Reena Mehta College TYBAF

BUDGETORY CONTROL
Flexible Budget:
Q.1. A manufacturing company is operating at 75% of normal capacity. It is proposed to offer price reduction of 5% to 10%
depending upon the sales volume desired. Given below are the relevant data:
Capacity 75% 85% 100%
Output 75,000 85,000 1,00,000
Selling Price/Unit Rs.96 5% off 10% off
Materials Cost/Unit Rs.40 10% less 15% less
Wages Cost/Unit Rs.10 Rs.10 Rs.10
Fixed Overheads: Production Rs.14,00,000
Selling and Administration Rs.5,00,000
Variable Overheads: Production Rs.14,00,000 at 100% capacity.
Selling and Administration Rs.4,40,000 at 100% capacity.
Prepare budget for 75%, 85% & 100% capacity.

Q.2. Company ABC Ltd produces 10,000 units. The company‟s expenses to 1 unit of the product are listed below:
Particulars Rs.
Direct Material Rs.7
Direct Labour Rs.5
Other Variable Expenses Rs.4.5
Administrative Overheads Rs.6 (40% variable)
Selling Overheads Rs.3 (75% variable)
Production Overheads Rs.4 (20% variable)
Purchase of Equipment Rs.30,000
Selling Price Rs.120
Prepare budget for 70%, 80% and 100% utilization of the capacity if details listed above is for 100% capacity.

Q.3. The following information at 50% capacity is given. Prepare a flexible budget and forecast the profit or loss at 60%,
70% and 90% capacity.
Particulars Expenses at 50% Rs.
Fixed Expenses:
Salaries 50,000
Rent & Taxes 40,000
Depreciation 60,000
Administration Expenses 70,000
Variable Expenses:
Material 2,00,000
Labour 2,50,000
Others 40,000
Semi-Variable Expenses:
Repairs 1,00,000
Indirect Labour 1,50,000
Others 90,000
It is estimated that fixed expenses will remain constant at all capacities. Semi-variable expenses will not change
between 45%and 60% capacity, will rise by 10% between 61% and 75% capacity, a further increase of 5% when the
capacity crosses by 75%.
Estimated Sales: at 60% - Rs.11,00,000; at 70% - Rs.13,00,000; at 90% - Rs.15,00,000.

Q.4. AB Ltd has furnished the following estimation pertaining to a product “A” at 80% of its normal capacity level for the
quarter ending 31st March 2012.
Particulars Rs.
Sales Rs.6,00,000
Administrative Costs:
Office Salaries Rs.90.000
General Expenses 2% of Sales
Depreciation Rs.7,500
Rates & Taxes Rs.8,750
Selling Costs:
Salaries 8% of Sales
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Reena Mehta College TYBAF
Travelling Expenses 2% of Sales
Sales Office Expenses 1% of Sales
General expenses 1% of Sales
Distribution Costs:
Wages Rs.15,000
Rent 1% of Sales
Other Expenses 4% of Sales
Prepare the Budget for the total Administration, Selling & Distribution expenses at 70% and 90%& 100% capacity.

Q.5. ABC manufacturing company produces 7,500 units by utilizing its 75% capacity, supplies you the following cost
information: Cost information at 75% capacity utilization (for 7,500 units)
Particulars Rs.
Direct Materials 7,50,000
Direct Labour 6,00,000
Direct Expenses 3,00,000
Factory Overheads 4,50,000
Office Overheads 3,00,000
Selling Overheads 1,50,000
Additional Information:
a) Direct Material, Direct Labour, Direct Expenses are Variable cost.
b) Factory Overheads per unit increase by 10%, if capacity utilization goes down below the 75% and decrease
by 15% if capacity utilization goes up above the 75%.
c) Office Overheads are fixed Overheads.
d) Selling Overheads per unit increase by 20% if capacity utilization goes down below 75% and decrease by
25% if capacity goes up above 75%.
e) It is the policy of the company to charge profit at 20% on selling price.
You are required to prepare a flexible budget at 50%, 75% and 100% capacity utilization.

Q.6. Sai Ltd. has furnished the following information relating to cost at a capacity level of 5,000 units
Particulars Rs.
Material Cost 25,000 (100% variable)
Labour Cost 15,000 (100% variable)
Power 1,250 (80% variable)
Repairs & Maintenance 2,000 (75% variable)
Stores 1,000 (100% variable)
Inspection 500 (20% variable)
Administration Overheads 5,000 (25% variable)
Selling Overheads 3,000 (50% variable)
Deprecation 1,000 (100% variable)

Prepare the production cost budget at the level of 6,000 units and 8,000 units.

Q.7. Lucky Ltd. is currently operating at 75% of its capacity. In the past two years, the levels of operation were 55% and
65% respectively. Presently, the production is 75,000 units. The company is planning for 85% capacity level during
level during 2011-2012. The cost details are as follows:
Particulars Rs.
55% 65% 75%
Direct Materials 11,00,000 13,00,000 15,00,000
Direct Labour 5,50,000 6,50,000 7,50,000
Factory Overheads 3,10,000 3,30,000 3,50,000
Selling Overheads 3,20,000 3,60,000 4,00,000
Administration Overheads 1,60,000 1,60,000 1,60,000
Total 24,40,000 28,00,000 31,60,000
Profit is estimated @ 20% on Sales.
The following increases, in cost are expected during the year:
Particulars In %
Direct Materials 8
Direct Labour 5

Compiled by Ritesh Sir

Reena Mehta College TYBAF
Variable Factory Overheads 5
Variable Selling Overheads 8
Fixed Factory Overheads 10
Fixed Selling Overheads 15
Administration Overheads 10
Prepare Flexible Budget for the current year as well as for the period 2011-2012 at 85% of capacity.

Q.8. Prepare a flexible budget at 50%,60% and 70% capacity.

Particulars At 60% Rs.
Variable Overheads:
Indirect Material 6,000
Indirect Labour 18,000
Semi-Variable Overheads:
Electricity (40% Fixed) 30,000
Repairs and Maintenance (80% Fixed) 3,000
Fixed Overheads:
Depreciation 16,500
Insurance 4,500
Salaries 15,000
Total Overheads 93,000
Production Budget:
Q.9. The following are the estimated sales of a company for five months ending 31st August 2011.
Month Estimated sales in units
April,2011 15,000
May,2011 16,000
June,2011 17,000
July,2011 18,000
August, 2011 19,000
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 (Units) 50% of the estimated sales for next month
Raw Materials (Kg) 40% of the estimated consumption of the next month
Every unit of production requires 2 Kg. of material “A” costing Rs.4 per Kg and 4Kg of material “B” costing Rs.6 per
Kg. Prepare Production Budget (in units) and raw material purchase Budget (in Kg. and cost) of the company for
Quarter ended on 30th June 2011.
Q.10. The following are the estimated sales of a company for eight months ending 30th November 2011.
Month Estimated sales in units
April,2011 12,000
May,2011 13,000
June,2011 10,000
July,2011 18,000
August, 2011 10,000
September, 2011 10,000
October, 2011 12,000
November, 2011 14,000
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 (Units) 75% of the estimated sales for next month
Raw Materials (Kg) Estimated consumption of the next month
Every unit of production requires 10 Kg. of raw material costing Rs.2.5 per Kg.
Prepare Production Budget (in units) and raw material purchase Budget (in Kg. and cost) of the company for half year
ended on 30th September 2011.
Q.11. A company estimate sales of its product „X‟ during the last five months of 2011 as under.
Month Units
August 21,600
September 31,200
October 24,400
November 20,800
December 19,600
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Reena Mehta College TYBAF
Inventory of product „X‟ at the end of every month is to be equal to 50% of sales estimate for the next month. Closing
inventory of July was maintained on the above basis. There was no work in progress at the end of any month. Every
unit of product requires two types of materials in the following quantities. Material A: 5 ltr. Material B: 6 ltr.
Materials equal to 25% of the requirement for the next month consumption are kept as closing stock. The stock
position on 31st July was as under.
Material A: 32,000 ltr. Material B: 28,000 ltr.
The purchase prices of material A - Rs.3per ltr. and material B –Rs.2 per ltr. From the above, prepare following
budgets for the period August to October.
1) Production Budget 2) Material Consumption Budget 3) Purchase Budget showing quantities and value.
Sales Budget:
Q.12. Prepare an area wise and product wise sales budget for the following data:
Product January February
X 400 units 600 units
Y 1,200 units 1,800 units
The sales area A and B account for 60% and 40% of product X and 30% and 70% sales of product Y. The selling price
per unit of product X was Rs.8 and selling price of product Y was Rs.10.
Q.13. Prepare an area wise and product wise sales budget for the following data:
Product June July
P 1,000 1,500
Q 1,500 2,000
The sales area X and Y account for 70% and 30% of product P and 40% and 60% sales of product Q. The selling price
per unit of product P was Rs.10 and selling price of product Y was Rs.12.
Cash Budget:
Q.14. Prepare Cash Budget of the Company for April, May and June 2012 in a columnar form using the following
information:
Months Sales Purchases Wages Expenses
January 80,000 45,000 20,000 5,000
February 80,000 40,000 18,000 6,000
March 75,000 42,000 22,000 6,000
April 90,000 50,000 24,000 6,000
May 85,000 45,000 20,000 6,000
June 80,000 35,000 18,000 5,000
You are further informed that:
1. 10% of the purchases and 20% of the sales are for cash.
2. The average collection period of the company is ½ month and credit purchases are paid off regularly after one
month.
3. Wages are paid ½ monthly and rent of Rs.500 is paid monthly.
4. Cash and Bank balance as on April 1st is Rs.15,000 and the company wants to keep it on the end of every month at
this figure, the excess cash being put in fixed deposits.
Q.15. Prepare Cash budget for the three months ending 30th June 2012 from the following information.
Months Sales Materials Wages Overheads
February 1,40,000 96,000 30,000 17,000
March 1,50,000 90,000 30,000 19,000
April 1,60,000 92,000 32,000 20,000
May 1,70,000 1,00,000 36,000 22,000
June 1,80,000 1,04,000 40,000 23,000
Additional Information:
1. Credit terms are – Sales / Debtors – 10% sales are on cash, 50% of the credit sales are collected next month and the
balance in the following month.
2. Creditors – Material 2 months, Wages ¼ month, Overheads ½ month.
3. Cash and Bank balance on 1st April is expected to be Rs.60,000.
4. Other relevant information are:
i) Plant and Machinery will be installed in February at a cost of Rs.9,60,000. The monthly installments of
Rs.12,000 are payable from April onwards.
ii) Dividend @ 5% on preference share capital of Rs,12,00,000 will be paid on 1st June.
iii) Advance to be received for sale of vehicles Rs.90,000 in June.
iv) Dividends from investments amounting to Rs.10,000 are expected to be received in June.
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Reena Mehta College TYBAF
v) Income tax (advance) to be paid in June is Rs.20,000.

Q.16. Prepare Cash Budget of S Ltd. for 3 months commencing from April with the help of following information:
Month Sales Purchases Wages
March 16,00,000 5,00,000 --
April 6,00,000 6,40,000 1,60,000
May 8,00,000 6,40,000 1,60,000
June 8,00,000 9,60,000 2,00,000
July 12,00,000 8,00,000 2,00,000
Additional Information:
1. Cash sales are 25% of total sales.
2. 60% of credit sales are collected in the same month and balance 40% in the following month.
3. Payment for purchases is made 40% in the same month and balance 60% in the following month.
4. Interest @ 6% on debentures of Rs.2,00,000 is paid in the month of June.
5. Rent of Rs.8,000 paid per month.
6. Dividend received in May Rs.22,000.
7. Cash balance as on 31st March is Rs.2,00,000.

Q.17. From the following information that the balance in hand on 1st January is Rs.72,500, prepare cash budget.
Month Sales Materials Wages S & D O/H Prod. O/H Admin. O/H
January 72,000 25,000 10,000 4,000 6,000 1,500
February 97,000 31,000 12,100 5,000 6,300 1,700
March 86,000 25,500 10,600 5,500 6,000 2,000
April 88,600 30,600 25,000 6,700 6,500 2,200
May 1,02,500 37,000 22,000 8,500 8,000 2,500
June 1,08,700 38,800 23,000 9,000 8,200 2,500
Assume that 50% are cash sales. Assets are to be acquired in the month of February and April. Therefore provision
should be made for the payment of Rs.40,000 and Rs.25,000 for the same. An application has been made to the bank for
the grant of loan of Rs.30,000 and it is hoped that it will be received in the month of May.
It is anticipated that a dividend of Rs.35,000 will be paid in June. Debtors are allowed 1 months credit. Sales
commission @ 2% on cash sales and 5% on cash collection from debtors is to be paid. Creditors for goods and
overheads grant one month credit.

Q.18. From the following information prepare a cash budget for the six months ended 30-6- 2012 of A Ltd.
Month Sales Materials Wages Prod. O/H S & D O/H
December 22,000 16,000 4,000 3,000 700
January 20,000 20,000 4,000 3,200 800
February 22,000 14,000 4,400 3,300 900
March 24,000 14,000 4,600 3,300 800
April 26,000 12,000 4,600 3,400 900
May 28,000 12,000 4,800 3,500 900
June 30,000 16,000 4,800 3,600 1,000
Cash balance on 1st January was Rs.10,000. A new machine is to be installed at Rs.30,000 on credit, to be repaid in two
equal installments in March 2012 and April 2012. Sales commission at 5% on total sales is to be paid within the month
following actual sales. Rs.1,000 being the amount of second call may be received in March,2012. Securities premium
amounting to Rs.2,000 is also obtainable with second call. Period of credit allowed by suppliers is 1 month. Period of
credit allowed to customer is 1 month. Delay in payment of overheads is 1 month. Delay in payment of wages is ½
month. Assume cash sales to be 50% of total sales.

Q.19. Prepare cash budget for January – June from the following information:
Particulars Nov. Dec. Jan. Feb. Mar. Apr. May June
Sales 2,00,000 2,20,000 1,20,000 1,00,000 1,50,000 2,40,000 2,00,000 2,00,000
Wages & Sal. 30,000 30,000 24,000 24,000 24,000 30,000 27,000 27,000
Mis. Exp. 27,000 27,000 21,000 30,000 24,000 27,000 27,000 27,000
Additional information:
1. 20% of the sales are on cash and the balance on credit. The firm has a gross margin of 25% on sales.
2. 50% of the credit sales are collected in the month following the sales, 30% in the second month and 20% in the third
month.
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Reena Mehta College TYBAF
3. Material for the sales of each month is purchased one month in advance on a credit for two months.
4. Wages and salary are paid after1/3 month. Expenses are paid after 1 month.
5. Debentures worth Rs. 40,000 were sold in January.
6. The firm maintains a minimum cash balance of Rs. 40,000. Funds can be borrowed at 12% p.a. in the multiples of
Rs. 1,000, the interest being payable on monthly basis.
7. Cash balance at the end of December is Rs.60,000

Q.20. On 30th September 2011 the balance sheet of M Ltd. was as under:
Liabilities Rs. Assets Rs.
Equity Shares of Rs.10 each 20,000 Equipment 20,000
Reserve 10,000 Less: Depreciation 5,000 15,000
Creditors 40,000 Stock 20,000
Proposed Dividend 15,000 Debtors 15,000
Bank Balance 35,000
85,000 85,000
The Company is developing a system of forward planning and on 1-10-2011 supplies the following information:
Month Credit Sales Cash Sales Credit Purchases
September 15,000 14,000 40,000
October 18,000 5,000 23,000
November 20,000 6,000 27,000
December 25,000 8,000 26,000
All trade debtors are allowed one month‟s credit and are expected to settle promptly. All trade creditors are paid in the
months following delivery.
On 1st October, 2011, all equipments were replaced at a cost of Rs.30,000. Rs. 14,000 was allowed in exchange for the
old equipment and a net payment of Rs. 16,000 was made.
The proposed dividend will be paid in December, 2011.
The following expenses will be paid:
1. Wages – Rs. 3,000 per month. Administration – Rs. 1,500 per month.
2. Rent – Rs. 3,600 for the year upto 30th September, 2011 (to be paid in October, 2011).
You are required to prepare a cash budget for the months of October, November and December, 2011.

Q.21. The following information is extracted from the various functional budgets prepared for a concern whose financial
year starts from 1st April.
Particulars Jan. Feb. Mar. Apr. May June July Aug. Sept.
Sales 30,000 35,000 30,000 25,000 22,500 32,500 35,000 37,500 40,000
Materials 12,500 15,000 15,000 12,500 9,000 15,000 15,000 20,000 15,000
Wages 5,000 5,500 5,500 5,000 4,500 4,500 5,000 5,000 5,500
Overheads:
Manufacturing 4,000 4,500 4,500 4,000 3,500 3,500 4,000 4,000 4,500
Administration 1,500 2,000 4,500 1,500 1,500 1,500 2,000 2,000 2,000
Selling 2,000 2,000 2,000 2,500 2,000 1,500 1,500 1,500 2,000
Distribution 1,500 2,000 2,000 1,500 1,000 1,000 1,500 2,000 2,000
Additional Information:
1. Plant to be purchased for Rs. 30,000. The price to be paid in the six equal installments, the first installment to
start in June.
2. A provision of Rs. 2,500 per month has to be made for machinery purchased in the previous period.
3. A commission of 10% is required to be paid on sale in the month following the actual sales.
4. Cash sales would amount to Rs. 2,000 per month on which no commission is payable.
5. Dividend to shareholders amounting to Rs. 50,000 is to be paid on 1st July.
6. Interest on investment amounting to Rs.40, 000 will be received on 1st August.
7. Income tax to be paid in August – Rs.40, 000.
8. Balance of call on ordinary shares to be received on 1st April – Rs. 20,000.
Prepare a monthly cash budget for six months from April to September assuming suitable figures for loan and
overdraft whenever required. The period of credit allowed to debtors and allowed by creditors are 3 months and 2
months respectively and payment of wages and overhead expenses are made one month in arrears. The estimated cash
balance on 1st April was Rs. 50,000.
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Reena Mehta College TYBAF

Q.22 A factory is currently working at 50% capacity and produces 30,000 units and also sold each at Rs.
225 per unit. Prepare a Flexible Budget and estimate the profit of the company when it works to 75% and 90%
capacity. Assume that all units produced are sold at the same selling price per unit as shown above.

Following information is provided to you:

i) Variable Expenses:
Material Rs. 60 per unit
Labours Rs. 40 per unit
Other expenses Rs. 15 per unit

(ii) Semi – Variable expenses: (at 50% capacity)

Indirect Labour Rs. 1,50,000
Indirect Materials Rs. 2, 10,000
General Administrative Expenses Rs. 2, 70,000
Repairs and Maintenance Rs. 1, 20,000
Salesman Salaries Rs. 1, 80,000

(iii) Fixed Expenses:

Office and Management Salaries Rs. 5, 40,000
Office and Factory Rent and Taxes Rs. 6, 00,000
Sundry Administrative Expenses Rs. 7, 20,000
Depreciation on Machinery and Furniture Rs. 4, 50,000

(iv) Semi – Variable expenses remain constant upto 60% of capacity, increasing by 10% between 61% and 80%
capacity and by 20% between 81% and 100% capacity.

(v) Rate per unit of variable expenses remains same.

Q.23 The expenses Budgeted for production at 100 % level of Activity in a factory is given below:

Particulars Rs. (100% Level)

Material 6,00,000
Labour 2,00,000
Variable Overheads 2,40,000
Fixed Overheads 80,000
Admin OHS (80% Fixed) 40,000
Selling OHS (10% Fixed) 1,20,000
Distribution OHS (20% Fixed) 60,000
Prepare Flexible budget at 60% & 80% of activity.

Compiled by Ritesh Sir