SALES BUDGET QUESTION

QUES; AB Ltd. manufactures two types of product A and B and sells them in X and Y markets. The following information is available
for the year 2023-24

Market Product Budgeted Price Actual Price

Quantity (Rs.) Quantity (Rs.)
X A 4,000 9 5,000 9
B 3,000 41 2,000 41
Y A 6,000 9 7,000 9
B 5,000 41 4,000 41
Sales forecast for the next year reveals that product A is very popular but at the same time underpriced . It is estimated that
it will also continue to find a ready market even if its price is increased by Rs .1. On the other hand, product B is over-priced
and it can bring more sales if price is reduced to Rs.40. The management has approved the plan to give effect to the above

Product % increase in sales over

Market X Market Y
A 10 5
B 20 10

He also estimates that the following additional sales are possible with the help of an intensive advertisement campaign.
Product Market X Market Y
A 500 650
B 600 600

You are required to prepare the sales budget for the next year, i.e., 2024-25 based on the sales managers estimates both in
quantitative and monetary terms.

Solution;
WORKING NOTES; Calculation of budgeted estimates of sales for 2024-25

PRODUCT MARKET X (units) Y (units)

PRODUCT A Actual for the year 2023-24 5,000 7,000
Add: Increase of 10 % and 5% for X & Y 500 350
Add: Increase due to advt. campaign 500 650
 Total 6,000 8,000
PRODUCT B Actuals for current year 2023-24 2,000 4,000
Add: Increase of 20% and 10% for X & Y 400 400
Add: Increase due to advt. campaign 600 600
Total 3,000 5,000

Sales Budgets for the Year 2024-25

PRODUCT MARKET X MARKET Y TOTAL
Unit Price (Rs.) Value (Rs.) Unit Price (Rs.) Value (Rs.) Unit Price (Rs.) Value (Rs.)
A 6,000 10 60000 8,000 10 80000 14,000 140000
B 3,000 40 120000 5,000 40 200000 8,000 320000
TOTAL 9,000 180000 13,000 280000 22,000 460000
 PRODUCTION AND PRODUCTION COST BUDGET QUESTION
QUES; Problem 2. (Example 2. Page 2.13) SR manufacturing company submits the following figures for your considerations..
Product A Product B
Actuals for 4th Quarter of 2023-24:
Sales (units): January 10,000 12,000
February 8,000 10,000
March 12,000 14,000
Selling price per units (Rs.) 20 40
Estimates for 4th Quarter of 2024-25:
Increase in sales Quantity 10% 20%
Increase in selling price 25% 10%
Opening stock as on Jan. 1, 2025 (% of month's sales) 50% 50%
Closing stock for January and February,2025 (% of subsequent month's sale) 50% 50%
Stock position on 31st March 2025(units) 6,000 8,000
You are required to prepare the sales and the production budgets for the 4th quarter of 2024-25

SOL;
Working notes: Calculation of Budgeted Estimate of Sales (Quantitative) for 4th Quarter of 2024-25
PRODUCT A:
PARTICULARS JANUARY FEBRUARY MARCH TOTAL
Actual sales for the last year 10,000 8,000 12,000 30,000
Add: 10% increase in sales 1000 800 1200 3,000
TOTAL 11,000 8,800 13,200 33,000
PRODUCT B:
PARTICULARS JANUARY FEBUARY MARCH TOTAL
Actual sales for the last year 12,000 10,000 14,000 36,000
Add: 20% increase in sales 2400 2000 2800 7,200
TOTAL 14,400 12,000 16,800 43,200

Sales Budget for the 4th Quarter ending 31st March 2025
PRODUCT A PRODUCT B TOTAL
Month Unit Price (Rs.) Value (Rs.) Unit Price (Rs.) Value (Rs.) Unit Price (Rs.)Value (Rs.)
January 11,000 25 275,000 14,400 44 633600 25,400 908,600
February 8,800 25 220,000 12,000 44 528000 20,800 748,000
March 13,200 25 330,000 16,800 44 739200 30,000 1,069,200
Total 33,000 825,000 43,200 1900800 2,725,800

Production Budget for 4th Quarter ending on 31st March 2025 (Units)
Particulars January February March For Whole Quarter
Budgeted Sales 11,000 8,800 13,200 33,000
Add: Desired closing stock (50% of Subsequent month's sale and 6,000 units as on 31st 4400 6600 6000 6000
15,400 15,400 19,200 39,000
Less: Opening stock (50% of month's sales as on January 1, 2025) 5500 4400 6600 5500
Production 9,900 11,000 12,600 33,500
Budgeted Sales 14,400 12,000 16,800 43,200
Add: Desired closing stock (50% of Subsequent month's sale and 6,000 units as on 31st March, 2025)
6000 8400 8000 8000
20,400 20,400 24,800 51,200
Less: Opening stock (50% of month's sales as on January 1, 2025) 7200 6000 8400 7200
Production 13,200 14,400 16,400 44,000
QUES; The following details are available from the records of zeta limited :

Selling Price per unit(in Rs) 100

Raw material cost per unit(in Rs) 30
Labour cost per unit(in Rs) 20
Variable overheads per unit(in Rs) 10
Total fixed costs (in Rs) 40000

Using the above information :

(a) Draw a break even chart showing the break even point.
(b) On the same break even chart, show the impact of each of the following on the break evenpoint:
(1) Selling price increases by 10%.
(2) Fixed cost increases by 25%.

SOL; (a)
Selling price per unit (₹) 100 UNITS TOTAL FIXED COST TOTAL VARIABLE COST TOTAL COST TOTAL REVENUE NEW TOTAL REVENUE
Variable cost per unit (₹) 60 0 40000 0 40000 0 0
Total Fixed Cost (₹) 40000 200 40000 12000 52000 20000 22000
400 40000 24000 64000 40000 44000
Contribution per unit (₹) 40 600 40000 36000 76000 60000 66000
P/V Ratio 0.4 800 40000 48000 88000 80000 88000
Break-even point (units) 1000 1000 40000 60000 100000 100000 110000
Break-even point (₹) 100000 1200 40000 72000 112000 120000 132000
1400 40000 84000 124000 140000 154000
(b) (i) 1600 40000 96000 136000 160000 176000
New selling price per unit (₹) 110 1800 40000 108000 148000 180000 198000
2000 40000 120000 160000 200000 220000
New contribution per unit (₹) 50
New P/V Ratio 0.4545455
New Break-even point (units) 800
New Break-even point (₹) 88000 BREAK EVEN CHART
250000

200000
Revenue and cost

150000

100000

50000

0
0 200 400 600 800 1000 1200 1400 1600 1800 2000
0 200 400 600 800 1000 1200 1400 1600 1800 2000
units

TOTAL FIXED COST TOTAL COST

TOTAL REVENUE NEW TOTAL REVENUE
QUES; The following details are available from the records of zeta limited :

Selling Price per unit(in Rs) 100

Raw material cost per unit(in Rs) 30
Labour cost per unit(in Rs) 20
Variable overheads per unit(in Rs) 10
Total fixed costs (in Rs) 40000

Using the above information :

(a) Draw a break even chart showing the break even point.
(b) On the same break even chart, show the impact of each of the following on the break evenpoint:
(1) Selling price increases by 10%.
(2) Fixed cost increases by 25%.

SOL; (a)
Selling price per unit (₹) 100 UNITS TOTAL FIXED COST TOTAL VARIABLE COST TOTAL COST TOTAL REVENUE NEW TOTAL FIXED COST NEW TOTAL COST
Variable cost per unit (₹) 60 0 40000 0 40000 0 50000 50000
Total Fixed Cost (₹) 40000 200 40000 12000 52000 20000 50000 62000
400 40000 24000 64000 40000 50000 74000
Contribution per unit (₹) 40 600 40000 36000 76000 60000 50000 86000
P/V Ratio 0.4 800 40000 48000 88000 80000 50000 98000
Break-even point (units) 1000 1000 40000 60000 100000 100000 50000 110000
Break-even point (₹) 1E+05 1200 40000 72000 112000 120000 50000 122000
1400 40000 84000 124000 140000 50000 134000
(b)(ii) 1600 40000 96000 136000 160000 50000 146000
New Total Fixed Cost (₹) 50000 1800 40000 108000 148000 180000 50000 158000
New Break-even point (units) 1250 2000 40000 120000 160000 200000 50000 170000
New Break-even point (₹) 1E+05

Break even chart

250000
Revenue and Cost

200000

150000

100000

50000

0
0 200 400 600 800 1000 1200 1400 1600 1800 2000
units
 units

TOTAL FIXED COST TOTAL COST

TOTAL REVENUE NEW TOTAL FIXED COST
NEW TOTAL COST
QUES; XYZ Ltd.is a small enterprise that started its business 2 year ago. Inspired by the government initatives to promote SMEs, company is exploring
to sell in the overseas markets. Company is presently producing and selling 20000 packs of its product A in the home market at the price of Rs 60 per
pack. Also, the company has idle manufacturing capacity for 6000 packs which is hired out for Rs 9000. This hiring out has increased the maintenance
cost of the company by Rs 1000. The cost per pack at the current capacity utilization is as follows:

PARTICULATR AMOUNT
Direct material 10
Direct labour 7
Factory expenses F- ixed 12
Variable 4
Office and selling expensesFixed
- 6
Variable 3

An offer from Canada to export 6000 packs at a price of Rs 30 per unit is under consideration. Execution of Canadian order will result in an additional
fixed cost of Rs 10000 over and above the variable cost . No additional selling cost is required for export order. Further , accepting the export order is
not expected to affect the selling price or quantity of product A sold in the domestic market .
You are required to suggest whether the Canadian order should be accepted or not ? Also show the supportive calculations. Adopt both differntial
approach as well as total profit approach.

SOLUTION - Packs 6000

INCREMENTAL APPROACH TOTAL PROFIT APPORACH

COST BENEFITS ANALYSIS OF EXPORT OFFER OPTION 1: Status quo, reject the export offer and sell in home market (without export)
20000
OPTION 2: Accept the export offer and sell in both markets (with export) 26000
PARTICULAR Rs. COSTS BENEFITS
Export sales (6000@3) 30 180000 PARTICULAR Rs. OPTION 1OPTION 2
Saving in maintenance cost 1000 Export sale (6000 packs @Rs 30) 30 180000
Differntial Cost Sales in home market 60 1200000 1200000
Direct Material 10 60000 Rental income 9000
Direct Labour 7 42000 TOTAL REVENUE 1209000 1380000
Variable O/H Variable costs:
Factory O/H 4 24000 Direct Material 10 200000 260000
Office andselling O/H 3 18000 Direct Labour 7 140000 182000
Additional Fixed cost 10000 Variable O/H:
Rental income foregone 9000 Factory 4 80000 104000
163000 181000 Office and selling 3 60000 78000
INCREMENTAL BENEFIT 18000 Maintenance 1000
Fixed cost:
Since, the incremental profit is provided (Rs. 18000),the canadian order should be accepted. Factory 240000 240000
Office and selling 120000 120000
Additional Fixed costs 10000
SUGGESTION: In Option 1 profit is 368000 and in Option 2 profit is 386000 so, it is advisable TOTAL COST 841000 994000
to go for Option 2 over option 1 as per total profit approach and recommended to accept PROFIT ( Total revenue - total cost ) 368000 386000
the canadian order
PROFIT
Option 1 ( without export ) 368000
Option 2 ( with export ) 386000
Incremental 18000
QUES;
PARTICULAR PRODUCT A PRODUCT B
Material cost as per unit 10 14
Labour cost per unit 3 2

Fixed cost expenses Rs 800, Variable O/H is 100% of labour cost and selling price of each product is @ Rs 200 p.a
You are required to:
1. Show clearly marginal cost and contribution per unit
2. Recommended which of the following sale mix should be adopted.
a. RS 100 units of A and Rs 200 units of B
b. Rs 150 units of A and Rs 150 units of B
c. Rs 200 units of A and Rs 100 units of B

SOL; MARGINAL COST STATEMENT

PARTICULARS PRODUCT A (Rs. PER UNIT) PRODUCT B (Rs. PER UNIT)
Selling price 20 20
Material cost per unit 10 14
Labour cost per unit 3 2
Variable O/H 3 2
Marginal cost per unit 16 18
Contribution per unit 4 2

STATEMENT SHOWING COMPARATIVE PROFITABILITY

CASES PRODUCT SALES CONTRIBUTION TOTAL CONTRIBUTION FIXED COST PROFIT
a. RS 100 units of A and Rs 200 units of B A 100 400 800 800 0
B 200 400
b. Rs 150 units of A and Rs 150 units of B A 150 600 900 800 100
B 150 300
c. Rs 200 units of A and Rs 100 units of B A 200 800 1000 800 200
B 100 200

CONCLUSION : The sales mix © is the most profitable as it yields the highest of contribution and profit.