PRODUCTION BUDGET 1.

The Ajanta Manufacturing Company Wishes to prepare a production budget in respect of three products A,B and C, the sales forecast for which is 83,200 units,72,840 units and 88,400 units respectively. The estimated requirement of inventory both at the beginning and at the end of the budget period are shown in the following schedule : Inventory Schedule You are 1st January (units) requested 31st December (units) to draw up the production budget. A C 16,000 20,800 Products B 12,000 11,160 20,000 27,600

PURCHASE BUDGET 2. The Sales Director of a Manufacturing Company reports that next year he expects to sell 50,000 units of a particular product: The production Manager consults the storekeeper and casts his his figures as follows: Two kinds of raw materials A and B are required for manufacturing the products. 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 Products: Materials A Materials B 10,000 Units

12,000 Units 15,000 Units

The desirable closing balances at the end of next year are: Finished Products: Materials A Materials B 14,000 Units

13,000 Units 16,000 Units

Draw up a quantitative chart showing material purchase budget for the next year.

3. From the following figures prepare Raw Materials purchase budget for jan 2004: Estimated stock on January1 Estimated stock on January31 Estimate Consumption Standard Price per Unit A 16,000 20,000 1,20,0 00 25 P. B 6,000 8,000 44,00 0 5 P. C 24,00 0 28,00 0 132,0 00 15 P. D 2,000 4,000 36,000 10 P. E 14,000 16,000 88,000 20 P. F 28,000 32,000 1,72,000 30 .

4. Draw a material procurement budget (quantitative) from the following informationEstimated sales of a product 40,000 units. Each unit of the prduct requires 3 units of material A and 4 units of material B. Estimated opening balances at the commencement of the next year: Units Finished Products Material A Material B Material on Order: Material A Material B 7,000 11,000 5,000 12,000 20,000

The desirable closing balances at the end of the next year: Finished Product 7,000

Material A Material B Material on order: Material A Material B

15,000 25,000

8,000 10,000

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

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 as many months as you can both in units and rupees.

6. The following estimated purchases of Akash Limited have been given. You are required to calculate: (a) Cash purchases; (b) Credit purchases; (c) Cash paid to creditors during months of November, December 2009 and January,2010 Total Purchase (Rs.) September,2009 1,20,000 October ,2009 1,50,000 November,2009 1,80,000 December,2009 1,50,000 January,2009 1,20,000 Cash purchases are30% of the total purchase. Credit purchase are paid after two months: Months

7. Following information reveal the business activities of XYZ Limited. You are asked to prepare a cash budget for September, October and November with these information:

(i) Months

Total sales Rs.

Total purcha se Rs.

Wages Rs. Manufacturing Distribution expenses expenses Rs.

July 50,000 30,000 10,000 4,000 3,000 August 60,000 40,000 12,000 6,000 4,000 Septem 55,000 35,000 12,000 6,000 4,000 ber 65,000 40,000 15,000 8,000 6,000 October 50,000 30,000 12,000 6,000 5,000 Novemb er (ii)The balance of cash and bank as on September,was Rs. 28,000. (iii) Credit sales are collected after one month but credit purchases are to be paid after two months. Cash sales and cash purchase are 20% of the total sales and purchase. (iv) Time lag for payment of all expenses is one month. (v)During the month of September interest likely to be received is Rs. 3,000 and dividend estimated to be paid is Rs. 18,000 Sales tax and Income tax amounting to Rs. 2,000 and Rs. 8,000 are also to be paid. (vi) During October addition to building is estimated to cost Rs. 15,000. Loan from the bank is also to be borrowed to the extent of Rs. 20,000. (vii) During November sale of scraps is estimated to realize Rs. 7,000.

FLEXIBLE BUDGET

8. The expenses of production of 5,000 units in a factory are given below: Per unit (Rs.) Material Labour Variable Over heads Fixed Overheads (Rs.50,000) Administrative Expenses (5% variable) Selling Expenses (25% fixed) 40 20 10 10 10 6 5 101

You are required to prepare a budget for the production of 8,000 units.

9. The following information related to a flexible budget at 60% capacity. Find out overhead costs at 50% and 70% capacity and also determine the overheads rates: Expenses at 60% Capacity Fixed Overheads: Salaries Insurance Depreciation Estimated Direct Labour hours Variables Overheads: Indirect Labour Indirect Material Semi-Variable Overheads: Repairs & Maintenance (70% fixed) Electricity (50% fixed) Rs. 42,000 Rs. 2,400 Rs. 12,000 72,000 Hrs. 6,300 5,040 4,200 15,120

10. From the following information in respect of 50% capacity utilization level, prepare a flexible budget for 55%, 60% capacity utilization levels. Fixed Expenses: Rs. Salaries and Wages 84,000 Administrative Expenses 90,000 Selling Expenses 56,000 Variable Expenses:

Material 2,40,000 Labour 2,56,000 Other Expenses 38,000 Sales at 50% capacity are Rs. 10,00,000. Estimates for sales at 55%, 60% and 65% levels are, respectively, Rs.10, 80,000; Rs. 11 ,60,000 and Rs. 12,10,000. The Tax rate is 30%. As an effective manager, how will you use this budget? 11. A factory which expects to operate 7,000 hours, i.e. at 70% level of equity ,furnishes get details of expenses as under: Variables Expenses Rs. 1,260 Semi-variables ExpensesRs. 1,200 Fixed Expenses Rs. 1,800 The semi- variable expenses go up by 10% between 85% and 95% activity and by 20% above 95% activity. Construct a flexible budget for 80, 90 and 100 percent activities. 12. A factory engaged in manufacturing plastic buckets is working at 40% capacity and produces 10,000 buckets per month. The present cost break up for one bucket is as under: Material Rs. 10 Labour Rs.3 Overheads Rs.5 (60% fixed) The selling price is Rs.20 per bucket. If it is desired to work the factory at 50% capacity the selling price falls by 3%. At 90% capacity the selling price falls by 5% accompanied similar fall in the price of material. You are required to prepare a statement showing the profit at 50% and 90% capacities and also calculate the break- even point at these capacity productions. 13. Draw up a flexible budget for overhead expenses on the basis of the following data and determine the standard rates for 70%, and 90% plant capacity: Variable Overheads: at 80% Capacity Indirect Labour 12,000 Stores and Spares 4,000 Semi-Variable Overheads: Power (30%fixed, 70% variable) 20,000 Repairs and Maintenance 2,000 (60%fixed, 40% variable) Fixed Overheads: Depreciation 11,000 Insurance 3,000

Salaries Estimated Direct labour hours

10,000 1,24,000

14. The following figures are available from sales and costs forecasts of M/s. Arihant & Co. Ltd. For the year ending 31st December, 2004 at 50% (5,000 units) capacity utilizations: (i) Fixed expenses remain constants for all levels of production and sales. (ii) Selling price between 50% and 75% capacity is Rs.25 per unit. (iii) Semi-variable expenses will remain unchanged at 50% to 65% capacity but will increase by 10% between 65% to 80% capacity and by 30% between 80% to 100% capacity. (iv) At 90% level, material cost increase by 5% and the selling price is reduced by 8%. (v) Semi-variable expenses are Rs. 50,000. (vi) Fixed expenses are Rs. 58,000. Variable expenses are: Materials Rs. 5 per unit, Labour Rs.2 per unit and Direct expenses Rs. 1 per unit. Prepare a profit forecast statement through flexible budget at 60%, 75%, 90% and 100% capacity.

15. XYZ Ltd., manufactures a product of which present sale of Rs. 60,000 p.m. utilizes only 60% capacity of the plant. There is a proposal to reduse price by 10% to boost sales. The following data are available: (a)Selling price Rs.10 per unit (b)Variable cost Rs. 3 per unit (c) Semi-variable cost Rs. 6,000 fixed plus Rs. 0.50 per unit (d)Fixed cost Rs. 20,000 at present level estimated to Rs.24,000 at 80% output. You are required to submit a statement to the board showing; (1)The operating profit at 60% 70% and 80% levels at current selling price. (2)The percentage increase in the present output which will be required to maintain present profit margin at the proposed selling price.

16. A flexible budget at 60%, 80% and 100% production capacity is to be prepared Zenith Engineering Company Limited, Mumbai, for the three months ended 31st December,2004. Fixed Expenses: (Rs.) Management Salaries 42,000 Rent and Taxes 28,000

Depreciation on Machinery Sundry Office Cost Semi- Variable Expenses at 50% capacity: Plant Maintenance Indirect labour Salesmens Salaries and Expenses Sundry Expenses

35,000 44,500 1,49,500 12,500 49,500 14,500 13,000 89,500

Variable Expenses at 50% 1,20,000 Capacity: 1,28,000 Material 19,000 Labour 2,67,000 Salesmens Commission Semi-variable expenses remain constant between 40% and 70% capacity, Increase by 10% of the above figures between 70% and 85% capacity and increase by 15% of the above figures between 85% and 100% capacity. Fixed expenses remain constant whatever the level of activity. Sales at 60% capacity are Rs. 6,80,000 and at 100% capacity Rs. 8,50,000. It is assumed that all items produced are sold.

OVERHEAD BUDGET
17. Production costs of a factory for a year are as follow: (Rs.) (Rs.) Direct Labour Cost 75,000 Direct Material Cost 1,20,000 Production overhead - Fixed 45,000 1,15,000 Variables 70,000

The production manager anticipates the following changes in the forthcoming year: (a)The average rate for the direct labour will fall from Rs. 4 per hour to Rs. 3 per hour. (b)Production efficiency will decrease by 4%, (c) Direct labour hours will increase by 10%, and

(d)The purchase price per unit of direct materials and of the other materials and services included in overhead will remain unchanged. Draw up a budget and compute a factory overhead rate, the overheads being absorbed on a direct wages basis.