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 2,500August 1,100 December 2,300September 1,700 January 2,000October 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) 22,000Direct material cost per unit $10.00Direct wages cost per unit $ 4.00Total 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 2Nesley Ltd. Has prepared the following budget for the first five months of 2008

Sales budget (Units)January 10,800February 15,600March 12,200April 10,400May 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).

Problem 3P. 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 BBudgeted Sales (units) 3,600 4,800Budgeted material consumption per product (kg) 5 3Budgeted material cost $12 per Kg Standard hours allowed per product 5 4Budgeted wage rate $8 per hourOvertime 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.

Problem 4Prepare sales overhead budget for January, February, and March from the

estimate given below:$

Advertisements 2,500Salaries of sales department 5,000Expenses of sales department 1,500Counter salesmen’s salaries and allowance 6,000Commission 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 10,000February 120,000 15,000March 140,000 20,000

Problem 5A 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 expFebruary 75,000 45,000 9,000 7,500 6,000 4,500March 84,000 48,000 9,750 8,250 6,000 4,500April 90,000 52,000 10,500 9,000 6,000 5,250May 120,000 60,000 13,500 11,250 6,000 6,570June 135,000 60,000 14,250 14,000 7,000 7,000Other information:

1- Period of credit allowed by supplier is 2 months2- 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 month4- 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.

Problem 6The profitability statement of AZ Co., Ltd has been summarized as follows:

$ $Sales 1,500,000Direct Materials 450,000Direct wages 300,000Variable overhead 120,000Fixed Overhead 440,000 1,310,000Profit 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 unit4- Variable overheads are expected to increase by 5% per unit5- Fixed overheads will increase by $20,000.

Problem 7A department of TOYOTA Company attains sales of $600,000 at 80% of its

normal capacity. Its expenses are given below:$

Office salary 90,000General expenses 2% of salesDepreciation 7,500Rent and rates 8,750Selling cost:

Salaries 8% of salesTraveling expenses 2% of salesSales office 1% of salesGeneral expenses 1% of sales

Distribution cost:Wages 15,000Rent 1% of salesOther expenses 4% of sales

Draw up flexible Administration, Selling and distribution costs budget, operating at 90%, 100%, and 110% of normal capacity.

I- Good year Ltd. Produces and sells a single product. Sales budget for the calendar year 2008 by quarter is as below:

Quarter number of units to be soldI 12,000II 15,000III 16,500IV 18,000

The year 2008 is expected to open with an inventory of 4,000 units o finished product and closing inventory of 6,500 units.

Production is customarily scheduled to provide two-thirds of the current quarter’s sales demand plus one-third of the following quarter’s demand. Thus production anticipates sales volume by about one month.

Standard costs details for one unit of product is as follow:Direct material 10Kg @ $0.5 per KgDirect labor 1 hour and 30 minutes @ $4 per hourVariable overheads 1 hour and 30 minutes $ 1 per hourFixed overheads 1 hour and 30 minutes $ 2 per hour based on a budgeted

production volume of 90,000 direct labor hours for the year.

1- Prepare a production budget for 2008, by quarter, showing the number of units to be produced, and the total cost of direct material, direct labor, variable overheads and fixed overheads.

2- If the budgeted selling price per unit is $17, what would be the budgeted profit for the year as a whole?

3- In which quarter of the year is the company expected to break even?

II- Prepare a cash budget for the three months ending 30 th June, 2008 from the information given below:Month Sales Material Wages overheads

February 14,000 9,600 3,000 1,700March 15,000 9,000 3,000 1,900April 16,000 9,200 3,200 2,000May 17,000 10,000 3,600 2,200June 18,000 10,000 4,000 2,300

a- credit terms are:Sales/debtor-10% sales are on cash, 50% of credit sales are collected next month and the balance in the following month.Creditors: Materials 2 months

Wages ¼ monthOverheads ½ month

b- Cash and bank balance on 1st April, 2008 is expected to be $6,000.c- Other relevant information is:

- Plant and Machinery will be installed in February 2008 at a cost of $96,000. The monthly installments of $2,000 is payable from April onwards.

- Dividend @ 5% on preference share capital of $200,000 will be paid on 1st June.

- Advance to be received for sales of vehicles $ 9,000 in June.- Dividends from investments amounting to $1,000 are expected to be

received in June.- Income tax (advance) to be paid in June is $ 2,000.

III- Based on the following information, prepare a cash budget for ABC Ltd.1st Qtr ($) 2nd Qtr ($) 3rd Qtr ($) 4th Qtr ($)

Opening cash balance 10,000 - - -Collection from customers 125,000 150,000 160,000 221,000Payments:Purchase materials 20,000 35,000 35,000 54,200Other expenses 25,000 20,000 20,000 17,000Salary and wages 90,000 95,000 95,000 109,200Income Tax 5,000 - - -Purchase of Machinery - - - 20,000

The Company decides to maintain a cash balance of $15,000 at the end of each quarter. Cash can be borrowed or repaid in multiples of $5,000 at an interest of 10% per annum. Management does not want to borrow cash more than what is necessary and wants to repay as early as possible. In any event, loan can not be extended beyond four quarters. Interest is computed and paid when the principal is repaid. Assume that borrowings take place at the beginning and repayments are made at the end of the quarter.

IV- A newly started company wishes to prepare cash budget from January. Prepare a cash budget for the first six months from the following estimated revenues and expenses:

Months Total sales Materials Wages Production Selling & DistributionJanuary 20,000 20,000 4,000 3,200 800February 22,000 14,000 4,400 3,300 900March 24,000 14,000 4,600 3,300 800April 26,000 12,000 4,600 3,400 900May 28,000 12,000 4,800 3,500 900June 30,000 16,000 4,800 3,600 1,000

Cash balance on 1st January was $100,000. A new machine to be installed at cost $30,000 on credit and will be paid by two equal installments in March and April.

Sales commission @ 5% on total sales is to be paid within the month following actual sales.

$10,000 being the amount of 2nd call may be received in March. Share premium amounting to $2,000 is also obtainable with 2nd call.

Period of credit allowed by suppliers 2 monthsPeriod of credit allowed by customers 1 monthDelay in payment of overheads 1 monthDelay in payment of wages ½ month

Assume cash sales to be 50% of total sales.V- A single product company estimates its sales for the next year as quarter

as underQuarter Units salesI 30,000II 37,500III 41,250IV 45,200

The opening stock of finished goods is 10,000 units at the end of the year. The production pattern in each quarter is based on 80% of the sales of the current quarter and 20% of the sales of the next quarter.

The opening stock of raw materials in the beginning of the year is 10,000 Kgs and the closing stock at the end of the year is required to be maintained at 5,000 Kgs. Each unit of output requires 2 kgs of raw materials.

The company proposes to purchases the entire annual requirement of raw materials in the first three quarters in the proportion and at the prices given below:

Quarter purchase of raw material % to total Price per Kg ($) annual requirement in quantity

I 30% 2II 50% 3III 20% 4

The value of the opening stock of raw materials in the beginning of the year is $20,000. You are required to present the following for the next year, quarter:

1-production budget in unit2- Raw material consumption budget in quantity3- Raw material purchase budget in quantity and value4- Price store ledger card of the raw material using First in first out method.

VI- The expense budget for production of 10,000 units in a factory are finished as below: Items ($) per unit

Materials 70Labor 25Variable overheads 20Fixed overheads ($100,000) 10Variable expenses ( direct) 5Selling expenses (10% fixed) 13Distribution expenses (20% fixed) 7Administration expenses ($50,000) 5Total cost of sales per unit ( to make and sell) 155

Prepare a budget for production of 8,000 units and 6,000 units of showing total and per unit cost. Assume that administration expenses are rigid for all levels of production.

VII- monthly budgets for manufacturing overheads of a concern for two levels of activity were as under:

Capacity 60% 100%Budgeted production in unit 300 500Insurance ($) 3,000 3,000Wages ($) 3,600 6,000Consumable stores ($) 4,500 7,500Depreciation ($) 12,000 12,000Maintenance ($) 3,300 4,500Power and Fuel ($) 4,000 5,000

1- Prepare budget for 85% capacity and2- Find the total cost segregated into fixed and variable; per unit

of output at 60%, 85% and 100% capacity.