii) Decrease in production efficiency by 4%.
(iv) No change in the purchase price and consumption per unit of direct material.

Variable overheads are allocated to production on the basis of direct labour hours.
Required:
Prepare a production cost budget for the quarter ended 30 September 2011. (04 marks)

CBQ#3 (C) Adapted from MATZ & UZRY

The Galway Company produces numerous related small parts. Its cost department has always prepared a
labor budget in dollar only, since no information regarding the number of parts manufactured is available.
During the past year, direct labour costs by quarters were reported as follows:
MACHINING FINISHING DE
QUARTERS DEPARTMENT DEPARTMENT TOTAL
First…………………………….. $ 15,813 21% $ 4,416 23% $20,229
Second…………………………. 18,072 24 4608 24 22680
Third…………………………… 20331 27 4992 26 25323
Fourth………………………….. 21084 a 28 a 5184 a 27 a 26268
Total………………………… $ 75,300 100% $19,200 100% $94,500
The ratio of direct labor to total manufacturing cost during the past year averaged:
Machining department……………………..23.75%
Finishing Department……………………...25.00%
These ratio are expected to remain the same for the coming year. The manufacturing cost excluding
labor has been budgeted for the coming year, with $244,000, for the machining Department and $90,000
for the finishing department. The percentage distribution of labor for each quarter will be the same for the
coming year.
Required:
The direct labor cost requirements for each quarter of the coming budget period.

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 6

 ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

ASSIGNMENT MATERIAL#1
CONCEPT ALLIGNING QUESTIONS (CAQs)

CAQ#1 (A) Adapted from MATZ & UZRY

The budget Department gathered the following data concerning future sales and budget requirement.
ANTICIPATED SALES FOR 19- EXPECTED INVENTORIES DESIRED INVENTORIES
Product Unit Price January 1, 19-- a December 31, 19-- a
A 20,000 55 8,000 units 10,000 units
B 50,000 50 15,000 15,000
C 30,000 80 6,000 6,000
Materials used in manufacture:
AMOUNT TO BE USED PER UNIT OF PRODUCT
STOCK NO. UNIT Aa Ba Ca
110 Each 3 5
50 Each 2 1 3
41 Kilograms 2
30 Kilograms 3
40 Meters 5 4
ANTICIPATED PURCHASE EXPECTED DESIRED INVENTORIES
PRICE INVENTORIES
For Materials January 19-- December 31, 19--
110 $ 3.00 each 21,000 each 25,000 each
50 2.00 each 17,000 Kilometers 23,000 each
41 2.50 per kilogram 10,000 kilograms 15,000 kilograms
40 3.25 per meter 25,000 meters 30,000 meters
30 4.00 per kilogram 18,000 kilograms 18,000 kilograms

Direct labor requirements and rates:

PRODUCT HOURS PER UNIT RATE PER HOUR
A…………………………….. 4 $ 4.00
B…………………………….. 5 3.00
C…………………………...... 5 4.20
Overhead is applied at the rate of $2 per direct labor hour.
Required:
(1) Sales budget (in dollars)
(2) Production budget (in quantities)
(3) Direct materials budget (in quantities)
(4) Direct materials purchases budget (in dollars)
(5) Direct labor budget (in dollars)
(6) Finished goods inventory, December 31, 19-- (in dollars)

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 7

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CAQ#1 (B) Adapted from MATZ & UZRY

The purchasing agent and the chief accountant toy land, inc, are trying to solve the problem of
scheduling purchases in connection with a planned expansion in the production of rocking
horses. All lumber used is procured in a standard size, of which the following amounts, which
include a due allowance for waste, are used in one complete rocking house:

Oak --- 2 board feet

Pine --- 5 board feet
Maple --- 10 board feet

A sales budget has been approved, and the following production schedule has been drawn up for 19A:

QUARTER ROCKING HORSES

1st 75
2nd 150
3rd 175
4th 200

The production schedule for the first quarter schedule for the first quarter of 19B calls for
approximately 220 rocking horses.

Delivery of lumber is slow and uncertain; but by ordering early, delivery can be assured during
the quarter desired. Lumber must be purchased in quantities that are multiples of 300 board
feet of each kind of lumber. In determining minimum requirements it is necessary to have on
hand at the beginning of a quarter sufficient materials to take care of production for that
quarter.
At the present times, there is sufficient space to store 3,000 board feet of all types of lumber
combined. During the early part of the year, a new shed will be constructed to store an additional
1,200 board feet, making a total storage quarter.

Inventory of lumber on January 1, 19A, is as follows:

Oak -- 150 board feet
Pine -- 600 board feet
Maple -900 board feet

Required:
Schedule, or schedules, indicating the materials, production requirements, materials purchases, and
materials inventories for each type of lumber, by quarter for 19A, expressed in board feet.

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 8

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

CONCEPT BUILDING QUESTIONS (CBQs)

CBQ#4A(i)
Sales for the period September 2017 to January 2018 has been projected as under:
Rupees
August 2017 7,000,000
September 2017 7,200,000
October 2017 7,500,000
November 2017 9,900,000
December 2017 10,890,000

CASE ‘I’
30% debtors are collected in the month of sales, 45% of the debtors are collected in the first month
subsequent to sale whereas the remaining debtors are collected in the second month following sales.

CASE ‘II’
Cash sale is 20% of the total sales. All debtors are allowed 45 days credit and are expected to
settle promptly.
REQUIRED: Compute Cash Collection during the last quarter of the year for each case above.

CBQ#4A(ii)
Sales for the period August 2017 to December 2017 has been projected as under:
Rupees
August 2017 7,200,000
September 2017 7,500,000
October 2017 9,900,000
November 2017 10,890,000
December 2017 10,000,000
January 2018 10,120,000
CASE ‘I’
The Company earns a gross profit of 20% of sales The company follows a policy of maintaining
stocks equal to projected sale of the next month.
All creditors are paid in the month following delivery. 10% of all purchases are cash purchases.
CASE ‘II’
The Company earns a gross profit of 20% of sales The company maintains stocks equal to 60%
of projected sale of the next month.
All credit purchases are paid in 45 days. 15% of all purchases are cash purchases.
CASE ‘III’
The Company earns a gross profit of 20% of sales and uniformly maintains stocks at 75% of the
projected sales of the following month. 10% of the creditors are paid in the month of
purchase, 60% are paid in the first month subsequent to purchase and the remaining 30%
are paid in the second month following the purchase.
REQUIRED:
Compute Cash Payments made during the last quarter of the year for each case above.

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 9

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CBQ#4 A (iii)
The January 1 cash balance of the ALPHA Company is $75,000. Sales for the first four months
of the year are expected to be as follows: January, $ 265,000; February, $250,000; March.
$366,000; and April, $260,000. Sales during November and December of the previous year
are $135,000 and $155,000 respectively. Collections from customers follow this pattern: 20% in
the month of Sale, 45% in the month following the sale, 31% in the second month following
the sales, and 4% uncollectable.
Materials purchases for December were $220,000. Forecast purchases for the coming year are:
January, $212,500; February, $ 316,500; March, $ 230,000; and April, $ 240,000. Purchases
usually paid by the 10th of the months following the month of purchases. Other cash
expenditures of $ 80,000 are forecasted for each month. Machinery costing $500,000 will be
received in January and paid for in MARCH. The loan interest is payable in February $20,000.
An interim dividend to 31 March of $132,500 will be paid in MARCH.

Required:
Prepare CASH BUDGET for January to April

CBQ#4A (iv) Adapted from MATZ & UZRY

The January 1 cash balance of the Cowan Company is $5,000. Sales for the first four months
of the year are expected to be as follows: January, $ 65,000; February, $54,000; March.
$66,000; and April, $63,000. On January 1, uncollected accounts for November and
December of the previous year are $13,500 and $39,150, respectively. Collections from
customers follow this pattern: 55% in the month of Sale, 30% in the month following the
sale, 13% in the second month following the sales, and 2% uncollectable.
Materials purchases for December were $10,000. Forecast purchases for the coming year are:
January, $12,500; February, $ 16,500; March, $ 13,000; and April, $ 14,000. Purchases usually
paid by the 10th of the months following the month of purchases. Other cash expenditures of
$ 41,000 are forecasted for each month.

Required:
Prepare CASH BUDGET for January to April

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 10

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CBQ#4B Adapted from COLIN DRURY

The management of Beck plc have been informed that the union representing the direct
production workers at one of their factories, where a standard product is produced, intends to
call a strike. The accountant has been asked to advise the management of the effect the strike
will have on cash flow.
The following data has been made available:
Week 1 Week 2 Week 3
Budgeted Sales 400 units 500 units 400 units
Budgeted production 600 units 400 units Nil
The strike will commence at the beginning of Week 3 and it should be assumed that it will
continue for at least four weeks. Sales at 400 units per week will continue to be made during
the period of the strike until stocks of finished goods are exhausted. Production will stop at the
end of week 2. The current stock level of finished goods is 600 units. Stocks of work in
progress are not carried. The selling price of the product is £60 and the budgeted manufacturing
cost is made up as follows:
(£)
Direct Materials 15
Direct wages 07
Variable overhead 08
Fixed Overheads 18
Total 48

Direct wages are regarded as a variable cost. The company operates a full absorption costing
system and the fixed overhead absorption rate is based upon a budgeted fixed overhead of
£9000 per week. Included in the total fixed overheads is £700 per week for depreciation of
equipment. During the period of the strike direct wages and variable overheads would not be
incurred and the cash expended on fixed overheads would be reduced by £1500 per week.
The current stock of raw materials are worth £7,500; it is intended that these stocks should
increase to £11,000 by the end of week1 and then remain at this level during the period of the
strike. All direct materials are paid for one of the week after they have been received. Direct
wages are paid one week in arrears. It should be assumed that all relevant overheads are paid for
immediately the expense is incurred. All sales are on credit 70% of the sales value is received
in cash from the debtors at the end of the first week after the sales have been made and the
balance at the end of the second week.
The current amount outstanding to material suppliers is £8000 and direct wage accruals
amount to £3200. Both of these will be paid in week1. The current balance owing from
debtors is £31,200, of which £24000 will be received during week 1 and the remainder
during week 2. The current balance of cash at bank and in hand is £1000.

Required:
(i) Prepare a cash budget for weeks 1 to 6 showing the balance of cash at the end of each week
together with a suitable analysis of the receipts and payments during each week.
(ii) Comment upon any matters arising from the cash budget which you consider should be
brought to management’s attention.

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 11

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

CBQ#4C ICMAP Extra Attempt May 2014

Pioneer Ltd., is a merchandising company and sells a wide range of products. Since sales of the
company has grown rapidly over the few years, the company is planning to borrow money to
meet the working capital requirement. Mr. Zohaib Khan, president of Pioneer Ltd., has just
approached the company's bank with a request for Rs. 600,000 (180-days loan), as it will assist
the company in acquiring inventories. As the company had some difficulty in paying off its loans
in the past, the loan officer has asked for a cash budget to help in determining whether the loan
should be granted or not. For preparing cash budget following data is available for six months
(from January to June), during which the loan will be used:
(a) On January 1, the start of the loan period, cash balance will be Rs.156,000 and
accounts receivable Rs.909,000 of which Rs.846,000 will be collected during
January and Rs.43,200 will be collected during February. The remainder will be
uncollected.
(b) Past experience shows that 30% of a month's sales are collected in the month of
sale, 60% in the month following sale, and 8% in the second month following sale.
The other 2% represents bad debts that are never collected. Budgeted sales and
expenses for the six months are as follows:
Rupees
January February March April May June
Sales 1,200,000 1,800,000 2,100,000 3,150,000 3,675,000 5,512,500
Purchases 720,000 1,080,000 1,260,000 1,890,000 2,205,000 3,307,500
Payroll 54,000 81,000 94,500 141,750 165,375 248,063
Lease payments 90,000 90,000 90,000 90,000 90,000 90,000
Advertising Equipment 420,000 480,000 540,000 617,143 694,286 793,469
purchases 48,000
Depreciation 60,000 60,000 60,000 60,000 60,000 60,000

(c) Merchandise purchases are paid in full during the month following purchases.
Accounts payable Rs. 1200,000 for merchandise purchased on December 31, which
will be paid during January.
(d) In preparing the cash budget, assume that Rs.600, 000 loan will be granted in
January and repaid in June. Interest on the loan will total Rs.96,000.

Required:
Prepare a cash budget showing month-wise and total budgeted figures from January to June.

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 12

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

CBQ#4D ICAP Module ‘D, Autumn 2013

Crystal Limited (CL) is engaged in the business of supplying plastic chairs to
schools and hospitals in Karachi. Following data has been extracted from
CL’s business plan:

Actual Forecast
Aug. 2013 Sep. 2013 Oct. 2013 Nov. 2013 Dec. 2013
Purchases (Rs. ‘000) 600 520 680 640 560

Additional information:
(i) All the above amounts are exclusive of sales tax. The company uses
Just-in-time inventory system and therefore has a negligible stock at any
point of time.
(ii) Sales tax is charged at the rate of 17% and is payable on the 15th day of
the next month along with the sales tax return. Refunds, if any, are
received one month after submission of the sales tax return.
(iii) 70% of the sales are made to hospitals on two months credit whereas
the rest of the sales are made to schools on credit of one month. All
debtors are expected to promptly settle their debts. CL earns a uniform
gross profit of 20 percent on sales.
(iv) 10% of the creditors are paid in the month of purchase, 60% are paid in
the first month subsequent to purchase and the remaining 30% are paid
in the second month following the purchase.
(v) Monthly salaries and wages amount to Rs. 95,000 and are paid in the
month in which they are incurred.
(vi) A monthly rent of Rs. 50,000 is paid in advance on quarterly basis.
(vii) Selling expenses for September are estimated at Rs. 40,000. 35% of
selling expenses are fixed whereas remaining amount varies with the
variation in sales. Selling expenses are paid in the month in which they
are incurred.
(viii) Other overhead expenses are estimated at 6% of the sales for the previous
month.
(ix) Cash and bank balances as at 30 September 2013 are estimated to be Rs.
1,000,000.

Required:
Prepare a month-wise cash budget for the quarter ending 31 December 2013. (16)

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 13

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

CBQ#4E ICAP Module ‘D, Autumn 2009

Smart Limited has prepared a forecast for the quarter ending December 31, 2009, which is based
on the following projections:
(i) Sales for the period October 2009 to January 2010 has been projected as under:

Rupees
October 2009 7,500,000
November 2009 9,900,000
December 2009 10,890,000
January 2010 10,000,000
Cash sale is 20% of the total sales. The company earns a gross profit at 20% of sales. It
intends to increase sales prices by 10% from November 1, 2009, however since there
would be no corresponding increase in purchase prices the gross profit percentage is
projected to increase. Effect of increase in sales price has been incorporated in the above
figures.
(ii) All debtors are allowed 45 days credit and are expected to settle promptly.
(iii) Smart Limited follows a policy of maintaining stocks equal to projected sale of the next
month.
(iv) All creditors are paid in the month following delivery. 10% of all purchases are cash
purchases.
(v) Marketing expenses for October are estimated at Rs. 300,000. 50% of these expenses are
fixed whereas remaining amount varies in line with the value of sales. All expenses are paid
in the month in which they are incurred.
(vi) Administration expenses paid for September were Rs. 200,000. Due to inflation, theses are
expected to increase by 2% each month.
(vii) The opening balances on October 1, 2009 are projected as under:

Rupees
Cash and bank 2,500,000
Trade debts – related to September 5,600,000
Trade debts – related to August 3,000,000

Required:
(a) Prepare a month-wise cash budget for the quarter ending December 31, 2009.
(b) Prepare a budgeted profit and loss statement for the quarter ending December 31, 2009. (16)

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 14

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

COLLECTION FROM CUSTOMERS DURING THE YEAR

Cash Sales XXX
Credit Sales XXX
Total Sales XXX
Less: Sales Discount XXX
Less: Bad Debts XXX
Add: Debtors at START XXX
Less: Debtors at END XXX
Less: Advances from customers at START XXX
Add: Advances from customers at END XXX
COLLECTION FROM CUSTOMERS XXX

PAYMENT TO SUPPLIERS DURING THE YEAR:

Raw Material Consumption / Cost of Sales XXX
Add: Closing Stock XXX
Less: Opening Stock XXX
PURCHASES to be made XXX
Less: Purchase Discount XXX
Add: Creditors at START XXX
Less: Creditors at END XXX
Less: Advances to suppliers at START XXX
Add: Advances to suppliers at END XXX
XXX

CBQ #5A
CASE ‘I’ CASE ‘II’ CASE ‘III’
Cash Sales {2018} 1,200,000 3,200,000 2,800,000
Credit Sales {2018} 7,200,000 5,760,000 9,360,000
Credit Sales {2017} 6,480,000 7,920,000 8,280,000
Average COLLECTION period 50 days 40 days 55 days
Debtors at START __________? __________? __________?
Debtors at END __________? __________? __________?
COLLECTION during 2018 __________? __________? __________?
(Assume 360 days)
CBQ #5B
CASE ‘I’ CASE ‘II’ CASE ‘III’
Cash Sales {2018} 1,550,000 1,770,000 2,225,000
Credit Sales {2018} 5,760,000 8,100,000 9,360,000
Credit Sales {2017} 5,220,000 8,460,000 8,280,000
Average COLLECTION period--2017 (360 days) 50 days 40 days 75 days
Average COLLECTION period--2018 (360 days) 40 days 55 days 60 days
Debtors at START _______? _______? _______?
Debtors at END _______? _______? _______?
COLLECTION during 2018 _______? _______? _______?

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 15

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)
CBQ #5C
CASE ‘I’ CASE ‘II’ CASE ‘III’
Cash Purchases {2018} 1,200,000 3,200,000 2,800,000
Credit Purchases {2018} 7,200,000 5,760,000 9,360,000
Credit Purchases {2017} 6,480,000 7,920,000 8,280,000
Average PAYMENT period 50 days 40 days 55 days
Creditors at START __________? __________? __________?
Creditors at END __________? __________? __________?
PAYMENT during 2018 __________? __________? __________?

CBQ #5D
(Assume 360 days) CASE ‘I’ CASE ‘II’ CASE ‘III’
Consumption {2017} 7,920,000 5,940,000 3,960,000
Consumption {2018} 7,020,000 7,020,000 4,860,000
Credit Purchases {2017} 6,480,000 5,580,000 5,400,000
The company maintains raw material
inventory for average ______ days’ 30 days 25 days 15 days
consumption.
Average PAYMENT period 50 days 40 days 55 days
Raw Material Stock at START __________? __________? __________?
Raw Material Stock at END __________? __________? __________?
Creditors at START __________? __________? __________?
Creditors at END __________? __________? __________?
PAYMENT during 2018 __________? __________? __________?
NOTE: Quantity of closing raw material as a percentage of raw material consumption would remain the same.

CBQ#5E
CASE ‘I’ CASE ‘II’ CASE ‘III’
Consumption during 2017 (In Rs.) 7,920,000 5,940,000 3,960,000
Increase / (Decrease) in VOLUME 20% 15% (20%)
during 2018
Credit Purchases {2017} 6,480,000 5,580,000 5,400,000
The company maintains raw material
inventory for average ______ days’ 30 days 25 days 15 days
consumption.
Average PAYMENT period (Assume 50 days 40 days 55 days
360 days)
Advance to suppliers for Purchase of 500,000 300,000 200,000
raw material
(Beginning Balance)
Raw Material Stock at START __________? __________? __________?
Raw Material Stock at END __________? __________? __________?
Creditors at START __________? __________? __________?
Creditors at END __________? __________? __________?
PAYMENT during 2018 __________? __________? __________?
NOTE: Quantity of closing raw material as a percentage of raw material consumption would remain the same.

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 16

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

CBQ#5F ICAP Module ‘D, Spring 2016 (Modified)

Rainbow Paints Limited (RPL) is in the process of preparing its budget for the year ending 28
February 2017. The following data has been extracted from the profit and loss account for the
year ended 29 February 2016:
Rs. in million
Sales 110.00
Cost of goods sold:
Materials consumed (30.00)
Conversion cost – Variable (18.00)
Conversion cost - Fixed (including depreciation of Rs. 3 million) (12.00)
Gross profit 50.00
Operating expenses:
Variable (25.00)
Fixed (including depreciation of Rs. 5 million) (10.00)
Operating profit 15.00

For preparation of the budget, Cost Control Manager has prepared the following
projections/information:

(i) Sales volume and sales price are expected to increase by 10% and 5%
respectively. The ratio of cash and credit sales would be 25:75. Cash sales would be
made at a discount of 5%.
(ii) Average collection and payment time in RPL is as follows:

Collection of trade debtors 35 days

Payment to trade creditors 40 days
Payment of expenses 25 days

(iii) RPL maintains raw material inventory for average 30 days’ consumption.
(iv) Trade creditors as at 29 February 2016 amounted to Rs. 3 million.
(v) Effect of price increase is estimated as under:
Variable and fixed expenses (excluding depreciation) - 8%
Depreciation - same as last year

(vi) RPL plans to introduce a new product during the budget period for which it plans
to launch an advertisement campaign during September 2016 to February 2017.
In this respect payments of Rs. 3 million each would be made on 1 September
2016 and 1 March 2017.
(vii) RPL operates absorption costing system and uses FIFO method for valuation of
inventory.

Required:
(a) Prepare budgeted profit and loss account for the year ending 28 February 2017. (08)
(b) Prepare budgeted cash flow statement for the year ending 28 February 2017. (08)
(Assume that all the transactions occur evenly throughout the year (360 days) unless
otherwise specified)

CBQ#6A ICMAP M.A Fall 2014

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 17

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)
Grace Furnitures, a renowned company, makes stylish and modern furniture. The company not only sells
wide range of furniture locally but also makes some units on special orders for India. The Chief Executive
Officer (CEO) of Grace Furnitures, Mr. Ahmed is concerned about the recent downturn in local industry
and its impact on company’s operating income. The following income statement shows the current year
financial performance of Grace Furnitures:
Grace Furnitures
Income statement
For the year ended December 31, 2014

Sales Revenue:
Local Sales 1500,000
Special Order Sales 420,000
Total Revenues 1920,000
Cost of Goods Sold 1152,000
Gross Margin 678,000
Operating Costs:
Product design costs 50,000
Maintenance Costs 230,000
Marketing and Advertising Costs 100,000
Selling and Distribution 65,000
Total Operating Costs 445,000
Operating Income 323,000
The Manager of the company, Mr. Hamza, gathered the information about local sales and pleased to
ascertain that downturn is over and sales have been increasing than expected. Moreover, one of the key
competitors in the local market could not survive in recession period and left the market.
Mr. Hamza predicted that a little more efforts in marketing will grow local as well as international sales.
Further quality improvements and little more marketing will make following changes in costs and selling
price of the next financial year 2015:
• Local sales in units are expected to increase by 8% as the economic recession is
over. Since the economic recovery begins, Grace Furnitures is expecting increase
in special order sales from India by 8% units in the next year.
• It is expected that selling price of furniture locally sold will rise by 12%, while the
selling price of special order sales will remain unchanged.
• Quality improvements will result 4% increase in cost of each unit sold.
• Selling and distribution costs vary in proportion to
the number of units locally sold.
• A group of designer will be hired specially for the
purpose of making furniture more stylish and attractive. Resultantly, product
design cost is expected to increase by Rs. 12,000,000.
• Marketing Manager decided to hire three more marketing personnel that will
increase marketing and advertising cost to Rs. 135,000,000.
• Mr. Hamza suggested that the company should recruit maintenance technicians
for customer service who will assemble furniture at customer place. This will
increase maintenance cost by Rs. 75,000,000.
• Assume no tax is applicable.
Required:
The CEO of Grace Furnitures wants to know whether the predictions of Mr. Hamza would result in
improved financial performance of the company and asked you to prepare budgeted income statement
for the year ended December 31, 2015.

CBQ#6B Adapted from COLIN DRURY

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 18

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)
The budgeted balance sheet data on March 1st of Kwan Tong Umbago Ltd is as follows:
Depreciation
Cost To date Net
(£) (£) (£)
Fixed Assets
Land and Building 500,000 --- 500,000
Machinery and equipment 124,000 84,500 25,600
Motor Vehicles 42,000 16,400 25,600
666,000 100,900 565,100
Current assets
Stock of raw materials (100 units) 4,320
Stock of finished goods (110 Units) 10,450
Debtors (January £7680 Febuary £ 10,400 18,080
Cash and bank 6790
39 640
Less Current Liabilities
Creditors (Raw Material) 3,900 35,740
Working Capital 600840
Represented by:
Ordinary share capital 500,000
(Fully paid) £1 Shares
Share premium 60,000
Profit and loss account 40,840
600,840

The stock of finished goods was valued at marginal cost.

March April May June

Sales (Units) 80 84 96 94
Production (Units) 70 75 90 90
Purchases of raw materials (units) 80 80 85 85

Wages and variable overhead at £65 per unit £4550 £4875 £5850 £5850
Fixed overhead £1200 £1200 £1200 £1200

The company intends to sell each unit for £219 and has estimated that it will have to pay £45 per unit for
raw materials; one unit of raw material is needed for each unit of finished product.
All sales and purchases of raw materials are on credit. Debtors are allowed two month credit and
suppliers of raw materials are paid after one month’s credit. The wages, variable overheads are
paid in the month in which they are incurred.

Cash from a loan secured on the land and buildings of £120,000 at an interest rate of 7.5% is due to be
received on 1 May. Machinery costing £112,000 will be received in May and paid for in June.
The loan interest is payable half yearly from September onwards. An interim dividend to 31 March of
£12,500 will be paid in June.

Depreciation for the four months, including that on the new machinery is:
Machinery and equipment £15,733

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 19

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)
Motor Vehicles £3,500

The company uses the FIFO method of stock valuation. Ignore taxation.

Required:
(a) Calculate and present the raw materials budget and finished goods budget in terms of units, for each
month from March to June inclusive.
(b) Calculate the corresponding sales budget , the production costs budgets, and the budgeted closing
debtors, creditors and stocks in terms of value .
(c) Prepare and present a cash budget for each of the four months.
(d) Prepare a master budget i.e. a budgeted trading and profit and loss account, for the four months to 30
June, and budgeted balance sheet as at 30 June.

CBQ#7 Adapted from COLIN DRURY

Flosun plc makes sells a range of products. Management has carried out an analysis of the total cost of
production. The analysis has identified that the factory is organized in order to permit the operation of three
production lines X, Y and Z. Each production line facilitates the production of two or more products A and
B. The products are manufactured in batches on a just-in-just basis in order to fulfill orders from customer.
Only one product can be manufactured on the production line at any one time. Materials are purchased and
received on a just-in-time basis. Additional information is available for production line X as follows:

(i) Production line machine costs including labour, power, etc., vary in proportion to machine hours.
(ii) Costs incurred for production scheduling, WIP movement, purchasing and receipt of materials
are assumed to be incurred in proportion in the number of batches of product which are
manufactured. Machine set-up costs vary in proportion to the number of set-ups required and are
linked to a batch throughput system.
(iii) Costs for material scheduling systems and design/testing routines are assumed to be incurred by
each product in proportion to the total quantity of components purchased and the total number of
types of component used respectively. The number of different components designed/tested for
products A and B are12 and 8 respectively.
(iv) Product line development costs is identified with changes in product design and production method.
At present such costs for production line X are apportioned 80%:20% to products A and B
respectively. Production line maintenance costs are assumed to vary in proportion to the
maintenance hours required for each product.
(v) General factory costs are apportioned to each of production lines, X, Y and Z in the ratio 25%: 30%;
45% respectively. Such costs are absorbed by product units at an average rate per unit through
each production line.

Budget data six months to 30th June 2004:

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 20

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)
Product A Product B
Material cost per product unit £60 £45
Production line X – machine hours per unit 0.8 0.5
Production batch size (units0 100 200
Total production (units0 9,000 15,000
Components per product unit (Quantity) 20 12
Number of customers 5 10
Number of production line set-ups 15 25
Production line X – maintenance hours 300 150
Cost Category Production X Factory total
£ £
Labour power, etc. 294,000
Set-up machines 40,000
Production scheduling 29,600
WIP movement 36,400
Purchasing and receipt of material 49,500
Material scheduling system 18,000
Design/testing routine 16,000
Production line development 25,000
Production line maintenance 9,000
General factory administration 500,000
General factory occupancy 268,000

Required:
(a) Prepare an activity based budget for production line X for the six month period to 30 June 2004
analyzed into sub-sets for activities which are product unit based, batch based, product sustaining,
production line sustaining and factory sustaining. The budget should show:
(i) Total cost for each activity sub-set grouped to reflect the differing operational levels at which each
sub-set is incurred/controlled.
(ii) Average cost per unit for each of Products A and B analyzed by activity subset.

CBQ#8 ( A ) Adapted from MATZ & UZRY

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 21

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)
The University of Boyne offers an extensive continuing education program in many cities
throughout the state. For the convenience of its faculty and administrative staff and to save costs,
the University employs a supervisor to operate a motor pool. The motor pool operated with 20
vehicles until February, when an additional automobile was acquired. The motor pool furnishes
gasoline, oil, and other supplies for its automobiles. A mechanic does routine maintenance and
minor repairs. Major repairs are done at a nearby commercial garage.

Each year, the supervisor prepares an operating budget, which informs the university and
administration of the funds need for operating the pool. Depreciation (straight line) on the
automobiles is recorded in the budget in order to determine the cost per mile.

The schedule presents the annual budget approved by the university, with March’s actual costs
compared to one twelfth of the annual budget.

University Motor Pool

Budget Report for March
ANNUAL ONE-MONTH MARCH (OVER)
BUDGET BUDGET ACTUAL UNDER
Gasoline $42,000 $3,500 $4,300 $(800)
Oil, minor repairs, parts and supplies 3,600 300 380 (80)
Outside repairs 2,700 225 50 175
Insurance 6,000 500 525 (25)
Salaries and benefits 30,000 2,500 2,500 --
Depreciation 26,400 2,200 2,310 (110)
$110,700 $9,225 $10,065 $(840)

Total miles 600,000 50,000 63,000

Cost per mile $1845 $1845 $1598
Number of automobiles 20 20 21

The annual budget was constructed upon these assumptions:

(a) 20 automobiles in the pool.
(b) 30,000 miles per year per automobile.
(c) 15 miles per gallon per automobile
(d) $1.05 per gallon of gasoline.
(e) $0.006 per mile for oil, minor repairs, parts and supplies.
(f) $135 per automobile for outside repairs.

The supervisor is unhappy with the monthly report comparing budget and actual costs for March,
claiming it presents an unfair picture of performance. A previous employer use flexible budgeting to
compare actual costs to budgeted amounts.

Required:
(1) A report showing budgeted amounts, actual costs and monthly variations for March, using flexible
budget techniques. (Round off computation of four decimal places).
(2) An explanation of the basis of the budget figure for outside repairs,

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 22

ICMA Pakistan MANAGEMENT ACCOUNTING (G-3)

CBQ#8B
The following information has been used by the Prince Edward Island Company in preparing its budgets
for January and February:
JANUARY FEBRUARY
Units to be sold……………………………………………. 7,000 11,000
Units to be produced………………………………………. 12,000 10,000

Direct materials used……………………………………… 600,000 500,000

Direct Labour Costs ………………………………………. 300,000 250,000
Insurance on factory………………………………………. $ 20,000 $ 20,000
Depreciation (factory building and machinery)…………... 100,000 100,000
Light and heat (factory)…………………………………… 3400 3,000
Indirect factory labor……………………………………… 38,000 33,000
Factory supplies…………………………………………… 30,000 25,000
Lubricants for factory machinery…………………………. 18,000 15,000

Non-Manufacturing Costs:
Sales salaries………………………………………………. 13,000 15,000
Advertising………………………………………………… 15,000 15,000
Other operational costs (Based on sales) ………………… 10,000 10,000

Required:
Prepare FLEXED INCOME STATEMENT for the year assuming units produced and sold were 142,000
and 135,000 respectively.

From The Desk Of: KASHIF ZIA (A.C.M.A) 20-18 BUDGETING P# 23