# Budgeting exercise

Public Relations um Delhi Tourism and Transportation Devlopment Corp.
24. Sep 2013
1 von 7

### Budgeting exercise

• 1. Problem 1 The following information has been made available from records of Hindustan Precision Tools Limited for the last 6 months of 2008 ( and of only the sales of January 2009) in respect of product X. 1- The units to be sold in different months are: July 1,100 November 2,500 August 1,100 December 2,300 September 1,700 January 2,000 October 1,900 There will be no work in process at the end of any month Finished unit equal half of sales for the next month will be in stock at the end of every month ( including June 2008) Budgeted production and production cost for the year ending 31st December, 2008 are as follows: Production (units) 22,000 Direct material cost per unit \$10.00 Direct wages cost per unit \$ 4.00 Total factory overhead apportion to product \$88,000 It is required to prepare: A production budget for each of the last six months of 2005, and A summary production cost budget for the same period. Problem 2 Nesley Ltd. Has prepared the following budget for the first five months of 2008 Sales budget (Units) January 10,800 February 15,600 March 12,200 April 10,400 May 9,800 Inventory of finished goods at the end of every month is to be equal to 25% of sales estimate for next month. On 1st of January, 2008, there were 2,700 units of product on hand. There is no work in process at the end of any month. Every unit of product requires two types of materials in the following quantities: Material A – 4Kg Material B – 5Kg Material equal to one-half of the requirement of next month’s production are to be in hand at the end of very month. This requirement has met on 1st January, 2008: Prepare: Production budget (quantitative) Material purchase budget (Quantitative).
• 2. Problem 3 P. Ltd manufactures two products using one types of material and one grade of labor. Shown below is an extract from the company’s working papers for the next period’s budget: Product A Product B Budgeted Sales (units) 3,600 4,800 Budgeted material consumption per product (kg) 5 3 Budgeted material cost \$12 per Kg Standard hours allowed per product 5 4 Budgeted wage rate \$8 per hour Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week. There are 90 direct workers. The target productivity ratio (or efficiency ratio) for the productive hours worked by the direct workers in actually manufacturing the product is 80%, in addition, the non-productive down time is budgeted at 20% of the productive hours worked. There are twelve 5-day weeks in the budget period and it is anticipated that sales and production will occur evenly throughout the whole period. It is anticipated that stock at the beginning of the period will be: Product A: 1,020 units, Product B: 2,400 units, Raw materials 4,300 Kgs The target closing stock; expressed in terms of anticipated activity during the budget period are: Product A: 15 days sales; Product B: 20 days sales; Raw materials 10 days consumption. Required: Calculate the material purchases budget and the wages budget for direct worker showing the quantities and values, for the next period.
• 3. Problem 4 Prepare sales overhead budget for January, February, and March from the estimate given below: \$ Advertisements 2,500 Salaries of sales department 5,000 Expenses of sales department 1,500 Counter salesmen’s salaries and allowance 6,000 Commission to counter salesmen at 2% on their sales. Traveling salesmen’s commission at 15% on their sales and expense at 5% on their sales. The sales during the period were estimated as follows: Month Counter Sales (\$) Traveling sales (\$) January 80,000 10,000 February 120,000 15,000 March 140,000 20,000 Problem 5 A company expects to have \$37,500 cash in hand on 1St April 2008 and requires you to prepare an estimate of cash position during the three months, April to June, 2008. The following information is supplied to you: Sales Purchase Wages Factory exp. Office exp. Selling exp February 75,000 45,000 9,000 7,500 6,000 4,500 March 84,000 48,000 9,750 8,250 6,000 4,500 April 90,000 52,000 10,500 9,000 6,000 5,250 May 120,000 60,000 13,500 11,250 6,000 6,570 June 135,000 60,000 14,250 14,000 7,000 7,000 Other information: 1- Period of credit allowed by supplier is 2 months 2- 20% of Sales is for cash and period of credit allowed to customers for credit sales is one month. 3- Delay in payment of all expenses- one month 4- Income tax of \$57,500is due to be paid on June 15, 2008. 5- The company is to pay dividends and bonus to workers of \$15,000 and \$22,500 respectively in the month of April. 6- Plant has been ordered to be received and paid in May. It will cost \$120,000.
• 4. Problem 6 The profitability statement of AZ Co., Ltd has been summarized as follows: \$ \$ Sales 1,500,000 Direct Materials 450,000 Direct wages 300,000 Variable overhead 120,000 Fixed Overhead 440,000 1,310,000 Profit 190,000 The budget capacity of the company is \$2,000,000 but the key fact is sales demand. It is proposed that in order to utilize the existing capacity the selling price of this only product manufactured by the company should be reduced by 5%. You are required to prepare a forecast statement which should show the effect of proposed reduction in selling price and include any changes in costs expected during the coming year. The following additional information is given: 1- Sales forecast \$ 1,900,000 ( after reduction) 2- Direct material price are expected to increase by: 2% 3- Direct wages rate are expected to increase by 5% per unit 4- Variable overheads are expected to increase by 5% per unit 5- Fixed overheads will increase by \$20,000. Problem 7 A department of TOYOTA Company attains sales of \$600,000 at 80% of its normal capacity. Its expenses are given below: \$ Office salary 90,000 General expenses 2% of sales Depreciation 7,500 Rent and rates 8,750 Selling cost: Salaries 8% of sales Traveling expenses 2% of sales Sales office 1% of sales General expenses 1% of sales Distribution cost: Wages 15,000 Rent 1% of sales Other expenses 4% of sales Draw up flexible Administration, Selling and distribution costs budget, operating at 90%, 100%, and 110% of normal capacity.