Budget Practice sheet 1

Q1. A company manufactures two products A and B. A forecast of the units to be sold in the
first seven months is given below:
Month Product A Product B
January 1,000 2,800
February 1,200 2,800
March 1,600 2,400
April 2,000 2,000
May 2,400 1,600
June 2,400 1,600
July 2,000 1,800

It is anticipated that a) there will be no work-in-process at the end of any month and b)
finished units equal to half the sale for the next month will be in stock at the end of each
month (including previous December)
Budgeted Production and production cost for the whole year as follows:
Particulars Product A Product B
Product (units) 22,000 24,000
Per Unit direct material Rs 12.50 Rs 19
Per unit direct labour Rs 4.5 Rs 7
Total factory Overhead 66,000 96,000
(apportioned)

Prepare for the six months period ending June 30 :

i. Production budget for each month
ii. Summarized Production (manufacturing) cost budget.

Q2. ABC Company Ltd. expects the following sales by months in units for the first six
months of next year.
January 5,400 April 5,700
February 5,700 May 6,000
March 7,500 June 4,500

The company has a policy of maintaining an inventory equal to budgeted sales for the
following two months. The beginning inventory reflects this policy. Each unit costs Rs 10.
You are required to prepare purchases budget for Jan to March both in units and rupees.
Q3. Prepare a Production Budget for 3 months ending March 31,2020, for factory producing
products, on the basis of following information:
Type of Product Estimated Stock as Estimated Sales Desired Closing
on 1st Jan 2020 during Jan-March stock on March
(Units) 2020 31,2020
A 2,000 10,000 3,000
B 3,000 15,000 5,000
C 4,000 13,000 3,000
D 3,000 12,000 2,000

Q4. The sales department of a manufacturing company reports that next year he expects a
sale of 50,000 units of a particular product.
The production manager consults the storekeeper and casts his figures as follows:
Two kinds of raw material A and B are required for manufacturing the product. Each unit of
the product requires 2 units of A and 3 units of B. The estimated opening balances at the
commencement of the next year are: Finished product: 10,000 units, A: 12000 units, B:
15,000 units.
The desirable balances at the closing of the next year are: Finished Products: 14,000 units, A:
13,000 units, B: 16,000 units. Make a Material purchase budget for the next year.
Q5. The following are the estimates for the sales of a company for following months
Months Estimated Sales (units)
April 12,000
May 13,000
June 9,000
July 8,000
August 10,000
September 12,000
October 12,000
As a matter of policy, the company maintains the closing balance of finished goods and raw
material as follows:
Stock item Closing balance of Month
Finished Goods 50% of the estimated sales for the next month

Raw Material Estimated consumption for the next month.

Every unit of production requires 2 Kg of raw material costing Rs 5 per kg. Prepare
Production budget (in units) and Raw Material Purchase Budget (in units and cost) of the
company for the half year ending 30 th September.
Q6. The GEC ltd manufactures pumps used in coolers. The firm has developed a forecasting
tool that has been successful in predicting sales for the company: Sales= 10,000+(0.25*
Coolers Sold). The coming year’s coolers sales are expected to be 2,00,000.
The Pump contains material costing Rs 50. Direct Labour id Rs 60 per unit and variable
manufacturing overhead is Rs 40 per pump. Besides variable manufacturing costs, there are
commissions to sales people of 10% of sales amount. The pump sells for Rs 250 per unit.
Fixed cost of manufacturing are Rs 10,00,000 per year and Fixed selling & administrative
Expenses are Rs 5,00,000 per year. Both are incurred evenly over the year.
Sales are seasonal and about 75% are in the April-September period which begins from April
1. The sales forecast by months, as percentage of yearly sales are given below:
April May June July August September October November
10 15 20 15 8 7 5 3

The company has a policy of keeping inventory of finished products equal to the budgeted
sales for the following two months. Materials are purchased and delivered daily and no
inventory is kept. The inventory of Finished Product on March 31 is expected to be 15,500
units.
You are required to:
i. Budgeted income Statement for first 6 months and last six months
ii. Production Budget for first six months.
Q7. ABC ltd a newly started company wishes to prepare cash budget from January. Prepare a
cash budget for the first six months from the following estimates revenue and expenses:
Months Total Materials Wages Total
Sales Overhead
(Rs)
Jan 25,000 23,000 6,000 4,000
Feb 24,000 18,000 3,600 5,000
Mar 30,000 22,000 4,800 6,000
April 36,000 28,000 5,600 4,400
May 34,000 30,000 4,800 4,800
June 44,000 38,000 5,000 5,600
iii. Cash Balance on 1st January was Rs 12,000. New machinery is to be installed at Rs
40,000 on credit, to be repaid by two equal instalments in March and April.
iv. Sales commission @ 10% on total sales is to be paid within a month following actual
sales.
v. Rs 8500 being the amount of 2nd call may be received in March. Share premium
amounting to Rs 1500 is also obtainable with the 2 nd call.
vi. Period of Credit allowed by suppliers—2 months
vii. Period of Credit allowed to customers—1 month
viii. Delay in payment of overheads—1 month
ix. Delay in payment of wages—1/2 month
x. Assume Cash sales to be 60% of total sales

Q8. Prepare Cash Budget for the month of May, June and July 2020 on the basis of
following information:
1. Income and expenditure Forecasts
Month Credit Credit Wages Manufacturing Office Selling
Sales Purchase Expenses Expense Expense
March 60,000 36,000 9,000 4,000 2,000 4,000
April 62,000 38,000 8,000 3,000 1,500 5,000
May 64,000 33,000 10,000 4,500 2,500 4,500
June 58,000 35,000 8,500 3,500 2,000 3,500
July 56,000 39,000 9,500 4,000 1,000 4,500
August 60,000 34,000 8,000 3,000 1,500 4,500

2. Cash Balance as on 1st May 2020, Rs 8,000

3. Plant Costing Rs 16,000 is due for delivery in July, payable 10% on delivery and the
balance after 3 months.
4. Advance Tax of Rs 8,000 each is payable in March and June.
5. Period of Credit allowed by suppliers- 2 months and to customers 1 month.
6. Lag in payment of Manufacturing -1/2 months
7. Lag in payment of office and selling expenses-one month.
Q9. Prepare Cash Budget from the following information