Budget & Budgetary Control

Ques. 1:
Compute a flexible budget from the following data :
Planned levels of activity 80,000 units 80,000 to 1,00,000 to
1,00,000 units 1,20,000 units
Selling price ₹2 ₹2 ₹ 1.80
Variable cost per unit :
Materials 70 ps. 65 ps. 58 ps.
Labour 50 ps. 55 ps. 60 ps.
Overheads 40 ps. 40 ps. 40 ps.
Fixed costs ₹ 25,000 ₹ 25,000 ₹ 30,000
What figures would you use for a comparison with the actual figures if 1,10,000 units are made and sold ?

Ques. 2:
The following are budgeted expenses for production of 10,000 units of a product:
₹ (per unit)
Direct material 60
Direct labour 30
Variable overhead 25
Fixed overhead (₹ 1,50,000) 15
Variable expenses (direct) 5
Selling expenses (10% fixed) 15
Administration expenses (₹ 50,000 rigid for all levels of production) 5
Distribution expenses (20% fixed) 5
Total cost of sale per unit 160

Prepare a budget for production of 6,000, 7,000, and 8,000 units showing distinctly marginal cost and total cost.

Ques. 3:
Production costs of Jyoti Udyog Ltd. are as follows :
Level of activity
60% 70% 80%
Output (in units) 1,200 1,400 1,600
Costs (in ₹) :
Direct materials 24,000 28,000 32,000
Direct labour 7,200 8,400 9,600
Factory overheads 12,800 13,600 14,400
Works cost : 44,000 50,000 56,000

A proposal to increase production to 90% level of activity is under the consideration of management. The proposal is
not expected to involve any increase in fixed factory overheads. Prepare a statement showing the prime cost, total
marginal cost and total factory cost at 90% level of activity.

Ques. 4:
A factory is currently running at 50% capacity and produces 5,000 units at a cost of ₹ 90 per unit as per details below:
₹
Material 50
Labour 15
Factory overheads 15 (₹ 6 fixed)
Administrative overheads 10 (₹ 5 fixed)
The current selling price is ₹ 100 per unit. At 60% working, material cost per unit increases by 2% and selling price per
unit falls by 2%. Estimate profits of the factory at 60% working.
Ques. 5:
The following particulars are available from the records of a manufacturing company for two periods :
Period I Period II
Output 60,000 units 80,000 units
₹ ₹
Costs :
Direct materials 1,20,000 1,60,000
Direct wages 3,00,000 4,00,000
Direct expenses 60,000 80,000
Prime cost 4,80,000 6,40,000
Overheads :
Consumable materials 15,000 20,000
Shop labour 6,000 8,000
Maintenance and repairs 8,000 10,000
Inspection 1,600 1,800
Depreciation 10,000 10,000
Insurance 5,000 5,000
Salaries 6,000 6,000
Total overheads 51,600 60,800
Total factory cost 5,31,600 7,00,800

Total production at 100% capacity is 1,00,000 units.

Prepare a flexible budget for 70% and 90% capacities.

Ques. 6:
A factory is currently running at 50% capacity and produces 10,000 units at a cost of ₹ 180 per unit as per details below:

Material ₹ 100
Wages ₹ 30
Factory overheads ₹ 30 (40% fixed)
Administration overheads ₹ 20 (50% fixed)
The current selling price is ₹ 200 per unit.
At 60% capacity working, material cost per unit increases by 2% and selling price per unit falls by 2%. At 80% capacity
working, material cost per unit increases by 5% and selling price per unit falls by 5%.
Prepare a marginal cost statement showing the total cost and profit for the three capacity levels. Also give your
comments on the profitability at these levels of performance.

Ques. 7:
Draw up a flexible budget for overhead expenses on the basis of the following data and determine the overhead rates
at 70 per cent, 80 per cent, and 90 per cent plant capacity levels.
At 80% capacity
₹
Variable overheads :
Indirect labour 12,000
Indirect material 4,000
Semi-variable overheads :
Power (30% fixed, 70% variable) 20,000
Repairs and maintenance (60% fixed, 40% variable) 2,000
Fixed overheads :
Depreciation 11,000
Insurance 3,000
Others 10,000
Total overheads 62,000

Estimated direct labour-hours 1,24,000 hours.

Ques. 8.
From the following selected data of a department whose normal and expected work-load is 3,000 hours per month :
(a) Compile a flexible budget for activity levels of 2,000, 2,800 and 3,600 hours of work;
(b) Compile a fixed budget;
(c) Calculate the departmental hourly rate for the following items :
Expense headings Behaviour of expenses
Supervision ₹ 2,500 up to 2,000 hours
An extra of ₹ 600 for steps of 400 hours above 2,000 hours

Depreciation ₹ 4,000 up to 3,000 hours

₹ 5,500 above 3,000 hours and up to 4,200 hours

Consumable supplies ₹ 120 per 100 hours

Lighting ₹ 450 from 1,200 to 2,000 hours inclusive

₹ 550 above 2,000 hours and up to 3,000 hours
₹ 600 above 3,000 hours

Power ₹ 150 per 100 hours up to 3,200 hours

₹ 120 per 100 hours for hours above 3,200

Cleaning ₹ 300 up to-2,800 hours

₹ 400 above 2,800 hours

Repairs ₹ 750 up to 1,600 hours

Additional ₹ 250 for steps of 400 hours up to 3,200 hours
Additional ₹ 400 above 3,200 hours

Indirect wages ₹ 200 per 100 hours

Rent and rates ₹ 1,800

Ques. 9.
A company incurs the following expenses to produce 1,000 units of an article :
₹
Direct Materials 30,000
Direct Labour 15,000
Power (20% fixed) 10,000
Repairs and Maintenance (15% fixed) 8,000
Depreciation (40% variable) 6,000
Administration Expenses (100% fixed) 12,000
Prepare a Flexible Budget showing individual expenses of production levels at 1,500 units and 2,000 units.

Ques. 10.
For production of 10,000 electrical automatic irons, the following are the budgeted expenses :
Per unit (₹)
Direct materials 60
Direct labour 30
Variable overheads 25
Fixed overheads (₹ 1,50,000) 15
Variable expenses (direct) 5
Selling expenses (10% fixed) 15
Administrative expenses (₹ 50,000 rigid for all levels of production) 5
Distribution expenses (20% fixed) 5
Total cost sales per unit 160
Prepare a budget for production of 6,000, 7,000 and 8,000 irons, showing distinctly marginal cost and total cost.
Ques. 11.
X Ltd. is currently running at 60% capacity and producing 6,000 units at a cost of ₹ 90 per unit as per details below :
₹
Direct Material 45.00
Direct Labour 20.00
Factory overhead 15.00 (40% fixed)
Administrative overhead 10.00 (50% variable)
The current selling price is ₹ 100.00 per unit. At 70% and 80% capacity direct labour cost decreases by 5% and 10%
respectively.
At 70% and 80% capacity selling price per unit increases by 2% and 5% respectively.
Prepare a Flexible Budget for 70% and 80% capacity utilization showing clearly unit fixed cost, unit variable cost, unit
total cost and unit sale price.

Ques. 12.
The information relating to the budget prepared for two levels of capacity utilisation is given below:
Capacity 60% 100%
Output (units) 36,000 60,000
₹ ₹
Direct Materials 3,60,000 6,00,000
Direct Wages 2,16,000 3,60,000
Production Overhead 5,40,000 7,56,000
Administrative Overhead 1,80,000 1,80,000
Selling Overhead 1,44,000 1,92,000
Prepare a flexible budget for 70%, 80% and 90% capacity utilisation showing clearly the unit fixed cost, unit variable
cost and total cost.

Ques. 13.
The cost per unit of a product is ₹ 12.55 at a capacity level of 5,000 units. The details are given below. For a variation
upto 25% in capacity above or below this level, the individual expenses vary as per details given against each cost.
₹
Material cost 25,000 100% varying
Labour cost 15,000 100% varying
Power 1,250 80% varying
Repairs and maintenance 2,000 75% varying
Stores 1,000 100% varying
Inspection 500 20% varying
Depreciation 10,000 100% varying
Administrative overhead 5,000 25% varying
Selling overhead 3,000 50% varying
Find the unit cost of the product at production levels of 4,000 units and 6,000 units.

Ques. 14.
Make out a cash budget for the period April-June, 2020 from the following information :
(1) Actual and budgeted sales :
Actual Budgeted
₹ ₹
January 90,000 April 1,00,000
February 90,000 May 90,000
March 80,000 June 85,000
(2) Actual and budgeted purchases :
Actual Budgeted
₹ ₹
January 50,000 April 60,000
February 45,000 May 55,000
March 40,000 June 40,000
(3) Actual and budgeted wages and expenses :
Actual Budgeted
Wages Expenses Wages Expenses
₹ ₹ ₹ ₹
January 25,000 7,000 April 30,000 10,000
February 20,000 8,000 May 25,000 8,000
March 28,000 8,000 June 22,000 7,000
(4) Special : Advance income-tax in May ₹ 5,000
Plant in April ₹ 15,000.
(5) Rent ₹ 400 payable each month, not included in expenses.
(6) 10% of purchases and sales are on cash basis.
(7) Credit purchases are paid after one month and credit sales are collected after two months. Time lag in wages and
expenses half month.
(8) Cash and bank balances on 1st April, 2020 ₹ 15,000.

Ques. 15.
Summarised below are the income and expenditure forecasts for the months of March to August, 2020 :
Month Sales Purchases Wages Manufacturing Office Selling
(all credit) (all credit) Expenses Expenses Expenses
₹ ₹ ₹ ₹ ₹ ₹
March 70,000 48,000 12,000 6,000 3,000 5,500
April 74,000 50,000 10,000 5,000 2,000 6,000
May 76,000 44,000 14,000 7,000 3,500 5,000
June 68,000 46,000 9,000 4,500 3,000 4,500
July 64,000 47,000 11,000 5,000 2,000 5,000
August 72,000 45,000 10,000 4,000 2,500 5,500
You are given the following further information :
(1) Plant costing ₹ 20,000 is due for delivery in July, payable 10% on delivery and the balance after three months.
(2) Advance tax of ₹ 10,000 each is payable in March and June.
(3) Period of credit allowed (a) by suppliers 2 months, and (b) to customers 1 month.
(4) Lag in payment of manufacturing expenses : 1⁄2 month.
(5) Lag in payment of all other expenses : 1 month.
You are required to prepare a cash budget for the three months starting on 1st May, 2020, when there was a cash
balance of ₹ 10,000.

Ques. 16.
From the following information supplied by Bright Ltd., prepare a cash budget for the period from 1st September,
2020 to 31st December, 2020 :
Months Credit Credit Wages Selling Overheads
Purchase Sales Expenses
₹ ₹ ₹ ₹ ₹
July 85,000 1,60,000 32,000 8,000 10,000
August 92,000 1,85,000 37,000 9,500 11,500
September 1,00,000 2,10,000 42,000 10,500 13,000
October 1,20,000 2,45,000 49,000 12,500 14,500
November 90,000 1,78,000 35,500 8,900 10,500
December 98,000 1,82,000 36,000 9,000 11,000
Additional information :
(a) Expected cash balance on 1st September — ₹ 10,500.
(b) Period of credit allowed to debtors — 2 months.
(c) Period of credit allowed by creditors — 1 month.
(d) Lag in payment of wages, selling expenses and overheads — 1 month.
(e) Selling commission @ 2% on sales is payable one month after sales.
(f) Expenditure on machinery worth ₹ 50,000 is payable in October.
(g) Expected cash sales per month ₹ 15,000. No commission is payable on cash sales.
Ques. 17.
From the following information of Moon Ltd. prepare a cash budget for the three months commencing from 1st June,
2020, when the bank balance was ₹ 10,000.
Months Sales Purchase Wages Selling Overheads
₹ ₹ Expenses
₹ ₹ ₹
April 1,00,000 70,000 8,500 3,500 4,000
May 1,20,000 80,000 9,500 3,500 4,500
June 1,40,000 90,000 9,500 3,500 6,000
July 1,60,000 1,00,000 12,000 3,500 6,500
August 1,80,000 1,10,000 14,000 3,500 7,000
A commission of 5% on sales due 2 months after sales is payable in addition to the above selling expenses. Credit terms
of sale are — payment by the end of the month following the month of supply. On average one half of sales is paid on
the due date, while the other half is paid during the next month. Creditors are paid during the month following the
month of supply. Plant purchased in June ₹ 78,000 out of which ₹ 48,000 is payable on delivery and balance in two
equal monthly instalments in July and in August. A dividend of ₹ 30,000 will be paid in September. Wages are paid
3⁄ th on due date while 1⁄ th during the next month. Lag in payment of selling expenses and overheads is one month.
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