ABF205SL – Management Accounting

Coursework

BUDGETING

By

Name NSBM ID PLYMOUTH ID

H.H Abeynayake 10020475 10639238

D.M.P Dissanayake 10020505 10637896
C.D Maitipe 10006591 10639236
R.D.T.R.D Premarathne 10020461 10637871

Submitted to the Plymouth University -

UK
in partial fulfillment of the requirements for the module
of ABF205SL – Management Accounting
2018

BSc (Hons.) Accounting & Finance

Plymouth University
United Kingdom

i
 Declaration
We declare that all materials included in this report is the end result of our own work and
that due acknowledgement have been given in the bibliography and references to ALL
sources be they printed, electronic or personal.

Date: 01/11/2018

Signed: H.H Abeynayake

Signed: D.M.P Dissanayake

Signed: C.D Maitipe

Signed: R.D.T.R.D Premarathne

Certification

Thisistocertifythattheresearchreportpresentedby H.H Abeynayake, D.M.P Dissanayake,

C.D Maitipe,and R.D.T.R.DPremarathne onABF205SL Management
Accountingcanbeacceptedinpartialfulfillment of the requirements of the Module ABF205SL
Management Accounting.

Signed: Date:

Lecturer – ABF205SL Management Accounting

Name of the module leader: Miss:MaithriVidanakariyaKaranange

ii
 Abstract

A budget is a future financial plan for a defined period of time. The planned sales volumes and
revenue, cost and expenses, amount of resources, Liability assets and cash flows includes in the
budget. Companies, governments, and others are used to express meticulous planning activities
or events. Budgets are providing good understanding about what we want to achieve during the
budget period. It represents long term plan of the broad directions [Accessed 14 November 2018].
.

 Stages in the Budgeting process

1. Communicate details of budget policy and guidelines

2. Determining the factor that restricts output
3. Preparation of the sales budget
4. Initial preparation of various budget
5. Negotiation of budgets with superiors
6. Coordination and review of budget
7. Final acceptance of budgets
8. Ongoing review of budgets

We were assigned to prepare a budget report for our assignment. So we thought of preparing for
‘New Kandy ironworks Kurunegala’. Firstly we sent a letter to this company in order to get more
details after their approval. We were given date to meet them and collect data about their
company.
The whole team visited the company and we discussed with manager and the staff members
helped us in collecting data and we were allowed to prepare a budget report according their
budget policies. Accordingly we first started with sales budget and then we were able to finish
the purchase budget. Nextly, labour budget and overhead budget. Finally we were able to
complete the cash budget successfully, covering all aspects of budget report with the immense
support of the team members.

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 Table of Contents

1. Introduction
2. Developing Budgets
3. Findings
4. Suggestions and conclusion
5. References
6. Appendices

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 1. Introduction

The objective of the coursework is to provide students with an opportunity to update their
knowledge and skills on setting up different types of budgets using Ms. Excel for a selected
organization after considering actual budgeting practices, resource constrains, market demand
and other concerns. Further this would be an opportunity to them to understand how those
budgeting concepts are actually practiced in corporate world. Student can select an organization
which is in to the manufacturing industry on their preference.

Under this coursework student are expected to select one organization preferably a
manufacturing organization and prepare different types of budgets including the master budget
to that company for a selected future period in year 2019 where it should be for at least one
quarter by applying the concepts they learnt under the topic of budgeting. For this you should
use Ms. Excel and present it.
Further this is a group project and students are required to submit a report including those
spreadsheets prepared as per the provided guidelines. Students are given the freedom to select 4
members for each project as they desire.

Introduction for the company

New Iron Works-Kurunegala started its business on 1987 By Mr.AjithFonseka who is also the
current Owner of the company. The business Produces school furniture and steel furniture. The
business is situated in 288/2, Kandy rd, Kurunagala.The business receives government orders
from ‘Isurupaya’ for the schools in Kandy, Kurunegala,Badulla and Anuradpura.The business
also receives Private orders from NGO’s like Room to read and World vision. They have 2
unleased lorries for supplying and distributing the orders. This company maintains proper
accounting systems and budgeting policies.Fig: 5, Fig: 6, Fig: 7
Below you can find the company’s budgeting policies.

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 2.Developing Budgets
Budgeting Policies of “New Kandy Iron Works”

1) 2500 units is done twice a month for a government order. At the beginning of every
month the government order is received.
2) Out of the received order, 1250 units will be completed in the 1st month of the order and
sold as well. And the remaining 1250 order will be sold the 2nd month itself. The
government orders will continue the same way every month throughout the year.

3) Twice a year, a private order is received for 5000 units. Private production orders are
received at the 1st week of the January and June. The production is completed in 5
months. The received order of 5000 units will be divided equally among 5 months (1000
units) and sold at the end of every month.

4) 3.There are no opening and closing inventories due to the company's Just-in-time policy.

5) 4.The raw materials needed is bought when the government and private orders are
received for that month.

6) 5.There are 25 skilled and 25 unskilled labourers. Payment for skilled labourers are
1800/= and unskilled are 1500/= daily wages.

7) 6. To make the product, the R/Material needed is “Ginisapu” (Micheliachampaca) and

Steel.

8) There is no standard overhead rate for the company. And there are NO indirect labourers

9) There are no Fixed costs and the land is owned by the company itself and thereby there
are no rent to be paid.

10) There’s no any credit sales and credit purchases.

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New Kandy Iron Works
Sales Budget
For the period of January to December 2019

Desks

Description Number of units Price (Rs.) Revenue

January 2,250 3,500 7,875,000

February 2,250 3,500 7,875,000

March 2,250 3,500 7,875,000

April 2,250 3,500 7,875,000

May 2,250 3,500 7,875,000

June 1,250 3,500 4,375,000

July 2,250 3,500 7,875,000

August 2,250 3,500 7,875,000

September 2,250 3,500 7,875,000

October 2,250 3,500 7,875,000

November 2,250 3,500 7,875,000

December 1250 3,500 4,375,000

Total 25,000 3,500 87,500,000

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Chairs

Description Number of units Price (Rs.) Revenue

January 2,250 1,750 3,937,500
February 2,250 1,750 3,937,500
March 2,250 1,750 3,937,500
April 2,250 1,750 3,937,500
May 2,250 1,750 3,937,500
June 1,250 1,750 2,187,500
July 2,250 1,750 3,937,500
August 2,250 1,750 3,937,500
September 2,250 1,750 3,937,500
October 2,250 1,750 3,937,500
November 2,250 1,750 3,937,500
December 1,250 1,750 2,187,500
Total 25,000 1,750 43,750,000

Assumptions

 The sales price of a unit(Chair) is Rs. 1,750

 The sales price of a unit(Desk) is Rs. 3,500
 According to the budgeting policies of the company,
2500 units is done twice a month for a government order. At the beginning of every
month the2500 units is done twice a month for a government order. At the beginning of every
month thegovernment order is received. Out of the received order, 1250 units will be completed
in the 1st month of the order and sold as well. And the remaining 1250 order will be sold the 2nd
month itself. The government orders will continue the same way every month throughout the
year.
Twice a year, a private order is received for 5000 units. Private production orders are received at
the 1st week of the January and June. The production is completed in 5 months. The received
order of 5000 units will be divided equally among 5 months (1000 units) and sold at the end of
every month.
 For further reference refer Fig 1 & Fig 2

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New Kandy Iron Works
Production Budget
For the period of January to December 2019

Desks

Description No. of units to (+) Required (-) Expected Total no. of units
be sold closing opening to be produced
inventory inventory
January 2,250 - - 2,250
February 2,250 - - 2,250
March 2,250 - - 2,250

April 2,250 - - 2,250

May 2,250 - - 2,250
June 1,250 - - 1,250
July 2,250 - - 2,250
August 2,250 - - 2,250
September 2,250 - - 2,250
October 2,250 - - 2,250

November 2,250 - - 2,250

December 1,250 - - 1,250
Total 25,000 25,000

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Chairs

Description No. of units to (+) Required (-) Expected Total no. of units
be sold closing opening to be produced
inventory inventory
January 2,250 - - 2,250
February 2,250 - - 2,250
March 2,250 - - 2,250

April 2,250 - - 2,250

May 2,250 - - 2,250
June 1,250 - - 1,250
July 2,250 - - 2,250
August 2,250 - - 2,250
September 2,250 - - 2,250
October 2,250 - - 2,250

November 2,250 - - 2,250

December 1,250 - - 1,250
Total 25,000 25,000

Assumptions

 According to the company's budgeting policies the government order of 2500 units which
will be completed in two months, by equally dividing the units of 2500 to 1250 per
month
 And also the private order of 5000 which will be received once in every 6 months (twice
per year) will be equally divided for the 1st 5 months as 1000 units.
 The total production for the month is calculated by the government and private order
allocated for that particular month
 There are no opening and closing inventories due to the company's Just-in-time policy.
 For further reference refer Fig 3

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New Kandy Iron Works
Direct Material Usage Budget
For the period of January to December 2019
Wood for Desks and Chairs

Description Expected products Unit Requirement Total Requirement

(ft.) (unit ft.)
Wood
January 2,250 7.2ft 16,200
February 2,250 7.2ft 16,200
March 2,250 7.2ft 16,200
April 2,250 7.2ft 16,200
May 2,250 7.2ft 16,200
June 1,250 7.2ft 9,000
July 2,250 7.2ft 16,200
August 2,250 7.2ft 16,200
September 2,250 7.2ft 16,200
October 2,250 7.2ft 16,200
November 2,250 7.2ft 16,200
December 1,250 7.2ft 9,000
Total 25,000 180,000

Assumption
 Wood used for 1 desk is 5ft & for a chairs it is 2.2ft

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Steel for Desks and Chairs

Description Expected products Unit Requirement Total Requirement

(ft.) (unit ft.)
Wood
January 2,250 51ft 114,750
February 2,250 51ft 114,750
March 2,250 51ft 114,750
April 2,250 51ft 114,750
May 2,250 51ft 114,750
June 1,250 51ft 63,750
July 2,250 51ft 114,750
August 2,250 51ft 114,750
September 2,250 51ft 114,750
October 2,250 51ft 114,750
November 2,250 51ft 114,750
December 1,250 51ft 63,750
Total 25,000 1,275,000

Assumptions
 Steel used for 1 desk is 32ft & for a chair it is 19ft
 For further reference refer Fig 4

8
New Kandy Iron Works
Direct Material Purchase Budget
For the period of January to December 2019
Wood

Description Material (+) (-) Total Cost per Total cost

Total Expected Required Purchase unit (Rs.) (Rs.)
Usage closing opening
inventory inventory
January 16,200 - - 16,200 150 2,430,000
February 16,200 - - 16,200 150 2,430,000
March 16,200 - - 16,200 150 2,430,000
April 16,200 - - 16,200 150 2,430,000
May 16,200 - - 16,200 150 2,430,000
June 9,000 - - 9,000 150 1,350,000
July 16,200 - - 16,200 150 2,430,000
August 16,200 - - 16,200 150 2,430,000
September 16,200 - - 16,200 150 2,430,000
October 16,200 - - 16,200 150 2,430,000
November 16,200 - - 16,200 150 2,430,000
December 9,000 - - 9,000 150 1,350,000
Total 180,000 - - 180,000 150 27,000,000

Assumptions
 To make desks and chairs they used “Ginisapu” (Micheliachampaca)

Steel

Description Material (+) (-) Required Total Cost per Total cost
Total Usage Expected opening Purchase unit (Rs.) (Rs.)
closing inventory
inventory
January 114,750 - - 114,750 40.80 4,681,800
February 114,750 - - 114,750 40.80 4,681,800
March 114,750 - - 114,750 40.80 4,681,800
April 114,750 - - 114,750 40.80 4,681,800
May 114,750 - - 114,750 40.80 4,681,800
June 63,750 - - 63,750 40.80 2,601,000

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 July 114,750 - - 114,750 40.80 4,681,800
August 114,750 - - 114,750 40.80 4,681,800
September 114,750 - - 114,750 40.80 4,681,800
October 114,750 - - 114,750 40.80 4,681,800
November 114,750 - - 114,750 40.80 4,681,800
December 63,750 - - 63,750 40.80 2,601,000
Total 1,275,000 - - 1,275,000 40.80 52,020,000

Assumptions
 The steel is received as a 19ft. steel bar which is priced as Rs.775
 For further reference refer Fig 5

New Kandy Iron Works

Direct Manufacturing Labour Cost Budget
For the period of January to December 2019
Desks -Skilled Labour

Description Expected Unit required Total Labour rate Total cost

Production (hours) requirement (Rs.)
January 2,250 0.5 1125 225 253,125
February 2,250 0.5 1125 225 253,125
March 2,250 0.5 1125 225 253,125
April 2,250 0.5 1125 225 253,125
May 2,250 0.5 1125 225 253,125
June 1,250 0.5 625 225 140,625
July 2,250 0.5 1125 225 253,125
August 2,250 0.5 1125 225 253,125
September 2,250 0.5 1125 225 253,125
October 2,250 0.5 1125 225 253,125
November 2,250 0.5 1125 225 253,125
December 1,250 0.5 625 225 140,625
Total 25,000 0.5 12,500 2,812,500

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Desks -Unskilled Labour

Description Expected Unit required Total Labour rate Total cost

Production (hours) requirement (Rs.)
January 2,250 0.5 1125 187.50 210,937.50
February 2,250 0.5 1125 187.50 210,937.50
March 2,250 0.5 1125 187.50 210,937.50
April 2,250 0.5 1125 187.50 210,937.50
May 2,250 0.5 1125 187.50 210,937.50
June 1,250 0.5 625 187.50 117,187.50
July 2,250 0.5 1125 187.50 210,937.50
August 2,250 0.5 1125 187.50 210,937.50
September 2,250 0.5 1125 187.50 210,937.50
October 2,250 0.5 1125 187.50 210,937.50
November 2,250 0.5 1125 187.50 210,937.50
December 1,250 0.5 625 187.50 117,187.50
Total 25,000 0.5 12,500 2,343,750

Chairs -Skilled Labour

Description Expected Unit required Total Labuor rate Total cost

Production (hours) requirement (Rs.)
January 2,250 0.25 562.5 225 126,562.50
February 2,250 0.25 562.5 225 126,562.50
March 2,250 0.25 562.5 225 126,562.50
April 2,250 0.25 562.5 225 126,562.50
May 2,250 0.25 562.5 225 126,562.50
June 1,250 0.25 312.5 225 70,312.50
July 2,250 0.25 562.5 225 126,562.50
August 2,250 0.25 562.5 225 126,562.50
September 2,250 0.25 562.5 225 126,562.50
October 2,250 0.25 562.5 225 126,562.50
November 2,250 0.25 562.5 225 126,562.50
December 1,250 0.25 312.5 225 70,312.50
Total 25,000 0.25 6,250 1,406,250.00

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Chairs -Unskilled Labour

Description Expected Unit required Total Labour rate Total cost

Production (hours) requirement (Rs.)
January 2,250 0.25 562.5 187.50 105,468.75
February 2,250 0.25 562.5 187.50 105,468.75
March 2,250 0.25 562.5 187.50 105,468.75
April 2,250 0.25 562.5 187.50 105,468.75
May 2,250 0.25 562.5 187.50 105,468.75
June 1,250 0.25 312.5 187.50 58,593.75
July 2,250 0.25 562.5 187.50 105,468.75
August 2,250 0.25 562.5 187.50 105,468.75
September 2,250 0.25 562.5 187.50 105,468.75
October 2,250 0.25 562.5 187.50 105,468.75
November 2,250 0.25 562.5 187.50 105,468.75
December 1,250 0.25 312.5 187.50 58,593.75
Total 25,000 0.25 6,250 1,171,875.00

Assumptions

Desks Chairs
Unskilled at Rs. 187.50 per ½h 15 min
hour
Skilled at Rs. 225 per hour ½h 15 min

 Due to the improper time management in the company production process we assume
that it takes one hour to make a desk and half an hour to make a chair where the skilled
and unskilled workers take part in production equally for both.

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New Kandy Iron Works
Manufacturing overhead Cost Budget
For the period of January to December 2019

Description Electricity Supervisor Fuel Machine Security Total

Salary Repair charges
January 125,000 40,000 20,000 4,000 22,000 211,000
February 125,000 40,000 20,000 4,000 22,000 211,000
March 125,000 40,000 20,000 4,000 22,000 211,000
April 125,000 40,000 20,000 4,000 22,000 211,000
May 125,000 40,000 20,000 4,000 22,000 211,000
June 75,000 40,000 17,000 4,000 22,000 158,000
July 125,000 40,000 20,000 4,000 22,000 211,000
August 125,000 40,000 20,000 4,000 22,000 211,000
September 125,000 40,000 20,000 4,000 22,000 211,000
October 125,000 40,000 20,000 4,000 22,000 211,000
November 125,000 40,000 20,000 4,000 22,000 211,000
December 75,000 40,000 17,000 4,000 22,000 158,000
Total OH cost 2,426,000

Assumptions

 The total manufacturing overhead cost of desk and chairs cannot be taken specifically
and also there is no standard overhead rate. Due to this the monthly total overhead cost is
taken to prepare the budget. And due to all of the above reasons the overhead cost per
unit cannot be found.
 This year’s overhead cost estimation was done based on the last year overhead expenses

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New Kandy Iron Works
Cash Budget
For the period of January to December 2019

*Portrait fig.

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 9)
8)
7)
6)
5)
4)
3)
2)
1)
Assumption



*Landscape fig
Description Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Cash sales 11,812,500 11,812,500 11,812,500 11,812,500 11,812,500 6,562,500 11,812,500 11,812,500 11,812,500 11,812,500 11,812,500 6,562,500 131,25

Total Receipts 11,812,500 11,812,500 11,812,500 11,812,500 11,812,500 6,562,500 11,812,500 11,812,500 11,812,500 11,812,500 11,812,500 6,562,500 131,25
Cash purchase 7,111,800 7,111,800 7,111,800 7,111,800 7,111,800 3,951,000 7,111,800 7,111,800 7,111,800 7,111,800 7,111,800 3,951,000 79,02
Production overhead 211,000 211,000 211,000 211,000 211,000 158,000 211,000 211,000 211,000 211,000 211,000 158,000 2,42

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Admin: expenses 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 6

Total receipt for the period is Rs. 131,250,000

Total payment for the period is Rs. 89,270,375
Accountat fees - - - - 30,000 - - - - - - - 3

3.Findings
Wages- Direct Labours(skil ed) 379,688 379,688 379,688 379,688 379,688 210,938 379,688 379,688 379,688 379,688 379,688 210,938 4,21

Bank balance as at 31 December was Rs. 60,000

Total sales for the budgeting period is Rs. 131,250,000

Wages- Direct Labours(unskil ed) 316,406 316,406 316,406 316,406 316,406 175,781 316,406 316,406 316,406 316,406 316,406 175,781 3,51

Total Administration expenses for the year is Rs. 60,000

Total purchase for the budgeting period is Rs. 79,020,000
Vehicle license &Insurance fee- 2

Total wages for the unskilled direct labours are Rs. 3,515,625
Total wages for the skilled direct labours are Rs. 4,218,750
lorries 150,000 15

Total production overhead for the budgeting period Rs. 2,426,000

According to the budget Profit for the year 2019 is Rs. 41,979,625
Total payments 8,023,894 8,023,894 8,023,894 8,023,894 8,053,894 4,500,719 8,023,894 8,023,894 8,023,894 8,023,894 8,023,894 4,500,719 89,27
Net cash change 3,788,606 3,788,606 3,788,606 3,788,606 3,758,606 2,061,781 3,788,606 3,788,606 3,788,606 3,788,606 3,788,606 2,061,781 41,97
(+) Opening cash balance 60,000 3,848,606 7,637,213 11,425,819 15,214,425 18,973,031 21,034,813 24,823,419 28,612,025 32,400,631 36,189,238 39,977,844 6
Every year in May insurance of 60000 is payed for both the vehicles(lorry)
Closing cash balance 3,848,606 7,637,213 11,425,819 15,214,425 18,973,031 21,034,813 24,823,419 28,612,025 32,400,631 36,189,238 39,977,844 42,039,625 42,03
 10) Closing cash balance is Rs. 42,039,625

4.Suggestions& Conclusion
To further development the budget process of the company, the overhead cost per unit has to be
found to make this budget even more successful. Rather than having unskilled labourer if the
company include more indirect laboures the company would be more efficient.

In conclusion, this budget was done according to the budgeting policies of the company with
accurate information for the reference of all business stakeholders. The budget is reliable
according to proper accounting standards.

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 5.References
7.1 Introduction to Budgeting and Budgeting Processes | Managerial Accounting. 2018. 7.1 Introduction
to Budgeting and Budgeting Processes | Managerial Accounting. [ONLINE] Available at:
https://courses.lumenlearning.com/tcc-managacct/chapter/introduction-to-budgeting-and-budgeting-
processes/. [Accessed 14 November 2018].

6.Appendices

Fig:1

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Fig:2

Fig:3

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Fig:4

Fig:5

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Fig:6

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Fig;7

Fig:8

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Group Report Marks Comments
awarded
Introduction should be based on your
understanding. Not the same given in
1 Introduction to the coursework. 10% 5 the module handbook.

Analysis of the budgeting process of

the organization and identifying You have properly identified the
main budgets to develop budgeting process, but I have a doubt
considering their resource whether you have identified resource
2 constraints and other aspects. 30% 20 constraints properly.

Developing a budget to the selected You have taken a fairly great effort
organization for the assignment and it’s
impressive. You have done an overall
3 40% 32 good job.

Identifying issues of the budgeting You haven’t specifically identified

process and your suggestions for its any issue and the suggestions are
4 development 10% 5 not backed with the issues.

You have followed the guidelines

5 Adherence to provided guidelines 5% 4 properly.
Overall structure and the There are some formatting issues and
6 presentation 5% 3 presentation issues of tables.
of the report including
spreadsheets

Total Marks = 69%

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