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 |
