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    Budgetary Control: BY Animesh Kalita 2K10MKT37

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    Animesh Kalita
    This document contains information about preparing and revising budgets. It discusses production budgets, production cost budgets, and flexible budgets. It provides an example of preparing original and revised flexible budgets. The key points are: 1) Production and production cost budgets are presented for 6 months to estimate costs of production based on estimated sales, opening and closing stock levels. 2) A flexible budget example shows how budgets can be prepared for different production levels by analyzing costs into fixed and variable components. 3) Budgets may need revision due to changes in factors like policies, capacity, prices or errors. An example revises a budget by increasing sales 50% with a 5-10% price reduction applied to total sales.

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    Budgetary Control: BY Animesh Kalita 2K10MKT37

    Uploaded by

    Animesh Kalita
    19 views15 pages
    This document contains information about preparing and revising budgets. It discusses production budgets, production cost budgets, and flexible budgets. It provides an example of preparing original and revised flexible budgets. The key points are: 1) Production and production cost budgets are presented for 6 months to estimate costs of production based on estimated sales, opening and closing stock levels. 2) A flexible budget example shows how budgets can be prepared for different production levels by analyzing costs into fixed and variable components. 3) Budgets may need revision due to changes in factors like policies, capacity, prices or errors. An example revises a budget by increasing sales 50% with a 5-10% price reduction applied to total sales.

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    Budgets

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    This document contains information about preparing and revising budgets. It discusses production budgets, production cost budgets, and flexible budgets. It provides an example of preparing original and revised flexible budgets. The key points are: 1) Production and production cost budgets are presented for 6 months to estimate costs of production based on estimated sales, opening and closing stock levels. 2) A flexible budget example shows how budgets can be prepared for different production levels by analyzing costs into fixed and variable components. 3) Budgets may need revision due to changes in factors like policies, capacity, prices or errors. An example revises a budget by increasing sales 50% with a 5-10% price reduction applied to total sales.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    19 views15 pages

    Budgetary Control: BY Animesh Kalita 2K10MKT37

    Uploaded by

    Animesh Kalita
    This document contains information about preparing and revising budgets. It discusses production budgets, production cost budgets, and flexible budgets. It provides an example of preparing original and revised flexible budgets. The key points are: 1) Production and production cost budgets are presented for 6 months to estimate costs of production based on estimated sales, opening and closing stock levels. 2) A flexible budget example shows how budgets can be prepared for different production levels by analyzing costs into fixed and variable components. 3) Budgets may need revision due to changes in factors like policies, capacity, prices or errors. An example revises a budget by increasing sales 50% with a 5-10% price reduction applied to total sales.

    Copyright:

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    Download as pptx, pdf, or txt
    of 15

    BUDGETARY CONTROL

    BY
    ANIMESH KALITA
    2K10MKT37
    PRODUCTION COST BUDGET
     THE PRODUCTION BUDGET SHOWS BOTH
    UNIT PRODUCTION DATA AND UNIT
    COST DETAILS.

     THIS BUDGET SHOWS ESTIMATED COST


    OF PRODUCTION.

     IT SHOWS OF PRODUCTION WHICH ARE


    IN RESPECT OF MATERIAL COST, LABOR
    COST AND FACTORY OVERHEAD.
    NUMERICAL
    The following information has been made
    available from the records of Precision Tools
    Ltd. for the six months of 1998(and the sales of
    January 1999) in respect of product X;

    (i) The units to be sold in different months:


    July 1998 1,100 November 1998 2,500
    August 1,100 December 2,300
    September 1,700 January 1999 2,000
    October 1,900
    (ii) There will be no work-in-progress at the
    end of any month.

    (iii) Finished units equal to half the sales of the next month
    will be in stock at the end of evry month (including June,
    1998).

    (iv) Budgeted production and production cost for the year


    ending 31st Dec, 1998 are:
    Production (units) 22,000
    Direct materials per unit Rs. 10
    Direct wages per unit Rs. 4
    Total factory o/h apportioned Rs. 88,000
    to production
    You are required to prepare:
    (a) Production Budget for the six months of 1998.

    (b) Summarized Production Cost Budget for the


    same period.
    PRODUCTION BUDGET
    for the six months ending Dec, 1998

    July Aug Sep Oct Nov Dec Total


    Estimated 1100 1100 1700 1900 2500 2300
    sales
    Add: Closing 550 850 950 1250 1150 1000
    stock
    1650 1950 2650 3150 3650 3300
    Less: Opening 550 550 850 950 1250 1150
    stock
    Prodct. 1100 1400 1800 2200 2400 2150 11050
    PRODUCTION COST BUDGET
    for the six months ending Dec, 1998

    Direct Materials @ Rs. 10 for 11050 units Rs.


    1,10,500
    Direct Wages @ Rs. 4 for 11050 units Rs.
    44,200
    *Factory O/H @ Rs. 4 for 11050 units Rs.
    44,200
    Total Production Cost Rs.
    1,98,900

    *Factory O/H per unit = Rs. 88,000 / 22,000 units = Rs. 4


    FLEXIBLE BUDGET
     FLEXIBLE BUDGETING HAS BEEN DEVELOPED
    WITH THE OBJECTIVE OF CHANGING ATHE
    BUDGET FIGURES TO CORRESPOND WITH THE
    ACTUAL OUTPUT ACHIEVED.

     THESE BUDGETS NECESSITATES THE ANALYSIS OF


    ALL COSTS INTO FIXED AND VARIABLE
    COMPONENTS.

     IN THIS BUDGET, A SERIES OF BUDGETS ARE


    PREPARED FOR EVERY MAJOR LEVEL OF
    ACTIVITY.
    NUMERICAL
    The expenses budgeted for production of 10,000 units in a factory are
    furnished below:
    Rs. Per unit
    Materials 70
    Labour 25
    Variable overheads 20
    Fixed overheads(Rs. 1,00,000) 10
    Variable expenses(direct) 5
    Selling expenses(10% fixed) 13
    Distribution expenses(20% fixed) 7
    Administration expenses(Rs. 50,000) 5
    ―
    Total 155
    Prepare a budget for the prod. Of (a) 8,000 units and (b) 6,000 units.
    Assume that administration expenses are rigid for all levels of
    production.
    FLEXIBLE BUDGET
    6000 units 8000 units 10,000 units

    Per Total Per Total Per Total


    Unit Rs. Unit Rs. Unit Rs.
    Rs. Rs. Rs.
    materials 70 420000 70 560000 70 700000
    Labour 25 150000 25 200000 25 250000
    Direct 5 30000 5 40000 5 50000
    exp(var)
    Var o/h 20 120000 20 160000 20 200000
    Fixed o/h 16.67 100000 12.50 100000 10 100000
    Selling exp: 2.17 13000 1.63 13000 1.30 13000
    fixed
    Var 11.70 70,200 11.70 93600 11.70 117000
    Distribution
    Exp : Fixed 2.33 14000 1.75 14000 1.40 14000
    Var 5.60 33600 5.60 44800 5.60 56000
    Adm exp: 8.33 50000 6.25 50000 5.00 50000
    Fix
    Total Cost 166.8 1000800 159.42 1275400 155.00 1550000
    REVISION OF BUDGETS
    Sometimes the original budget prepared may have to
    be revised due to one or more of the following factors:
     Changes in mgmt policies and other internal factors
    like change in the capacity utilisation or addition to the
    production capacity, etc.

     Unforeseen changes in uncontrollable or external


    factors like change in market prices of materials and
    other inputs, changes in fashion and consumer tastes,
    etc.

     Errors committed in the preparation of original budget.


    NUMERICAL
    A Company produces two products and budgets at 60% level of activity for the
    year 2,000. It gives the following information :
    Product A Product B
    Raw materials cost Rs. 7.50 Rs. 3.50
    per unit
    Direct wages per unit Rs. 4.00 Rs. 3.00
    Var o/h per unit Rs. 2.00 Rs. 1.50
    Fixed o/h per unit Rs. 6.00 Rs. 4.50
    Selling price per unit Rs. 20.00 Rs. 15.00
    Production and sales(units) 4000 6000

    The managing director is not satisfied with the budgeted results as stated above
    and wants to improve the performance. The managing director proposed that the
    sales quantities of products A and B could be increased by 50% provided the SP
    was reduced by 5% in the case of product A and 10% in product B. The price
    reduction should be made applicable to the entire quantity of sales of each of the
    two products.
    You are required to present the overall profitability under the original budget and
    revised budget after taking the increased sales into consideration.
    Original budget Revised budget

    A B Total A B Total
    Sales 4000 6000 6000 9000
    (units)
    Sales Rs. Rs. Rs. Rs. Rs. Rs.
    (value) 80000 90000 170000 114000 121500 235500
    Costs:
    Raw 30000 21000 51000 45000 31000 76500
    Material
    Labour 16000 18000 34000 24000 27000 51000
    Var. 8000 9000 17000 12000 13500 25500
    O/h
    Fix O/h 24000 27000 51000 24000 27000 51000
    Total 78000 75000 153000 105000 99000 204000
    Cost
    Profit 2000 15000 17000 9000 22500 31500
    Working Note : Revised Sales figures are
    computed as follows:
    A B
    Selling Price per unit Rs. 20 15
    Less : 5% and 10% Re. 1 1.50
    Rs. 19 13.50
    Sales Value = 6000 units × Rs. 19 = 114000
    = 9000 units × Rs.13.50= 121500
    THANK YOU

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