UNIT 5 Module 8 Budgets & Budgetary Control Assignment
Exercise Cash Budget Q.1. Explain the meaning, purpose and utility of Cash Budget? Q. 2. Explain the methods of preparing Cash Budget? Q.3. Give advantages and limitations of Cash Budget? Q. 4. Explain the Adjusted Earnings Method of Cash Budget? Q. 5. Give a Specimen of Cash Budget? Q. 6.Write short note on: Receipts and Disbursements method of Cash Budget? Q. 7. What is Cash Budget? Explain the objectives of Cash Budget? Flexible Budget Q.1. Budgets can be all applied in almost all areas in the organization. Justify the statement. Q. 2. What is Flexible Budget? Explain its characteristics. Q.3. Write a short note on Flexible Budget? Q. 4. Explain the methods of constructing a Flexible Budget? Q.5 Explain in brief the classification of costs of Flexible Budget? Q.6. Distinguish between: Fixed and Flexible Budget?
Practical Problems Flexible Budget (1) A department of Company Cedilla attains sales of Rs. 6,00,000 at 80% of its normal capacity and its expenses are given below: Administration Costs: Office salaries Rs. 90,000 General Exp. Depreciation Rates and Taxes 2% of sales Rs.7,500 Rs.8,750 Selling Costs: Salaries Travelling Exp. Sales office General Exp. 8% of sales 2% of sales 1% of sales 1% of sales Distribution Costs: Wages Rent Other Expenses Rs.15,000 1% of sales 4% of sales Ans. Key: Draw up flexible administration, selling and distribution costs budget, operating at 90%, 100% and 110% of normal capacity. Administrative costs General Exp.(2% of Sales) Rs. 12,000; 13,500;15,000; 16,500; Selling costs Salaries (8%of sales) Rs. 48,000; 54,000; 60,000; 66,000; General Exp.(1% of Sales) Rs. 6,000; 6,750; 7,500; 8,250; Total (A+B+C) at 80% Rs.2,35,250; at 90% Rs. 2,49,500; at 100% Rs. 2,63,750; at 110% Rs. 2,78,000)
(2) Draw up a flexible budget for overhead expenses on the basis of the following data and determine the overhead rates at 70%, 80% and 90% capacity levels. At 80% capacity Variable overheads: Rs. Indirect labour 12,000 Indirect material 4,000 Semi variable overheads: Power(30% fixed and 70% variable) 20,000 Repairs and maintenance (60% fixed and 40% variable) 2,000 Fixed overheads: Depreciation 11,000 Insurance 3,000 Others 10,000 Total overheads 62,000 Estimated direct labour hours 1,24,000 hours (Ans.Key: overhead Rate of Recovery : Re 0.54 at 70%, Re 0.50 at 80% and Re 0.47 at 90%) (3) A Company makes 10,000 units at its 100% production capacity. The costs and sales at level are : Variable cost per unit Rs. 10 Semi variable cost per unit Fixed cost per unit Rs.5 (40% Variable) Rs.8 Selling price per unit Rs. 30 Next year company expects to work at 80% or 90% of production capacity. Prepare a flexible budget for the above two levels and ascertain the profits.
Ans. Key: Total Fixed cost as per 100% capacity Rs. 80,000 Semi variable cost per unit fixed cost = 5 * 40% = Rs.2 Total fixed cost included in the semi variable cost Rs, 20,000(10,000 units * Rs.2 per unit) At 80% capacity: Production units 8000(10,000 * 80%). Total variable cost Rs.80,000; Total Semi variable Cost : Total fixed cost Rs. 20,000 + Variable cost Rs. 24,000 = Total Semi variable cost Rs.44,000 Total Profit = Rs. 36,000 At 90% capacity: Production units 9,000(10,000 * 90%) Total Variable Cost Rs.90,000; Total semi variable cost Rs. 47,000(20,000 + 27,000); Total fixed cost Rs.80,000; Total Profit = 2,70,000 2,17,000= Rs. 53,000) (4) The production capacity of Kutch Ltd. is 2,000 units at 100% activity level. Following details are available for the year 2013: Sales (Selling Price Rs.1,000 per unit) Rs.10,00,000 Percentage of Profit on cost 66 2/3% Factory Overheads: Fixed 48% Variable (which are 10% of Prime Cost) 32% Semi variable 20% Office Overheads (80% Fixed) Rs. 1,20,000 Selling Overheads (40% Fixed) Rs. 60,000 Material and labour are in ratio of 5:3 Semi variable factory overheads increased by 50% at 80% activity level and by 100% after that, selling price per unit remains constant and uniform. Prepare Flexible Budget for 50%, 75% and 100% activity levels of Kutch Ltd. Ans.Key: At 50% capacity Production 1,000 units, Total cost Rs. 6,00,000,
Profit Rs. 4,00,000 and Sales Rs. 10,00,000 At 75% capacity Production 1,500 units, Total cost Rs. 8,16,000, Profit Rs. 6,84,000 and Sales Rs. 15,00,000; At 100% Capacity: Production 2,000 units, Total cost Rs. 10,32,000, Profit Rs. 9,68,000 and sales Rs.20,00,000) (5) The Annual Flexible Budget of a MOTHER DIARY Ltd. is as follows: Particulars 60% 80% 100% Direct Materials 1,80,000 2,40,000 3,00,000 Direct Wages 2,40,000 3,20,000 4,00,000 Factory overhead 1,40,000 1,60,000 1,80,000 Office overhead 60,000 70,000 80,000 Sales and Distribution overheads 1,00,000 1,16,000 1,32,000 The company is presently working at 50% capacity. The sales volume of production at current price is Rs 6,40,000. If the selling price is reduced by 5% the company would be able to operate at 75% capacity. If selling price is reduced by 8%, the capacity may be utilised up to 90%. Prepare Flexible Budget for 50%, 75% and 90% capacity. And also find out profit. Ans. Key: At 50% capacity : Profit Rs. 13,000 (Sales 6,40,000 and total cost Rs. 6,27,000); At 75% capacity : Profit Rs. 52,500(Sales Rs.9,12,000) At 90% capacity Profit Rs. 60,840, Fixed cost : Factory Rs.80,000 Office Rs,30,000 and Selling Rs.52,000 = 1,62,000 and total cost 9,99,000)
CASH BUDGET (1) U.K. Ltd. wishes to arrange overdraft facilities with its bankers during the period April to June when it will be manufacturing mostly for stock. Prepare a Cash Budget including the bank facilities the company will require at the end of each month. Months Purchases Sales Expenses Feb. 1,80,000 1,24,800 12,000 March 1,92,000 1,44,000 14,000 April 1,08,000 2,43,000 11,000 May 1,74,000 2,46,000 10,000 June 1,26,000 2,68,000 15,000 (a) 50% of the credit sales is realized in the month following the sale and the balance 50% in the second month following. (b) Creditors are paid in the month following the purchase. (c) Cash at bank on 1 st April estimated at Rs. 25,000. (Ans. Key: Balance April Rs. 56,000; May Rs. 47,000Cr; June Rs. 1,67,000 or Bank O.D. needed in May Rs. 47,000 and in June RS. 1,20,000) (2) Summarized below are income and expenditure forecasts for the months of March to August 2009. Month Sales Purchases Wages Mfg.Exp. Office Exp. Selling Exp. March 60,000 36,000 9,000 4,000 2,000 4,000 April 62,000 38,000 8,000 3,000 1,500 5,000 May 64,000 33,000 10,000 4,500 2,500 4,500 June 58,000 35,000 8,500 3,500 2,000 3,500 July 56,000 39,000 9,500 4,000 1,000 4,500 August 60,000 34,000 8,000 3,000 1,500 4,000
Sales and Purchases all are on credit Additional Information (i) (ii) (iii) (iv) Plant costing Rs.16,000 is due for delivery in July payable 10% on delivery and the balance after 3 months Advance tax installments of Rs. 8,000 each are payable in March and June. The period of credit allowed by suppliers is two months and that allowed to customers is one month. Lag in payment of manufacturing expenses is ½ month, while the lag in payment of all other expenses is one month. You are required to prepare a cash budget for 3 months. And the cash balance would be Rs.8000. (Ans. Key: Closing balance May Rs. 15,750, June Rs.12,750, July Rs. 18,400) (3) The following details relate to a partnership firm: Balance Sheet (as at 31 st December, 2008) Liabilities Amount Assets Amount Partners Capital 10,000 Cash 16,000 Reserves 90,000 Debtors 10,000 Stock 49,000 Fixed Assets less: Dep. 25,000 1,00,000 1,00,000 (B) Forecasts relating to sales &salary expenses: Month Sales (Rs) Salary January 20,000 3000 Feb. 40,000 5000
March 50,000 7000 April 60,000 9,000 May 90,000 11,000 June 30,000 6,000 July 10,000 sales. (C) Monthly selling expenses are 10% 0f sales and are payable in the month of collection of (D) The firm operates on the following terms: Sales are on a 30 days basis but payments are not received until the next month. All purchases of the firm are in cash. The purchases are made each month to cover the following month s sales. A minimum cash balance of Rs.10, 000 is maintained. (E) New Equipment purchased for Rs.5, 000 is scheduled for delivery on March 1, payment is to made on delivery. Prepare a Cash Budget for the six months of 2008. (Ans. Key: After maintaining Rs. 10,000 as cash balance the amount of cash shortage will be: Jan Rs. 28,000; Feb Rs.65,000; March Rs.1,01,000; April Rs. 1,55,000; May Rs. 1,62,000, June Rs. 97,000) (4) From the following data, prepare a cash budget of S.S. Co. Ltd. for the period July to Dec.2009 Month Sales (net) Purchases Wages& Salaries Other Exp. Taxes May 2009 1,00,000 70,000 June 1,00,000 1,40,000 July 2,00,000 2,10,000 15,000 7,000 Aug. 3,00,000 2,80,000 20,000 8,000 September 4,00,000 1,40,000 25,000 9,000 40,000
October 2,00,000 1,40,000 15,000 7,000 November 2,00,000 70,000 15,000 7,000 December 1,00,000 7,000 10,000 6,000 40,000 Jan.2010 1,00,000 Additional Information (i) (ii) (iii) (iv) All sales are made on terms that allow a cash discount for payment within 20 days; if the discount is not taken, full payment must be in 40 days. However, the experience has been that 20% of sales payment is made during the month in which sale is made; 70% of sales payment is made during the second month and the balance 10% is made during the third month. Materials amount to 70% of sales and are brought in the before the company expects to sale the finished goods. Its purchase terms permit it to delay payment for one month. Payment for plant construction will be made in October amounting Rs.1,00,000. The company has to maintain a minimum cash balance Rs.50,000 at all times. (v) Assume cash balance of Rs. 60,000 on July 1, 2009. (Ans. Key : Borrowings July Rs.32,000; August Rs. 28,000; September Rs.44,000; October Rs. 88,000 Repayment of borrowings; November cash balancers.92,000; December Rs. 1,04,000) (5) Prepare a cash budget for three months ending on 30 th June, 2008 from the following information of Amul Co. Ltd. Cash and bank balance as on 1 st April, 2088 Rs. 1,76,000. The cost of goods in terms of percentage of the selling is as follows: Materials 20% Wages 10% Factory overheads 20% The production and stock of finished goods are as follows:
Month Production(Units) Closing Stock(Units) February 8,000 2,000 March 10,000 3,000 April 12,000 1,000 May 9,000 3,000 June 10,000 2,000 July 12,000 4,000 Additional Information: (1) Selling price is Rs.200 per unit. (2) The proportion of cash sales and credit sales is 1:4. (3) 50% of credit sales are collected in the month after sales, 40% in the second month after sales and the remaining in the third month after sales. (4) For anticipating sales of each month, necessary purchases are made in the preceding month. 50% of purchases are made for cash and the payments for the remaining purchases are made in two equal monthly installments thereafter. (5) Time lag : wages 1 month Factory overheads 1 month. (6) A new machine costing Rs. 3,00,000 will be purchased on 1 st April 2008. The payment of which, 20% at the time of delivery and the remaining payment is to be made in six equal monthly installments. (Ans. Key : Balance at the end of April Rs. 5,00,000, May Rs. 8,32,000, and June Rs. 16,52,000, Total Receipts(including opening balance) of April Rs. 18,40,000, May Rs. 25,72,000 and June Rs. 28,72,000, Total Payments: April Rs. 13,40,000, May Rs. 17,40,000 and June Rs. 12,20,000)