REQUIREMENT 1

HYPOTHETICAL DATA ASSUMPTION

Company Name: Super Glass Bangles LLP.
Selling Price per unit: Rs 100 per unit
No of units sold: 100,000 units
Total sales Revenue: Rs 5,000,000
Direct Raw Material:
Direct Material Needed per pound: 1.5 Kg per unit
Total Number of Units: 100,000
Price per Kg: Rs 10
Total Amount: Rs 1,000,000
Direct Labor:
Direct Labor Needed per unit: 0.05 hour
Total Number of Hours: 5000 Hours
Price per hour: Rs 240 per hour
Total Direct Labor needed: Rs 1,200,000
Manufacturing Overhead Cost Schedule:
Variable overhead: Rs 172 per hour
Fixed Manufacturing Overhead: Rs 1,000,000
Depreciation expenses: Rs 50,000

Non- Manufacturing Expense:

Selling Expense variable: Rs 5 per unit
Fixed Selling Expense: Rs 500,000
Fixed administrative expense: Rs 300,000
 Requirement 2

Production Department: Cost

Furnace Expense Rs 1,000,000

Cutting Expense Rs 150,000

Administrative Department:

Supervisor salary Rs 60,000

Administration department salary Rs 100,000
Marketing Department:
Selling commission (Rs 5 per unit) Rs 500,000
Marketing Dept base salary Rs 50,000

ACTIVITY COST POOL

Activities Customer Product design Order size Customer Other Total
order relation
Furnace 10% 60% 20% 10% 0% 100%
Cutting 20% 50% 15% 10% 5% 100%
Supervisor salary 25% 25% 30% 20% 0% 100%

Administrative 30% 20% 10% 40% 0% 100%

salary
Selling commission 20% 0% 10% 70% 0% 100%

Salaries 40% 0% 0% 60% 0% 100%

 ASSIGNING COST USING ABC COSTING
Activities Shipping Cost Production Utilities Customer Other Total
department relation

Furnace Rs 100,000 Rs 600,000 Rs 200,000 Rs 100,000 Rs 0 Rs 1,000,000

Cutting Rs 30,000 Rs 75,000 Rs 22500 Rs 15000 Rs 7500 Rs 150,000

Supervisor salary Rs 15,000 Rs 15,000 Rs 18000 Rs 12000 Rs 0 Rs 60,000

Administrative salary Rs 30,000 Rs 20,000 Rs 10,000 Rs 40,000 Rs 0 Rs 100,000

Commission Rs 100,000 Rs 0 Rs 50,000 Rs 350,000 Rs 0 Rs 500,000

Salaries Rs 20,000 Rs 0 Rs 0 Rs 30,000 Rs 0 Rs 50,000

Total Rs 295,000 Rs 710,000 Rs 300,500 Rs 547,000 Rs 7500 Rs 1,860,000

ACTIVITY COST RATE CALCULATION

Cost Activity Rate
Shipping cost Rs 295000 1000 order Rs 295
Production department Rs 710,000 100,000 units Rs 7.1
Customer relation Rs 300500 100 customers Rs 3005

WHY, ABC Costing?

ABC costing system as name suggest is based on different activities which was done in company. This
costing system allow manager to get the true value of manufacturing overhead with true allocation
base. Hence provide the clearest possible information regarding manufacturing overhead of
company. The thing which differentiate it is it includes non-manufacturing expense also which also
provide the possible influence of non-manufacturing expense on manufacturing of product.
Requirement 3
 MASTER BUDGET PREPARATION
SALES BUDGET
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Sales Unit 100,000 units 120,000 90,000 units 110,000 units 420,000
Selling price 100 100 1000 100 100
Sales revenue 10,000,000 12,000,000 9,000,000 11,000,000 42,000,000

Expected Cash Budget

Company policies:
25% of sales are cash and other are on account80% of Account receivable is
collected in the quarter of sale
1st quarter 2nd quarter 3rd quarter 4th quarter Total
Beginning A/R Rs 1,000,000
Cash (25%) Rs 2,500,000
A/R collection Rs 6,000,000
Rs 9,500,000
Beginning A/R Rs 1,500,000
Cash (25%) Rs 3,000,000
A/R collection Rs 7,200,000
Rs 11,700,000
Beginning A/R Rs 1,800,000
Cash (25%) Rs 2,250,000
A/R collection Rs 5,400,000
Rs 9,450,000
Beginning A/R Rs 1,350,000
Cash (25%) Rs 2,750,000
A/R collection Rs 6,600,000

Rs 10,700,000
Total Rs 9,500,000 Rs 11,700,000 Rs 9,450,000 Rs 10,700,000 Rs 41,350,000
15% of Account receivable is collected in following month
Beginning account receivable is Rs 1,000,000

EXPECTED CASH INFLOWS SHEDULE

Production Budget
 Company policy:
The management decide ending inventory to 10% of following month sales in unit
On December 31, 20,000 units are on hand
Ending inventory on 4th quarter 10,000

1st quarter 2nd quarter 3rd quarter 4th quarter

Budgeted sales 100,000 120,000 90,000 110,000
Add: desired ending inventory 12,000 9,000 11,000 10,000
Total Needs 112,000 129,000 101,000 120,000
Less: Beginning Inventory 20,000 12,000 9,000 11,000
Required Production 92,000 117,000 92,000 109,000

DIRECT MATERIAL BUDGET

Company policy:
 Desired ending inventory is 20 % of the following month
 Beginning inventory is 25,000 kg
 Desired ending inventory of 4th quarter is 20,000 kg
DIRECT MATERIAL BUDGET
1st quarter 2nd quarter 3rd quarter 4th quarter Total
Production 92,000 117,000 92,000 109,000 410,000
Material per unit 1.5 kg 1.5 kg 1.5 kg 1.5 kg 1.5 kg
Production need 138,000 kg 175,500 kg 138,000 kg 163,500 kg 615,000 kg
Add: desire ending inventory 35,100 kg 27,600 kg 32,700 kg 20,000 kg 20,000 kg
Total needs 173,100 kg 203,100 kg 170,700 kg 183,500 kg 635,000 kg
Less: beginning inventory 25,000 kg 35,100 kg 27,600 kg 32,700 kg 25,000 kg
Material To be purchased 148,100 kg Rs 168,000 kg 143,100 kg 150,800 kg 610,000 kg
Unit price per kg Rs 10 Rs 10 Rs 10 Rs 10 Rs 10
Total Amount Rs 1,481,000 Rs 1,680,000 Rs 1,431,000 Rs 1,508,000 6,100,000

DIRECT LABOR BUDGET

Company Policy:
 There are no guaranteed labor hours
Per unit direct labor is 0.05 per unit
Per unit direct labor hour is Rs 240 per hour
Direct Labor Schedule
1st quarter 2nd quarter 3rd quarter 4th quarter Yearly
Unit of 92,000 117,000 92,000 109,000 410,000
production
DLH per unit 0.05 0.05 0.05 0.05 0.05
Total DLH 4600 5850 4600 5450 20500
DLH per unit 240 240 240 240 240
Total amount Rs 1,104,000 Rs 1,404,000 Rs 1,104,000 Rs 1,308,000 Rs 4,920,000

MANUFACTURING OVERHEAD BUDGET

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total

Budgeted DLH 4600 5850 4600 5450 20500

Variable MOH rate 172 172 172 172 172

Total Variable Rs 791200 Rs 1,006,200 Rs 791,200 Rs 937,400 3,526,000

Fixed MOH Rs 1,000,000 Rs 1,000,000 Rs 1,000,000 Rs 1,000,000 Rs 4,000,000

Less: Non-Cash MOH Rs 50,000 Rs 50,000 Rs 50,000 Rs 50,000 Rs 200,000

Net Cash outflow Rs 1,741,200 Rs 1,956,2000 Rs 1,741,200 Rs 1,887,400 Rs 7,326,000

 Selling and Administrative Budget
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total

Budgeted Unit 92,000 117,000 92,000 109,000 410,000

Selling variable Rs 5 Rs 5 Rs 5 Rs 5 Rs 5

Fixed selling expense Rs 500,000 Rs 500,000 Rs 500,000 Rs 500,000 Rs 2,000,000

Total selling Rs 960,000 Rs 1,085,000 Rs 960,000 Rs 1,045,000 Rs 4,050,000

Administrative Rs 300,000 Rs 300,000 Rs 300,000 Rs 300,000 Rs 1,200,000

expense

Total 1,260,000 1,385,000 Rs 1,260,000 Rs 1,345,000 Rs 5,250,000

 CASH BUDGET
Company Policies
The Beginning cash balance is Rs 500,000
Company have to maintain minimum cash balance of 3,00,000
Company can finance by receiving multiple of Rs 500,000 loan from bank
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Beginning balance 1,000,000 Rs 4,913,800 Rs 10,188,600 Rs 14,102,400 Rs 30,204,800

Add: collection Rs 9,500,000 Rs 11,700,000 Rs 9,450,000 Rs 10,700,000 Rs 41,350,000

Total cash 10,500,000 Rs 16,613,800 Rs 19,638,600 Rs 24,802,400 Rs 71,554,800
Less: cash
payment:
Direct material Rs 1,481,000 Rs 1,680,000 Rs 1,431,000 Rs 1,508,000 Rs 6,100,000
Direct labor Rs 1,104,000 Rs 1,404,000 Rs 1,104,000 Rs 1,308,000 Rs 4,920,000
MOH Rs 1,741,200 Rs 1,956,200 Rs 1,741,200 Rs 1,887,400 Rs 7,326,000
Selling and admin Rs 1,260,000 Rs 1,385,000 Rs 1,260,000 Rs 1,345,000 Rs 5,250,000
Total payment Rs 5,586,200 Rs 6,425,200 Rs 5,536,200 Rs 6,048,400 Rs 23,596,000
Net Cash Rs 4,913,800 Rs 10,188,600 Rs 14,102,400 Rs 18,754,000 Rs 47,958,800
Minimum Rs 3,00,000 Rs 3,00,000 Rs 3,00,000 Rs 3,00,000 Rs 3,00,000
requirement
Excess (deficiency) Rs 1,913,800 Rs 7,188,600 Rs 11,102,400 Rs 15,754,000 Rs 44,958,800
Financing 0 Rs 0 Rs 0 Rs 0 Rs
Ending Cash Rs 4,913,800 Rs 10,188,600 Rs 14,102,400 Rs 18,754,000 Rs 47,958,800
balance
 BUDGET INCOME STATEMENT

INCOME STATEMENT Amount (RS) (000’)

Revenue 42,000
Less: Cost of goods Sold
Direct Material 6,100
Direct Labor 4,920
MOH 7,326
Total COGS (18,346)
Gross profit Margin 23,654
Less: Selling and Admin expense
Selling expense Rs 4050
Administrative expense 1,200
Total expense (5250)
Net Income (Loss) Rs 18,404
 Requirement no. 4
Break even in units
In order to calculate the break even in units the formula is
¿ cost
Break even = contribution margin per unit
¿
¿
Fixed cost =4,000,000 + 2,000,000 + 1,200,000 = 7,200,000

Contribution margin per unit

Selling price per unit Rs 100
Variable Cost:
Direct Material per unit (10x1.5) 15
Direct Labor (240 x 0.05) 12
Manufacturing Overhead (172 x 0.05) 8.6
Selling expense 5
Total Variable Expense (40.6)
Contribution margin per unit Rs 59.4
Contribution margin in RS (59.4 x 420,000) 24,948,000

Break even in units = 7,200,000 / 59.4

= 121,212 units to break even

Break even in rupees

¿ cost
Formula = contribution marginratio
¿
¿
Fixed cost =7,200,000
Contribution margin ratio = 59.4 / 100 = 0.594 or 59.4%
Break even in rupees = 7,200,000 / 0.594
Breakeven in Rupees = RS 12,121,212

Income statement by contribution margin method

Margin of safety
Margin of safety = Actual sales – Break even Sales
= 42,000,00 – 12,121,212
 = 29,878,787
Percentage pf Margin of Safety: Margin of safety / sales
= 29,878,787 / 42,000,000 = 0.71
There is margin of safety of 71%

Interpretation of margin of safety:

Operating leverage
Formula = Contribution Margin / Net income

Operating leverage = 24,948,000 / 18,404,000

Operating leverage = 1.355

Interpretation of operating leverage:

 Revenues In Rs. (000)
Sales (420,000) 12,121,212
Less variable cost of goods sold
Direct material (610,000*10) 6,100,00
Direct labor (20,500*240) 4,920
Variable overhead (20500*172) 3,526
Selling expense (420,000*5) 2,050
Total Variable Cost 16,596
Contribution margin 25,431
Fixed costs
Fixed selling expense 2,000
Fixed administrative expense 1,200
Fixed overhead 4,000
Non cash MOH 200
Operating income

Requirement no. 5
Assume that economy will not perform well, so you are required to make expected changes in sales, price, cost
or any other component which seems to be effected by economic downturn. Through sensitivity analysis
suggest any lucrative strategy for the company
As the economy is not performing well therefore in order to maintain the profit margin for the company has to
increase the amount of sales and which it can do by decreasing the price of that particular product but to
maintain the amount of profit margin it also has to reduce the cost of that product also because without
reducing in the cost and decreasing the price of that product will cause the company a huge loss. Hence the
company will reduce the cost and price of that particular product in order to increase the sales which
ultimately will yield higher profits.
Old data:
Sales =21,ooo
Price/per unit =50
Cost =8400
Expected changes:
Sales =22000
Price/per unit =40
Cost =7900