PROBLEMS ON MASTER BUDGETING OF MANUFACTURING COMPANIES
P – 1.A company engaged in manufacturing has forecasted its sales for the first quarter as under:
Month / January / February / March / AprilSales in units / 10,000 / 15,000 / 20,000 / 20,000
The company has a policy of maintaining finished goods inventory of 80% of the next month's required sales. Each units of finished product needs two types of materials i.e. material A and material B. The standard rate of consumption of these materials for each units of finished product are material A, 1 unit and material B, 2 units. The company's raw material policy is to hold sufficient units of raw material required to meet next month's production need. The standard material price for material A and material B are Rs. 2 and Rs 3 respectively. The inventory positions of finished goods and raw materials at the end of December are:
Finished goods / 8,000 unitsRaw materials: / A / 14,000 units
B / 28,000 units
Required:
Production budget, material consumption budget and material purchase budget for three months beginning January.
P – 2.The Manufacturers Ltd., in the process of preparing master budget has gathered the following information:
SCHEDULE Ipast sales and sales forecasts
Months / Nov / Dec / Jan / Feb / Mar / Apr / MaySales in unit / 20,000 / 15,000 / 20,000 / 30,000 / 35,000 / 40,000 / 35,000
Sales revenue / 400,000 / 300,000 / 400,000 / 600,000 / 700,000 / 800,000 / 700,000
SCHEDULE IIManufacturing overhead cost budget
Months / Jan / Feb / MarIndirect materials
Indirect labour
Supervision
Repairs and maintenance
Depreciation / 30,000
60,000
15,000
15,000
5,000 / 35,000
70,000
17,500
17,500
5,000 / 40,000
80,000
20,000
20,000
5,000
Total / 125,000 / 145,000 / 165,000
50% of sales will be inc ash and balance on credit. Credit sales will be collected as 50% in the month of credit sales, 30% in the next month of sales and balance in the next following month of sales. Purchase will be paid in the next month of purchases and all other expenses will be paid in the month when they are due. Selling and other expenses will be Re. 1 per unit of sales. Each unit of output will require 1 unit of material and 2 hours of direct labour hours. Direct labour hour will cost Rs.2 per hour and each unit of direct labour hours. Direct labour hour will cost Rs.2 per hour and each unit of material will cost Rs.4. The raw material inventory and finished goods inventory will be equal to next month’s production need and sales need respectively. Company will keep minimum cash balance of Rs.10,000 each month and in Dec. last year the cash balance was Rs.10,000 finished goods and raw material inventory at the end of December were 20,000 units each. Creditors payable for December purchases were of Rs.80,000.
The company will have to retire debenture debts of Rs.100,000 in the month of January. Soft loan will be available at an interest rate of 12% per annum from the commercial banks. Borrowing will be in a multiple of Rs.10,000 and repayment will be in Rs.5,000. The interest will be paid at the time of repayment on the amount of loan.
Required:
1.Material purchase budget for 1st three months.
2.Budgeted income statement at the end of March.
3.Cash collection and disbursement budget for 1st three months.
P – 3.A. Co Ltd. Company prepares business budget to exercise control over operations. The sales figure and purchase figure for recent month and expected for next month are as follows:
Sales / PurchaseBaishakh / Rs.200,000 / Jestha / Rs.175,000
Jestha / 300,000 / Ashad / 300,000
Ashad / 350,000
Credit sales are 80% of total sales, 50% of credit sales are collected in the following month and balance 50% in the next following months of sales. All purchases are credit purchases payable in the following month of purchase. Bank loan due for Ashad is Rs.60,000 and interest due is Rs.6,000. Depreciation for Ashad Rs.10,000. Wages due for Ashad but payable next month Rs.50,000 and other expenses due and payable in Ashad Rs.60,000. Cash balance on 31st Jestha 50,000.
Required: Cash balance showing cash receipt and disbursement for the month of Ashad.
P – 4.From the following budgeted figures, prepare a cash budget in respect of three months to June 30.
Months / Sales (Rs.) / Materials (Rs.) / Wages (Rs.) / Overhead (Rs.)Jan
Feb
Mar
Apr
May
Jun / 60,000
56,000
64,000
80,000
84,000
76,000 / 40,000
48,000
50,000
56,000
62,000
50,000 / 11,000
11,600
12,000
12,400
13,000
14,000 / 6,200
6,600
6,800
7,200
8,600
8,000
Expected cash balance on 1st April Rs.20,000.
Other information:
a)Materials and overheads are to be paid during the month following the month of supply.
b)Wages are to be paid during the month in which they are incurred.
c)Terms of sales:
–The terms of credit sales are paid by the end of the month following the month of sales; 1/2 of the sales are paid when due, the other half to be paid during the next month.
–5% sales commissions is to be paid within the month following actual sales.
–Preference dividend for Rs.30,000 is to be paid on 1st May.
–Share call money for Rs.25,000 is due on 1st April and 1st June.
–Plant and machinery worth Rs.10,000 is to be installed in the month of January and the payment is to be made in the month of June.
P – 5.Manufacturing Company has been adopting overall budgeting practices in its profit planning process. The resent financial position sales figure and forecasted sales for the first five months of next year have been summarized below:
Balance Sheet as at Chaitra End
Capital and Liabilities / Amount (Rs.) / Assets and Properties / Amount (Rs.)Accounts Payable
Liabilities of expenses
Equity and Retained earning / 210,000
55,000
265,000
553,000 / Cash at Bank
Ending Inventory:
Finished goods units
Material A 60,000
Material B 90,000
Account Receivable
Fixed Assets / 30,000
-
240,000
120,000
90,000
138,000
200,000
Total / 818,000 / Total / 818,000
Recent and forecasted sales selling price Rs. 12 per units
Months / Sales in unit / Months / Sales in unitFalgun / 25,000 / Chaitra / 30,000
Baishak / 30,000 / Jestha / 30,000
Ashad / 20,000 / Shrawan / 30,000
Bhadra / 35,000
Each of finished products would consume 2 units of material A and three unit of material B. Direct labour cost per unit would be Rs. 2. The company has been following an inventory policy of enough inventories of raw material required to meet next month's production need and 80% of next month's forecasted sales as finished goods inventory.
Company sales are mostly on credit and 70% of credit sales would be realized in the month of sales 20% of on the next month on sales and remaining 10% on the next following month of sales. Creditors for purchases, wages and other cash expenses would be paid on the next month of purchase and expenditures due. Details of indirect cost per month would be:
Items / Fixed / VariableIndirect labour
Supplies and other
Repairs & Maintenance
Depreciation
Establishment / 5,000
–
15,000
5,000
5,000 / Rs. 0.50 per unit
Rs. 0.30 per unit
Rs. 0.20 per unit
Total / 30,000 / Rs. 1.00 per unit
In order to simplify inventory valuation company has been following a policy of valuing them at variable cost of production.
The company would like to add on its capital assets at a cost of Rs. 120,000 in the month of Baishak and maintain a minimum bank balance of Rs. 30,000. The company has entered into agreement with the Nepal Bank Ltd. for stand by credit facilities to meet temporary fund need. According to agreement, loans and payment were to be made in the multiples of Rs. 5,000 and Rs. 1,000 respectively. Interest was to be rounded up to Rs. 1,000. The agreement further provides that loan obtained would be cleared as borrowed on the 1st day of the month and to payments on the last day of the month.
Required:
1.Production budget
2.Cash receipt and disbursement budget
3.Cost of goods sold budget
4.Budgeted income statement
5.Budgeted balance sheet at the end of Ashad
P –6. A manufacturing company in a process of preparing master budget forecasted the following sales and also collected the actual related figures of last year.
Beginning inventories / Beginning balancesFinished goods / 10,000 units / Accounts payable / Rs.50,000
Material A / 30,000 units / Cash balance / Rs.20,000
Material B / 40,000 units / Accounts receivable / 40,000
(Rs.10,000 of Falgun and Rs.30,000 of Chaitra sales)
Sales forecasts
Months / Baisakh / Jestha / Ashad / Shrawan / Bhadra
Sales in units / 10,000 / 15,000 / 15,000 / 20,000 / 20,000
Sales are mostly on credit. 50% of sales will realize on the month of sales, 30% in the next month and remaining 20% in the following next month of sales. Suppliers will be paid for in the next month of purchase, and other expenses including wages will be paid for at the time when they are due. Normal selling price will be Rs.10 per unit. Each unit of finished product will need 3 units of materials A at a cost or Rs.3, and 4 units of material B at a cost of Rs.2, other expenses and wages cost will be Rs.2 per unit.
Company has a policy to keep minimum cash balance of Rs.20,000 finished goods and raw material inventories to meet next month’s sales and production needs respectively.
Required:
a.Material purchase budget for 1st three months.
b.Cash receipts and disbursement budget to ascertain bank borrowings if needed for 1st three months.
P – 7.The information needed for the preparation of master budget has been provided below:
Schedule 1
Balance sheet at the beginning of 2055
Liabilities / Amount (Rs.) / Assets / Amount (Rs.)Share capital / 125,000 / Cash at bank / 10,000
Retained earnings / 45,000 / Raw material / 75,000
Loan / 20,000 / Accounts receivable / 60,000
Accounts payable / 75,000 / Machinery and plant / 120,000
Total liabilities / 265,000 / Total assets / 265,000
Schedule 2
Sales budget for 4 months
Baishak / Jestha / Ashad / ShrawanBudgeted sales value (Rs.) / 300,000 / 400,000 / 500,000 / 500,000
Schedule 3
Cost of goods sold budget for three months
Expenses / Baisakh / Jestha / AshadDirect materials: 25% of sales / 75,000 / 100,000 / 125,000
Direct wages: 30% of the sales / 90,000 / 120,000 / 150,000
Factory supervision / 10,000 / 15,000 / 20,000
Other factory expenses / 4,000 / 4,000 / 4,000
Depreciation / 1,000 / 1,000 / 1,000
20% of sales of the month are cash sales and balances are credit sales. 60% credit sales are collected in the month of sales and balance in the following month of sales. Purchases are paid in the next month of purchase and all other expenses are paid in the month when they are due.
Company maintained no inventory of finished goods. Therefore, productions are equal to sales of the month. The inventory of materials is maintained to meet the next month’s production and sales need. A minimum cash balance of Rs.10000 to be maintained. Interest are payable together with amount of loan paid. Operating expenses are 20% of sales revenue.
Required:
a)Budgeted income statement
b)Cash collection and disbursement budget
c)Budget balance sheet at the end of 2055.
P – 8.A Company in its planning process prepared various budgets and also furnished the Balance Sheet of last year as follow:
Opening Balance Sheet of 1st Baishak
Shareholders equity / 440,000 / Inventory:Finished goods 10,000 units / 100,000
Accounts payable / 60,000 / Raw materials30,000 units / 120,000
Bank loan
(Payable every month Rs. 10,000 with interest @ 12%) / 200,000 / Account receivable
Cash
Other fixed assets / 60,000
20,000
400,000
700,000 / 700,000
Sales forecast for 1st three months & for Shrawan
Months / Baishak / Jestha / Ashad / Shrawan / TotalSales in unit / 10,000 / 12,000 / 12,000 / 15,000 / 34,000
Sales Revenue / Rs. 200,000 / Rs. 240,000 / Rs.240,000 / Rs.300,000 / Rs.680,000
Production Budget
Months / Baishak / Jestha / Ashad / TotalUnits Produced / 12,000 / 12,000 / 15,000 / 39,000
Materials Purchase Budget
Months / Baishak / Jestha / Ashad / TotalUnits Purchased / 30,000 / 37,500 / 30,000 / 97,500
Purchase Price / Rs.120,000 / Rs.150,000 / Rs.120,000 / Rs.390,000
Wages and other manufacturing expenses are Rs. 6 per unit, and operating expenses are 10% of gross sales figure. 80 percent of sales is in cash and remaining 20 percent on credit of 30 days. Credit sales are collected in the next month of sales. 50% of the purchases are paid in the month of purchase and balance only in the next month. Wages and other expenses are paid for at the time when they are due. Each unit of finished product needs 2.5 units of raw materials.
Required:
a.Statement of cost of goods sold budget
b.Budgeted income statement
c.Cash collection and disbursement budget
d.Budgeted balance sheet at the end of Ashad.
P – 9.The opening balance sheet and other related information necessary to prepare, master budget have been given below:
Schedule – 1
Opening Balance Sheet
Liabilities / Rs. / Assets / Rs.Accounts Payable / 100,000 / Inventory
Finished product 20,000 Units / 280,000
Owners Equity / 494,000 / Raw material 50,000 units / 100,000
Debenture Loan / 100,000 / Accounts Receivable / 208,000
Fixed Assets
Cash at Bank / 96,000
10,000
694,000 / 694,000
Schedule – 2
Past sales and Forecasted Sales
Months / Nov. / Dec. / Jan. / Feb. / Mar. / April / MaySales in units / 15,000 / 20,000 / 20,000 / 25,000 / 30,000 / 35,000 / 40,000
Sales Revenue / 300,000 / 400,000 / 400,000 / 500,000 / 600,000 / 700,000 / 800,000
Schedule – 3
Production Budget
Month / Jan. / Feb. / Mar. / April / TotalProduction in units / 25,000 / 30,000 / 35,000 / 40,000 / 130,000
Schedule–4
Manufacturing Overhead Cost Budget
Months / Jan / Feb / MarIndirect Material / 50,000 / 60,000 / 70,000
Indirect Wages / 25,000 / 30,000 / 35,000
Depreciation / 2,000 / 2,000 / 2,000
Others / 48,000 / 48,000 / 48,000
Total / 125,000 / 140,000 / 155,000
Of the total sales, 20% will be in cash and 80% on credit. 50% of credit sales will be realized in the month of sales, 30% in the next month of sales and the balance in the next following month of sales. Bad and uncollectible debts will be negligible.
Each unit of finished product will need 2 units of raw materials at a cost of Rs. 4, and direct labour hours of 2 at the rate of Rs. 3.50 per direct labour hour. The selling and distribution cost will be 10% of sales revenue. All direct labour cost and overheads cost will be paid in the month when they become due. All purchases will be paid in the next month of purchases.
Desired ending balance of raw material at the end of each month will be sufficient inventory units to meet next month's production need; and a minimum cash and bank balance of Rs. 10,000. Debenture debts will mature on early January next year.
The company has entered into agreement with a commercial bank for the line of credit to meet the deficiency of cash. According to the agreement, all borrowings will be in a multiple of Rs. 5,000 and payments in Rs. 1,000 with an interest of 12% for the amount of loan repaid.
Required:
- Material purchase budget
- Direct labour cost budget
- Budgeted income statement
- Cash collections and disbursement budget
- Budgeted balance sheet at the end of March
P – 10.. The Balance Sheet of a company as of 31st. Chaitra last year is given below:
Liabilities / Rs. / Assets / Rs.Share capital / 600,000 / Inventory: Finished goods (5,000 units) / 150,000
Profit and Loss A/C / 60,000 / Raw material @ Rs.5 / 55,000
Sundry creditors / 120,000 / Sundry debtors / 480,000
Outstanding expenses / 120,000 / Cash / 21,000
Investment / 100,000
Fixed assets / 94,000
900,000 / 900,000
The purchases and sales estimated are:
Months / Baishak / Jestha / Ashad / ShrawanSales in units / 10,000 / 12,000 / 14,000 / 12,000
Sales revenue / Rs.400,000 / Rs.480,000 / Rs.560,000 / Rs.480,000
Purchases / Rs.120,000 / Rs.130,000 / Rs.130,000 / –
20% of the sales are on cash and the balance on credit. All credits are collected in the month following the sales. All purchases are paid on the following month of purchase. Time lag on wages and expenses are 1/2 month. Non–manufacturing overhead are payable on the month of their being due. The expenses for 3 months are as under:
Months / Baishak / Jestha / AshadWages and expenses / Rs. 220,000 / Rs.260,000 / Rs.260,000
Non manufacturing Overhead / Rs. 100,000 / Rs.119,220 / Rs.140,000
The company's policy is to have enough ending finished goods each month to fill 50% of the following month sale. The company has been thinking to buy a machine in the month of Baishak at a cost of Rs.150,000. The company keeps minimum cash balance of Rs. 20,000. Cash deficiencies are made up by bank loan. All borrowings are to be assumed as borrowed on the first day of month and all payments are to be paid on last day of month. The interest rate is 12% per annum and is payable with the principal to the extent of refundment of the principal.
The company issued additional share capital of Rs.100,000 in Jestha and in the same month, the company also received interest amounting Rs.3,000 from investment.
Required:
- Production Budget for 3 month ending Ashad
- Cash Budget
- Budgeted Balance Sheet
PROBLEMS ON MASTER BUDGETING OF NON-MANUFACTURING CONCERNS
P- 11. Actual and projected sales of a company are:
Chaitra (actual) / Rs. 200,000Baishak (projected) / Rs. 300,000
Jestha (projected) / Rs. 200,000
Ashad (projected) / Rs. 250,000
Shrawan (projected) / Rs. 300,000
(Experience has shown that 60% of sales will be collected during the month of sale and 40% will be collected in following month.) Gross profit averages 30% of sales. The policy is to purchase each month in the amount necessary to provide for the following months' sales. Selling and administrative expenses for each month are estimated at 4% of sales plus Rs. 20,000. Income tax is equal to 30% of taxable income.
Required:
1. Budgeted Income Statement for 3 months Baishak, Jestha and Ashad,
2. Amount of merchandise purchase for Baishak, Jestha and Ashad.
P- 12. ABC Company engaged in retail business has a policy of selling its merchandise on credit term of 60 days. Experience has shown that 50% of sales are realized in the month of sales, 30% on the following month of sales and remaining 20% on the next following month of sales.
Recent and forecasted sales of the company are:
Nov / Dec / Jan / Feb / MarRs. 54,000 / Rs. 60,000 / Rs. 60,000 / Rs. 50,000 / Rs.70,000
The company has a policy of charging 40% on sales as margin for gross profit. All company's purchases are cash purchase and paid on the months of purchase. The regular monthly expenses of the company are:
Salary and wages / Rs. 6,000Rent and Insurance / Rs. 3,000
Depreciation / Rs. 3,000
Total / Rs. 12,000
All expenses are paid in the month when they are due. The company has intended to purchase, some furniture at a cost of Rs. 25,000 on March.
Required:
- Account receivable collection budget showing ending balance of account receivable by month.
- Cash receipt and disbursement budget showing cash surplus and deficiency by month.
P – 13 A trading company in a process of preparing the master budget gathered the following information about its assets and liabilities and also about past and future sales.
Actual and forecasted sales
Inventory of Merchandise(20,000 units @ Rs. 4) / Rs. 80,000 / Nov.Sales / Rs. 120,000
Accounts Receivable / Dec. Sales / Rs. 160,000
Nov. sales30,000
Dec. sales80,000 / Rs. 110,000 / Jan. Sales
Feb. sales / Rs. 160,000
Rs. 200,000
Cash in hand / Rs. 10,000 / Mar. Sales / Rs. 240,000
200,000 / Apr. Sales / Rs. 280,000
Accounts Payable / Rs. 80,000
Company's sales are mostly on credit. Experience shows that 50% of credit sales are collected in the month of sales and remaining 50% are collected on following two months of sales equally. Bad debts and uncollectible debts are negligible. All purchases are paid on the following month of purchase. Margin on sales is 50%, operating and distribution expenses are 30% of the month's sales. Expenses are payable on the month of their being due. The company has a policy of maintaining sufficient inventory of merchandise to meet the following month's sales and a minimum cash balance of Rs. 10,000.
The company has been thinking to buy a computing machine in the month of January at a cost of Rs. 80,000. The company has reached with an agreement with a bank for a soft loan at 12% cost.