Management Accounting B.Com, M.Com students problems, and solutions

1. MANAGEMENT ACCOUNTING
Budget and Budgetary Control
DR.S.SUNDARAMOORTHY
ASSISTANT PROFESSOR
SRI PARAMAKALYANI COLLEGE
ALWARKURICHI 627412
M. No: 9442241819
E-Mail: sundaramoorthyssm@gmail.com

2. Meaning of Budgeting
Process of creating,
planning and controlling
to spend the money.
The entire process of
preparing the budgets is
known as budgeting.

3. Objectives of Budget
♠ Planning
♠ Coordination
♠ Efficiency and Economy
♠ Increase in profitability
♠ Future capital expenditure
♠ Control
♠ Deviations

4. Importance of Budget
Ensured of money when needs.
Always keep you out of debt.
Avoid you to spend money on
unnecessary items and services.

5. Role of Budget in Planning and
Control

6. Classification of Budgets
 Long term
budgets
 Short term
budgets
 Current
budgets
 Functional or
subsidiary
budgets
(Purchase Budget,
Cash Budget,
Production Budget,
Sales Budget,
Materials Budget)
 Master budget
 Fixed budget
 Flexible
budget
Based on time Based on Functions Based on Flexibility

7. Sales Budget
 Analysis of the sales of the previous
years.
 Estimation of salesman.
 Plant capacity.
 Trade prospects and potential market.

8. Production Budget
 Plant and machinary can be utilised to a
maximum extent.
 Labour hours can be utilised to a greater extent.
 It help to reduce production expenses as there is
uniform production.
 It is enough to maintain minimum stock of goods.
 Purchase cost budget can be prepared.
 Production cost budget can be prepared.

9. Flexible Budget
 Adjusts for change in activity volume.
 Depends upon revenue generated.
 Allows for infinite changes.
 A tool for comparing actual and
budgeted performances.

10. ILLUSTRATION (Production Budget)
You are required to prepare a production budget for
the half year ending June 2018 from the following
information:
Product Budgeted sales
quantity
Actual stock on
31 – 12 - 2017
Desired stock on
30 – 6 - 2018
Units Units Units
M 20000 4000 5000
T 50000 6000 10000

11. Solution
PRODUCTION BUDGET
Particulars Products Total
unitsM
Units
T
units
Sales (Budgeted) 20000 50000 70000
Add: closing stock (desired) as on 30.6.2018 5000 10000 15000
25000 60000 85000
Less: Opening stock as on 1.1.2018 4000 6000 10000
Quantity to be produced 21000 54000 75000
Production = Estimated sales + Desired closing stock –
Estimated opening stock

12. ILLUSTRATION (Production Budget)
Lakshmanan Ltd. Plans to sell 1,10000 units of a
certain product line in the first fiscal quarter, 120000 units
in the second quarter, 1,30,000 units in the third quarter,
1,50,000 units in the fourth quarter and 1,40,000 units in the
fifth quarter. At the beginning of the first quarter of the
current year, there are 14000 units of the product in stock.
At the end of each quarter, the company plans to have an
inventory equal to one-fifth of the sales for the next fiscal
quarter. How many units must be manufactured in each
quarter of the current year.

13. Solution
PRODUCTION BUDGET
Particulars First
quarter
Second
quarter
Third
quarter
Fourth
quarter
Total
units
Sales (planned ) 110000 120000 130000 150000 510000
Add: Closing stock (desired at
1/5th of next quarter’s sales)
24000 26000 30000 28000 108000
134000 146000 160000 178000 618000
Less: Opening stock 14000 24000 26000 30000 94000
Total units to be produced 120000 122000 134000 148000 524000
Production = Estimated sales + Desired closing stock –
Estimated opening stock

14. ILLUSTRATION (Production Budget)

15. Solution
MATERIAL PURCHASE BUDGET
Particulars Rs.
Estimated sales 50000
Add: Desired closing stock of finished goods 14000
64000
Less: opening stock of finished goods 10000
Estimated production 54000
Particulars Material A Material B
Estimated consumption 2 x 54000 108000 ---
3 x 54000 --- 162000
Add: Desired closing stock of materials 13000 16000
121000 178000
Less: Opening stock of materials 12000 15000
Estimated purchases 109000 163000

16. ILLUSTRATION (Production Budget)

17. Solution
PRODUCTION BUDGET
Particulars January February March April May June Total
P R P R P R P R P R P R P R
Estimated sales 1400 500 1400 600 1200 800 1000 1000 800 1200 800 1200 6600 5300
Add: Desired closing stock 700 300 600 400 500 500 400 600 400 600 450 500 3050 2900
2100 800 2000 1000 1700 1300 1400 1600 1200 1800 1250 1700 9650 8200
Less: estimated opening
stock
700 250 700 300 600 400 500 500 400 600 400 600 3300 2650
Total units to be
produced
1400 550 1300 700 1100 900 900 1100 800 1200 850 1100 6350 5550
Particulars Per unit
Rs.
Total
(6350)
Per unit
Rs.
Total
(5550)
Total
D. Material 20 127000 15 83250 210250
D. Wages 10 63500 8 44400 107900
Prime cost 30 190500 23 127650 318150
Manufacturing
charges
4 25400 3 16650 42050
Production
cost
34 215900 26 144300 360200
Man. O.H. Rate =
O.H. for the year / Budget annual
output
P = 48000 / 12000 = 4
R = 33000 / 11000 = 3

18. ILLUSTRATION (Cash Budget)
Cash balance on 1st May Rs. 8000

19. Solution
CASH BUDGET
Particulars May Rs. June Rs. July Rs.
Opening balance 8000 15750 12750
Receipts: Cash from debtors 62000 64000 58000
Total Receipts 70000 79750 70750
Payments:
Paid to creditors 36000 38000 33000
Wages 8000 10000 8500
Manufacturing expenses 3750 4000 3750
Office expenses 1500 2500 2000
Selling expenses 5000 4500 3500
Advance tax --- 8000 ---
Delivery of plant (10% payment on delivery) --- --- 1600
Total payments 54250 67000 52350
Closing balance 15750 12750 18400

20. ILLUSTRATION (FLEXIBLE BUDGET)

21. PARTICULARS 70% 80% 90%
Variable O.H.s
Indirect labour 10500 12000 13500
Stores including spares 3500 4000 4500
Semi variable O.Hs
Power (70% variable) 12250 14000 15750
(30% fixed) 6000 6000 6000
Repairs and maintenance
Fixed 60%
1200 1200 1200
Variable 40% 700 800 900
Fixed O.Hs
Depreciation 11000 11000 11000
Insurance 3000 3000 3000
Salaries 10000 10000 10000
Total overheads 58150 62000 65850
Est. labour hours 108500 124000 139500
Est. Labour hour rate 58150/ 108500 =
0.536
62000 / 124000 =
0.5
65850 / 139500 =
0.472
SolutionFLEXIBLEBUDGET

22. ILLUSTRATION (Flexible Budget)

23. Particulars 4000 Per unit 5000 Per unit 6000 Per unit
Material cost 20000 5.00 25000 5.00 30000 5.00
Labour cost 12000 3.00 15000 3.00 18000 3.00
Prime cost 32000 8.00 40000 8.00 48000 8.00
Power variable 80% 800 0.20 1000 0.20 1200 0.20
Fixed 20% 250 0.062 250 0.05 250 0.041
Repairs & Maintenance Variable 75% 1200 0.30 1500 0.30 1800 0.30
Fixed 25% 500 0.125 500 0.10 500 0.833
Stores 800 0.20 1000 0.20 1200 0.20
Inspection Variable 20% 80 0.02 100 0.02 120 0.02
Fixed 80% 400 0.10 400 0.08 400 0.67
Depreciation 8000 2.00 10000 2.00 12000 2.00
Works cost 44030 11.01 54750 0.95 65470 10.91
Adm. O.Hs Variable 25% 1000 0.25 1250 0.25 1500 0.25
Fixed 75% 3750 0.94 3750 0.75 3750 0.63
Cost of production 48750 12.20 59750 11.95 70720 11.79
Selling O.Hs Variable 25% 600 0.15 750 0.15 900 0.15
Fixed 75% 2250 0.56 2250 0.45 2250 0.38
Total 51630 12.91 62750 12.55 73870 12.32
Solution FLEXIBLE BUDGET

24. ILLUSTRATION (Flexible Budget)

25. Particulars 6000 8000 10000
Per unit Amount Per unit Amount Per unit Amount
Material 70.00 420000 70.00 560000 70.00 700000
Labour 25.00 150000 25.00 200000 25.00 250000
Direct variable expenses 5.00 30000 5.00 40000 5.00 50000
Prime cost 100.00 600000 100.00 800000 100.00 1000000
Factory overheads:
Variable 20.00 120000 20.00 160000 20.00 180000
Fixed 16.67 100000 12.50 100000 10.00 100000
Work costs 136.67 820000 132.50 1060000 130.00 1280000
Administrative expenses 8.33 50000 6.25 50000 5.00 50000
Cost of production 145.00 870000 138.75 11100000 135.00 1330000
Selling expenses:
Fixed 10% (Rs.13) 2.17 13000 1.63 13000 1.30 13000
Variable 90% (Rs.13) 11.70 70200 11.70 93600 11.70 117000
Distribution expenses:
Fixed 20% (Rs. 7) 2.33 14000 1.75 14000 1.40 14000
Variable 80% (Rs. 7) 5.60 33600 5.60 44800 5.60 56000
Total cost of sales 166.80 1000800 159.43 1275400 155 1550000
Solution FLEXIBLE BUDGET