Example 1.

Solution:

Sales Budget

Months Sales (Rs.) Sales estimation based on sales ratio (given)

Jan 1,10,000 1,10,000/25,00,000*30,00,000= 1,32,000
Feb 1,15,000 1,15,000/25,00,000*30,00,000= 1,38,000
March 1,00,000 1,00,000/25,00,000*30,00,000= 1,20,000
April 1,40,000 1,40,000/25,00,000*30,00,000= 1,68,000
May 1,80,000 1,80,000/25,00,000*30,00,000= 2,16,000
June 2,25,000 2,25,000/25,00,000*30,00,000= 2,70,000
July 2,60,000 2,60,000/25,00,000*30,00,000= 3,12,000
Aug 3,30,000 3,30,000/25,00,000*30,00,000= 3,96,000
Sept 3,40,000 3,40,000/25,00,000*30,00,000= 4,08,000
Oct 3,50,000 3,50,000/25,00,000*30,00,000= 4,20,000
Nov 2,00,000 2,00,000/25,00,000*30,00,000= 2,40,000
Dec 1,50,000 1,50,000/25,00,000*30,00,000= 1,80,000
Total Sales 25,00,000 30,00,000
Q2. Prepare Flexible Budget for overheads on the basis of the following data. Ascertain the overhead
rates at 50%, 60% and 70% capacity.

At 60% Capacity
6,000 units
Variable Overheads:
Indirect material 6,000
Indirect Labour 18,000

Semi Variable Overheads:

Electricity (40%fixed, 60% Variable) 30,000
Repairs(80% Fixed , 20% Variable) 3,000
Fixed Overhead:
Depreciation 16,500
Insurance 4,500
Salaries 15,000
Total Overheads 93,000

Estimated Direct Labour Hours 1,86,000

Solution:

Flexible Budget

Particulars 50% 60% 70%

Variable Overheads:
Indirect material 6,000/60*50=5,000 6,000 6,000/60*70= 7,000
Indirect Labour 18,000/60*50=15,000 18,000 18,000/60*70=21,000
Semi Variable Overheads:
Electricity:
Fixed 12,000 12,000 12,000
Variable 18,000/60*50=15,000 18,000 18,000/60*70=21,000

Repairs:
Fixed 2,400 2,400 2,400
Variable 600/60*50=500 600 600/60*70=700
Fixed Overhead:
Depreciation 16,500 16,500 16,500
Insurance 4,500 4,500 4,500
Salaries 15,000 15,000 15,000
Total Overheads 85,900 93,000 1,00,100
Estimated Direct Labour 186000/60*50=1,55,000 1,86,000 hrs. 186000/60*70=
Hours 2,17,000
Overhead Rate= Total 85,900/1,55,000= 0.554 93,000/1,86,000= 1,00,100/2,17,000=
Overheads/ Estimated 0.5 0.461
Direct Labour Hours
Q3. Sagyan steel ltd. manufactures a single product for which market demand exists for additional
quantity. Present sales of Rs. 60,000 per months utilize only 60%capacity of the plant. Marketing
manager assures that with the reduction of 10%in the price he would be in a position to increase the
sale by about 25% to 30%.
The following data are available:

2. The operating profits at proposed selling price at the above level.

Solution:

(i) Flexible Budget

Particulars 60% 70% 80%

a. Sales 60,000 70,000 80,000

Selling Price Rs. 10 pu Rs. 10 pu Rs. 10 pu
Sales (in unit) 6,000 7,000 8,000

Variable Cost 18,000 21,000 24,000

Semi Variable Cost

Fixed 6,000 6,000 6,000
Variable 3,000 3,500 4,000
Fixed Cost 20,000 20,000 24,000

b. Total Cost 47,000 50,500 58,000

Operating Cost(a-b) 13,000 19,500 22,000

(ii)Flexible Budget

New Selling price 10-10%of 10=Rs. 9 pu

Particulars 60% 70% 80%

a. Sales 54,000 63,000 72,000

Selling Price Rs. 9 pu Rs. 9 pu Rs. 9 pu
Sales (in unit) 6,000 7,000 8,000

Variable Cost 18,000 21,000 24,000

Semi Variable Cost

Fixed 6,000 6,000 6,000
Variable 3,000 3,500 4,000
Fixed Cost 20,000 20,000 24,000

c. Total Cost 47,000 50,500 58,000

Operating Profit(a-b) 7,000 12,500 14,000

Q4. Draw up a flexible budget for overhead expenses on the basis of the following data and determine
the overhead rates at 70%, 80% and 90% plant capacity.
Solution:

Particulars 70% 80% 90%

Variable overheads:
Indirect Labour 12,000/80*70= 10,500 12,000 12,000/80*90= 13,500
Stores including spares 4,000/80*70= 3,500 4,000 4,000/80*90= 4,500

Semi Variable
overheads:
Power:
Fixed 6,000 6,000 6,000
variable 14,000/80*70=12,250 14,000 14,000/80*90=15,750
Repair & Mait.
Fixed 1,200 1,200 1,200
Variable 700 800 900

Fixed Exp:
Dep 11,000 11,000 11,000
Insurance 3,000 3,000 3,000
salaries 10,000 10,000 10,000
Total Overheads 58,150 62,000 65,850

Estimated Direct 1,24,000/80*70=1,08,500 1,24,000 hrs 1,24,000/80*90=1,39,500

Labour hours
Overhead Rate= 58,150/1,08,500=0.53 62,000/1,24,000=0.5 65,850/1,39,500=0.47
Total Overhead/
Estimated Direct
Labour Hours
Q5. For production of 10,000 Amar Automatic Irons the following are budgeted Expenses:
Q6. You are required to prepare sales overhead Budget from the estimates given below:

Advertising Rs. 2500

Expenses of sales department Rs. 1500

Salaries of the sales department 5,000

Counter salesmen’s salaries and dearness allowance 6,000

Commission to counter salesmen at 1% on their sales.

Travelling salesmen’s at 10% on their sales and expenses at 5% on their sales.

The sales during the period were estimated as follows:

Counter Sales (Rs.) Travelling salesmen’s sales (Rs.)

80,000 10,000

1,20,000 15,000

1,40,000 20,000

Solution:
Production Budget example:
Q 7. Prepare Production Budget from the following data:

The estimated units to be sold in the 7 months of the year 2018-19 are as under:

April May June July Aug Sept Oct

A 900 1100 1400 1800 2200 2200 1800
B 2900 2900 2500 2100 1700 1700 1900

The policy of company is not to carry any closing WIP at the end of any month. However, its policy is to
hold a closing stock of finished goods 50% of the anticipated quantity of sales of the succeeding month.

Solution :
 Production Budget

Particulars April May June July Aug Sept Oct

Product A:
Estimated 900 1100 1400 1800 2200 2200 1800
Sales
Add :
Planned 550 700 900 1100 1100 900
closing
stock of
Finished
Goods
Less: (450) (550) (700) (900) (1100) (1100) (900)
opening
Stock of
Finished
Goods
Estimated 1000 1250 1600 2,000 2200 2,000
Production

Product B:
Estimated 2900 2900 2500 2100 1700 1700 1900
Sales
Add :
Planned 1450 1250 1050 850 850 950
closing
stock of
Finished
Goods
Less:
opening 1450 1450 1250 1050 850 850 950
Stock of
Finished
Goods
Estimated 2900 2700 2300 1900 1700 1800
Production
Q8.Prepare a Cash Budget for three months ended 30th September, 2004 based on the following
information:

July- 50% of 80,000=40,000- 10%of40,000= 36,000

50% of 1,00,000=50,000-5% of 50,000=45,000

Aug

50% of 1,40,000=70,000-10% of 70,000=63,000

40,000-5% of 40,000=38,000

Sept=

50% of 1,20,000=60,000-10% of 60,000=54,000

70,000- 5% of 70,000=66,500

Solution:

Cash Budget
 Particulars July August September

Opening Balance of cash 25,000 55,000

Add: Receipts: Cash sales 1,40,000 1,52,000 1,21,000

Credit Sales:
Current month 36,000 63,000 54,000
Previous month 45,000 38,000 66,500
a. Total Receipts 2,46,000

Payments:
Purchases:
Cash 17,000 24,000 18,000
Credit 1,44,000 1,53,000 2,16,000

Monthly Salary 10,000 10,000 10,000

Interest payable - - 5,000

Other exp 20,000 22,000 21,000

b. Total Payments 1,91,000

Closing Bal 55,000

Q9. Prepare Cash Budget of Madhu Fabrics for the months April, 2004 to July 2004(four months) from
the details given below:

Opening Cash bal of April month- Rs. 1,50,000.

Solution:

Cash Budget

Particulars April May June July

Opening Balance 1,50,000 35,000 5,000 1,40,000

Add: Receipts:
Cash Sales 3,20,000 4,00,000 3,60,000 3,20,000
Credit Sales 9,60,000 9,60,000 12,80,000 16,00,000

Sales of old Assets - 1,25,000 - -

a. Total Receipts 14,30,000 15,20,000 16,45,000 20,60,000

Less: Payments
Purchases 9,60,000 12,00,000 10,80,000 9,60,000
Variable exp. 1,40,000 1,80,000 1,90,000 1,70,000

Comission on Sales 60,000 60,000 80,000 1,00,000

Fixed Exp. 75,000 75,000 75,000 75,000

Interest payable on 1,60,000 - - -

deposits
Tax payable - - 80,000 -

Purchase of Fixed asset 6,50,000

b.Total Payments 13,95,000 15,15,000 15,05,000 19,55,000

Closing Balance(a-b) 35,000 5,000 1,40,000 1,05,000

Variable exp-

April-

April- 10% of 1,60,000=1,60,000*50/100=80,000

March- 10% of 12,00,000=1,20,000*50/100=60,000

May-

April- 10% of 1,60,000=1,60,000*50/100=80,000

May- 10% of 20,00,000*50/100= 1,00,000

June-

May- 10% of 20,00,000*50/100= 1,00,000

June-10% of 18,00,000*50/100= 90,000

July-

June-10% of 18,00,000*50/100= 90,000

July-10% of 16,00,000*50/100= 80,000

Q10. Bajaj Co. wishes to arrange overdraft facilities with its bankers during the period from April to June
2016 when it will be manufacturing mostly for stock. Prepare a cash budget for the above period from
the following data, indicating the extent of the bank O/D facilities the company will require at the end of
each month.

(a)

2016 Sales Purchases Wages

Feb 90,000 62,400 6,000

March 96,000 72,000 7,000

April 54,000 1,21,500 5,500
May 87,000 1,23,000 5,000
June 63,000 1,34,000 7,500

(b) 50% of credit sales are realised in the month following the sales and the remaining 50% in the second
month following, creditors are paid in the month following the month of purchase and lag in payment of
wages- 1 month.

( C) Cash at Bank on 1.4.2016 estimated Rs. 12,500.

Solution:

Cash Budget

Particulars April May June

Opening BAl 12,500 36,500 (15,500)

Add: sales 93,000 75,000 70,500

a. Total receipts 1,15,500 1,11,500 55,000

Less: Payments: Purchases 72,000 1,21,500 1,23,000

Wages 7,000 5,500 5,000

Total Payments 79,000 1,27,000 1,28,000

Clsoing Bal( Bank Overdraft) 36,500 (15,500) (73,000)

April

Feb 45,000

March 48,000

93,000

May

March 48,000

April 27,000

75,000

June

April 27,000

May 43,500

Total 70,500
Q11. Murugan Co. is expected to have Rs. 25,000 in its bank Account on 1.4.2018. prepare a cash
Budget for April, May, June,2018 from the following estimates.

2018 Sales Purchases Salary Adm. Exp. Selling Exp

Feb 50,000 30,000 6,000 9,000 3,000

March 56,000 32,000 6,500 9,500 3,000

April 60,000 35,000 7,000 10,000 3,500
May 80,000 40,000 9,000 11,500 4,500
June 90,000 40,000 9,500 12,500 4,500

Other Information:

1. 20% sales on cash. Balance on credit and the amount to be collected in the next month.
2. Suppliers are paid second month following the purchases.
3. Worker salary paid in the same month.
4. Admin. And selling exp. are paid in th next month.
5. Dividend of Rs. 10,000 and bonus to workers of Rs. 15,000 are to be paid in May.
6. Income tax of Rs. 25,000 to be paid in June.
Q12. From the following forecast of income and expenditure,
prepare a cash budget for the months January to April, 2011.

Additional information is as follows:

1. The customers are allowed a credit period of 2 months.

2. A dividend of Rs 10,000 is payable in April.

3. Capital expenditure to be incurred: Plant purchased on 15th January

for 15,000; a Building has been purchased on 1st March and the
payments are to be made in monthly installments of Rs 2,000 each.

4. The creditors are allowing a credit of 2 months.

5. Wages are paid on the 1st of the next month.

6. Lag in payment of other expenses is one month.

7. Balance of cash in hand on 1st January, 2011 is Rs 15,000.

 Cash Budget Sums

Cash budget is nothing but an estimation of cash receipts and cash payments for specified period. It is
prepared by the head of the accounts department i.e., chief accounts officer.

The utility of the cash budget is as follows:

 To meet the revenue and capital expenditures with adequate funds
 It should highlight the additional requirement cash whenever the need arises
 Keeping of excessive funds available in the business firm wont fetch any return to the
enterprise but this estimate of future cash needs and resources will guide the firm to plan
for an effective investment out of the surplus funds estimated ; enhances the wealth of
the investors through proper investment planning out of the future funds available.
Cash budget can be prepared in three different ways:
1. Receipts and payments method
2. Adjusted profit and loss account
3. Balance Sheet Method
Cash receipts can be classified into various categories

Cash payments are as follows:

Illustration
From the following information prepare a cash budget for the months of June and July
 Additional Information:
1. Advance tax of Rs 4,000 payable in June and in December 1994
2. Credit period allowed to debtors is two months
3. Credit period allowed by the vendors or suppliers
4. Delay in the payment of other expenses one month
5. Opening balance of cash on 1st June is estimated as Rs.20,000/-
Solution:
First step is in the preparation of a cash budget is to open the statement with the opening cash
balance available.

Secondly, if any cash receipts are available that should be added one after another. In this
problem, Sales can be bifurcated into two classifications, the first one is cash sales. If the cash
sales is given, the amount of cash receipt due to cash sales should have to be immediately
brought under the respective period i-e during the same month or week.

The next is the credit sales of the firm, the volume of sales should only be effected only at the
amount of realization of sales or collection of credit sales from the consumers and customers. If
cash sales is not given instead credit sales only the component given, that should be added in
the list of cash receipts; by registering the credit period involved for the customers and
consumers. Being as credit sales, the amount of sales realization should only relevantly be
considered during the specified period.

Third step is to list out the various items of cash expenses expected to incur during the specified
period. The text of the problem deals with the delay of making the payment of expenses is one
month in all cases; It means the expenses like Manufacturing overheads, selling overheads are
expected to pay one month later i-e these expenses will be paid one month after. It means that
the May month of other expenses are paid only in the month of June and during the month of
June month expenses are met out.

The purchases requires same kind of treatment in the case of sales. Normally, the purchases are
classified into two divisions viz cash purchases and credit purchases.
The cash purchases should be given effect only at the moment of cash payment is paid on the
volume of purchase, but, if the credit purchases are made by the firm, the credit allowed by the
vendor/supplier to make the payments should be relatively considered for the expected outflow
of cash i-e payment of purchase one month later or two months later.

The expected time period occurrence of a either cash receipt or cash payment should be
considered for the preparation of the cash budget.

The cash budget should be prepared separately in the statement to derive the closing balance of
the specified year/month. The closing balance of the yester period or previous period has to be
carried forward to the next period as opening balance of the preparation of a budget. The closing
balance of the month June will be the opening balance of the month July. Once the statement has
been completed in the preparation of budget of respective periods should be consolidated for the
specified periods.

Illustration
From the estimates of income and expenditure, prepare cash budget for the months from April to
June.
1. Plant worth Rs. 20,000 purchase in June 25% payable immediately and the remaining in
two equal installments in the subsequent months
2. Advance payment of tax payable in Jan and April Rs 6,000
3. Period of credit allowed
o By suppliers 2 months
o To customers 1 month
4. Dividend payable Rs.10,000 in the month of June
5. Delay in payment of wages and office expenses 1 month and selling expenses ½ month.
Expected cash balance on 1st April is Rs. 40,000.
Solution:
 Plant worth Rs 20,000/ purchased, payable immediately is 25% i-e Rs.5,000 should be
paid in the month of June. The remaining cost of the machine has to be paid in the
subsequent months, after June. The payments whatever are expected to make after June
is not relevant as far as the budget preparation concerned.
 Delay in the payment of wages and office expenses is only one month. It means wages
and office expenses of Feb month are paid in the next month, March.
Selling expense From the above coloured boxes, it is obviously understood that during the
months of April, May and June; the following will be stream of payment of selling
expenses.
April= Rs.2,000 of Mar (Previous Month) and Rs. 2,200 of April (Current month)=
Rs.4,200/
May= Rs. 2,200 of April (Previous Month) and Rs.2,100 of May (Current month)=Rs.4,300/
June= Rs. 2,100 of May (Previous Month) and Rs.1,900 of June (Current month)=Rs.4,000/
 Selling expenses is having the delay of ½ month, which means 50% of the selling
expenses is paid only in the current month and the remaining 50% is paid in the next

Every month 50% of the selling expenses of the current month and 50% of the previous month
selling expenses are paid together; the above coloured boxes depict the payment of 50% of the
current selling expenses along with 50% expenses of previous month.