Assignment Questions - BUDGETARY CONTROL

Assignment Questions

 

BUDGETARY CONTROL

 

Question 1. The cost sheet of a company based on a budget volume of sales of 4,00,000 units per quarter is asunder :

(` Per unit)

Direct materials                                                                     6.00

Direct wages                                                               3.00

Factory overheads (50% fixed)                                             8.00

S/ Adm. Overheads (1/3 variable)                             4.50

Selling price                                                                            24.00

When the budget was discussed it was felt that the company would be able to achieve only a volume of 3,00,000 units of production and sales per quarter. The company therefore decided that an aggressive sales promotion campaign should be launched to achieve the following improved operations :

 

Proposal I :

- Sell 5,00,000 units per quarter by spendingRs.2,50,000 on advertising.

- The factory fixed costs will increase byRs.4,00,000 per quarter.

 

Proposal II :

Sell 6,00,000 units per quarter subject to the following conditions :

- An overall price reduction ofRs.2 per unit is allowed on all sales.

- Variable selling and administration costs will increase by 6%.

- Direct material costs will be reduced by 1.5% due to purchase price discounts.

- The fixed factory costs will increase byRs.2,50,000 more.

You are required to prepare a Flexible Budget at 3,00,000, 5,00,000 and 6,00,000 units of output per quarter and calculate the profit at each of the above levels of output.

 

 

Question 2.. The following budget of PQ Company Limited, a manufacturing organization, has been prepared for the year 2010 :

(% of sales value)

Raw materials                                                                                                40

Direct wages                                                                                                   25

Factory overheads (fixed)                                                                              5

Factory overheads (variable)                                                                        10

Administration and selling and Distribution Overheads (variable)            6

Administration and selling and distribution overheads (fixed)                   12

Profit                                                                                                              2

Sales Value                                                                                                      100

           

After considering the quarterly performance, it is felt that the budgeted volume of sales would not be achieved. But the company expects to achieve 80% of the budgeted sales (equivalent to a sales value ofRs.1,60,00,000).

 

You are required to present the original budget and the revised budget based on 80% achievement of the target sales, showing the quantum of profit (loss) for both .

 

Question 3. A company is at present working at 90% of its capacity and producing 13,500 units per annum. It operates a Flexible Budgetary Control System. The following figures are obtained from its budget.

Rs.

Particulars                                                                 Capacity utilization

90%                 100%

Sales                                                                            15,00,000         16,00,000

Fixed expenses                                                            3,00,500           3,00,600

Semi-fixed expenses                                                    97,500             1,00,500

Semi-variable expenses                                              1,45,000           1,49,500

Units manufactured                                                  13,500             15,000

 

Labour and material costs per unit are constant under the present conditions. Profit margin is 10%.

 

Prepare a flexible budget and you are required to determine the differential cost of producing 15,000 units by increasing capacity utilization to 100 per cent.

 

Question No. 2

 

The following are the estimated sales of a company for eight months ending 30.11.2007

Month (2007)	Estimated Sales in Units
April	12,000
May	13,000
June	9,000
July	8,000
August	10,000
September	12,000
October	14,000
November	12,000

As a matter of policy, the company maintains the closing balance of finished goods and raw materials as follows:

Stock Item	Closing Balance of a month
Finished Goods	50% of the estimated sales for the next month
Raw Materials	Estimated consumption for the next month

 

Every unit of production requires 2 kg of raw material costing Rs. 5 per kg.

 

Prepare Production Budget (in units) and Raw material Purchase Budget (in units and cost) of the company for the half year ending 30 September 2007.

 

 

ANSWER HINTS
Question No.	Answer
1	Profit Rs. 50,000;  Rs.               13,00,000; Rs.10,50,000
2	Profit Rs.2,00,000; Loss Rs.360,000
3	Differential cost Rs. 97,267
4	Total Production 65,000 Units; Totoal Purchase 131,000 Kgs; & Rs.6,55,000