Chapter # 05

Budgeting
Question # 01: Plagued Engineering
Statement of financial position
Plagued engineering produces two products, Niks and Args. The budget for the forthcoming year to 31 As 0n 01.April.20X7
March 20X8 is to be prepared. Expectations for the forthcoming year include the following. ASSETS Rs.
Non-Current Assets
(a) Finished Products: Finished goods are valued on a FIFO basis at full production cost.
Land and building 45,000
Estimate of Sales Director Niks Args Plant and Equipment 187,000
i. Demand for the company's products 4500 units 4000 units Less: Accumulated Dep. (75,000)
ii. Selling price per unit Rs. 32 Rs. 44
112,000
iii. Closing inventory of finished products at 31 March 2008 400 units 1200 units
Current Assets
iv. Opening inventory of finished products at 1 April 2007 900 units 200 units
Raw Materials 7,650
v. Unit cost of this opening inventory Rs. 20 Rs. 28
Finished goods 23,600
vi. Amount of plant capacity required for each unit of product:
Receivables 19,500
Machining 15 min 24 min
Assembling 12 min 18 min Cash 4,300
vii. Raw material content per unit of each product: 55,050
Material A 1.5 kilos 0.5 kilos Total Assets 212,050
Material B 2.0 kilos 4.0 kilos EQUITY AND LIABILITIES
viii. Direct labour hours per unit 6 hours 9 hours Capital and Reserves
Share Capital 150,000
(b) Raw Materials:
Accumulated profits 55,250
Material A Material B 205,250
Closing inventory requirement in kilos at 31 March 2008 6,00 1,000 Current liabilities
Opening inventory at 1 April 2007 1,100 6,000 Payables 6,800
Budgeted cost of raw materials per kilo Rs.1.5 Rs.1.00 212,050
Actual costs per kilo of opening inventories are as budgeted cost for the coming year.
Direct labor: The standard wage rate of direct labor is Rs.1.60 per hour.
Production overhead: Production overhead is absorbed on the basis of machining hours, with separate absorption rates for each department.
The following overheads are anticipated in the production cost center budgets. (iii) Budgeted Cash flows are as follows:
Machining Assembly Quarter 1 Quarter 2 Quarter 3 Quarter 4
Department Department Receipts from customer 70,000 100,000 100,000 40,000
------Rs.------ Payments:
Supervisor’s Salaries 10,000 9,150 Materials 7,000 9,000 10,000 5,000
Power 4,400 2,000 Wages 33,000 20,000 11,000 15,000
Maintenance and running costs 2,100 2,000 Other costs and expenses 10,000 100,000 205,000 5,000
Consumables 3,400 5,00
General expenses 19,600 5,000
Required:
39,500 18,650 Prepare the following for the year ended 31 March 20X8 for Plagued

Depreciation is taken at 5% straight line on plant and equipment. A machine Engineering Ltd.

costing the company Rs.20000 is due to be installed on 1 October 2007 in the  Sales budget

machining department, which already has machinery installed to the value of  Computation of the factory cost per unit

Rs.100000 (at cost). Land worth Rs.180000 is to be acquired in December  Production Budget for each product

20X7.  Direct materials usage budget

(i) Selling and administration expenses  Cost of goods sold budget

Rs.
 Direct materials purchase budget
Sales commissions and salaries 14,300  Budgeted income statement
Travelling and distribution 3,500  Direct labor budget
Office salaries 10,100
 Cash Budget
General administration expenses 2,500
30,400  Plant utilization budget

(ii) There is no opening or closing work in progress and inflation should be  Budgeted Balance Sheet
ignored.  Factory overhead budget
Question # 02: Star Bright
XYZ Company manufactures two products STAR and BRIGHT. There are two manufacturing Details of Dept. 1
Material X (Rs. 20/kg) 3 kgs 5 kgs
departments in a company Dept. 1 and Dept. 2. All material has been added in dept. 1.
Material Y (Rs. 15/kg) 5 kgs 4 kgs
Standard material and labour usage for each product is as follows:
Direct Labour (Rs. 10/hr.) 5 hrs. 2.5 hrs.
Details of overheads Details of Dept. 2
Budgeted variable overhead rates per labor hour Dept. 1 Dept. 2 Material Nil Nil
Indirect labour Rs. 4 Rs. 3 Direct Labour (Rs. 12/hr.) 4 hrs. 6 hrs.
Electricity (variable) Rs. 3 Rs. 5 Balance Sheet
Maintenance ( variable) Rs. 2 Rs. 4 Rs. 000
Budgeted fixed overheads Dept. 1 Dept. 2 Non Current Assets
Rent Rs.50,000 Rs.45,000 Land 2,000
Supervision Rs. 20,000 Rs. 10,000 Building and equipment 3,000
Electricity (fixed) Rs. 6,500 Rs. 5,000 Acc. Depreciation: (480)
Maintenance (fixed) Rs. 10,000 Rs. 2,100 Current Assets
Non-manufacturing overheads: Inventory – Finished goods 1,300
- Salaries Rs. 30,000 - Depreciation Rs. 20,000 – Raw materials 800
- Advertising Rs. 25,000 - Miscellaneous Rs. 10,000 Debtors 800
Cash 1,000
Inventory Details: Total Assets 8,420
Finished Product Star Bright Equity and Liabilities
Forecast Sales (Units) 8000 2000 Ordinary share capital 3,000
Selling Price / Unit (Rs.) 500 450 Reserves 2,000
Ending Inventory (Units) 1800 200 5,000
Beginning Inventory (Units) 2000 500 Non-current liabilities 2,000
Raw Material Material X Material Y Current liabilities 1,420
Beginning Inventory 5000 Kgs 6000 Kgs Total equity and liabilities 8,420
Ending Inventory 4000 Kgs 7000 Kgs  Direct labor budget  Sales budget  Production budget
Required: Prepare Master budget for 200Y and following budgets:  Purchase budget  Factory OHs budget  Selling and admin  Material usage budget  Cash budgets