Model Test – Final
BUDGETARY CONTROL
SUGGESTED ANSWER
Budget Actual
Production units 16,000 14,000
Material cost Rs.25,60,000 Rs.41,60,000
(1,600 MT @ Rs.1, 600) (at Rs. 1,650)
Labour cost Rs.16,00,000 Rs.15,99,840
(at Rs.40 per hour) (@Rs.44 per hour)
Variable overhead Rs.3,00,000 Rs.2,76,000
Fixed overhead Rs.4,60,000 Rs.5,80,000
In the first half of the financial year 2009-10, production is budgeted for 30,000 units, material cost per tonne will increase from last year's actual by Rs.150, but it is proposed to maintain the consumption efficiency of 2008 as budgeted. Labour efficiency will be lower by 1% and labour rate will be Rs.44 per hour. Variable and fixed overhead will go up by 20% over 2008 actuals. Prepare the production cost budget for the period April-September, 2009 giving all workings.
Solution:
Production Cost Budget
(for 6 months ending 30th September, 2009)
30,000 Units
Cost per unit Total
Rs. Rs.
Material cost 180 54,00,000
Labour cost 115.21 34,56,420
Variable overhead 23.65 7,09,500
Fixed overhead 23.20 6,96,000
342.06 1,02,61,920
Assumption:
Here, difference in actual and standard time is also considered for calculating the lower efficiency i.e 3.74% + 1% = 4.74%.
Working Notes:
I . Material cost:
Material consumption per unit = 1,600 MT = 0.10 MT
16,000
Consumption for 30,000 units = 3,000 MT.
Cost of 3,000 MT @ Rs.1,800 per MT = Rs.54,00,000.
II. Labour cost can be calculated as follows:
Time required for 30,000 units = 75,000 hours
Add: *(3.74%+1%) = 4.74% for lower efficiency = 3,555 hours
= 78,555 hours
* 3.74% = Difference in actual and standard hours
Actual hours
= 1,360 hours
36,360 hours
Labour cost = 78,555 hours x 44 per hour
= 34,56,420
III. Variable overhead:
Actual rate = Rs.2,76,000 = 19.71 per unit
14,000
Add: 20 = 3.94
New rate 23.65
Total variable overhead = 30,000 x 23.65 = Rs.7,09,500
IV. Fixed overhead:
Actual = Rs.5, 80,000
Add: 20% = Rs.1, 16,000
Rs.6, 96,000
According to the above production cost budget will be as follows:
Alternative:
Production Cost Budget
( for 6 months ending 30th September, 2009)
30,000 units
Cost per unit Total
Rs. Rs.
Material cost 180 54, 00,000
Labour cost 111.1 33, 33,000
Variable overhead 23.65 7, 09,500
Fixed overhead 23.20 6,96,000
337.95 1,01,38,500
Working Notes:
1. Material cost
Material consumption per unit = 1,600 MT = 0.10 MT
16,000
Consumption for 30,000 units = 3,000 MT
Cost of 3,000 MT @ Rs.1,800 per MT = Rs.54,00,000.
2. Labour cost:
2008- Total Budgeted Hour = 16,00,000 = 40,000 hours
40
Labour hour budget for each unit = 40,000 = 2.5
16,000
Actual time paid = 15,99,840 = 36,360 hours
44
Less: standard labour hours for 14,000 units (i.e 14,000 x 2.5) = 35,000 hours
Difference in actual and standard hours = 1,360
Time required for 30,000 units ( 30,000 x 2.5) = 75,000 hours
Add: 1% for lower efficiency = 750 hours
= 75,750 hours
Labour cost = 75,750 hours x 44 per hour
= 33,33,000
3. Variable overhead
Actual rate = Rs.2,76,000 = 19.71 per unit
14,000 units
Add: 20 = 3.94
New rate 23.65
Total variable overhead = 30,000 x 23.65 = Rs.7,09,500
4. Fixed overhead
Actual = Rs.5,80,000
Add: 20% = Rs.1,16,000
= Rs.6,96,000
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