PRODUCTION BUDGET

ABC Ltd. manufacturing company producing three types of products i.e. P, Q and R. The current pattern of sales of three
Products P Q R
Selling Price (₹) 200 260 420
Raw Material (Kg) 0.5 1.2 2.5
Direct Material (Kg) 0.25 - -
Skiiled Labour hours 4 6 8
Semi Skiiled Labour hours 2 2 3
Variable Overheads (₹) 40 80 80
Prices of raw materials and direct materials respectively, are ₹ 100 and ₹ 40 per kg. Wage rate of skilled and semi-skilled l
work 8 hours a day for 25 days in a month. The position of inventory are as follows -
Particulars Raw Materials Direct Materials P
Opening 600 400 400
Closing 650 260 200
The fixed overhead amounts to ₹ 2,00,000 per month. The company desires a profit of ₹ 1,20,000 per month. Prepare the
1. Sales budget in quantity and value
2. Production budget showing quantity to be manufactured.
3. Purchase budget showing the quantity and value.
4. Direct labour budget showing the number of workers and wages

SOLUTION:

Given:
Products P Q R
Selling price 200 260 420
Raw material(kg) 0.5 1.2 2.5
Direct material (kg) 0.25 0 0
skilled labor hours 4 6 8
semi skilled labour hours 2 2 3
variable overheads 40 80 80
sales mix 8 2 1

Particulars Raw materials Direct materials P

Opening 600 400 400
Closing 650 260 200
Sales budget in quantity
Particulars P Q
Selling price 200 260
Variable cost
Raw material 100 50 120
direct material 40 10 0
skilled labour 6 24 36
semi skilled labour 5 10 10
Variable overheads 40 80
Total variable cost 134 246
Contribution per unit 66 14
Sales mix 8 2
Weighted CPU 528 28
Desired profit 120000
add: fixed overheads 200000
Desired contribution 320000
No. of batches of p,q,r 549
Sales Qty P 4392
Q 1098
R 549
SALES BUDGET IN VALUE
Particulars P Q R
Budgeted sales Quantity 4392 1098 549
Budgeted price 200 260 420
Budgeted sales value 878400 285480 230580

PRODUCTION BUDGET
Particulars P Q R
Budgeted sales Quantity 4392 1098 549
Add: Closing stock 400 100 50
Less: Opening stock 200 300 50
Budgeted PRODUCTION 4592 898 549

RAW MATERIAL USAGE BUDGET

Particulars P Q R
Budgeted production 4392 1098 549
raw material usage 0.5 1.2 2.5
total raw material required 2196 1317.6 1372.5
Direct material usage 0.25 0 0

Total direct material required 549 0 0

UCTION BUDGET
. The current pattern of sales of three products is in the ratio of 8:2:1 respectively. The

. Wage rate of skilled and semi-skilled labour, respectively, are ₹6 and ₹5. Each operator
-
Q R
100 50
300 50
t of ₹ 1,20,000 per month. Prepare the following for the month:

Q
100
300

R
420

250
0
48
15
80
393
27
1
27
 GRAPHICAL REPRESENTATION OF COST-VOLUME-PROFIT RELATIONSHI

Amount

Selling price per unit (₹) 500

Variable cost per unit (₹) 270

Total Fixed Cost (₹) 6900000
Projected Sales (units) 40000

Contribution per unit (₹) 230 Selling price per unit - Variable cost per unit
P/V Ratio 0.46 Contribution per unit ÷ Selling price per unit
Break-even point (units) 30000 Total Fixed Cost ÷ Contribution per unit
Break-even point (₹) 15000000 Total Fixed Cost ÷ P/V Ratio

UNITS TOTAL FIXED COST TOTAL VARIABLE COST TOTAL COST

0 6900000 0 6900000
10000 6900000 2700000 9600000
20000 6900000 5400000 12300000
30000 6900000 8100000 15000000
40000 6900000 10800000 17700000
50000 6900000 13500000 20400000
60000 6900000 16200000 23100000
70000 6900000 18900000 25800000
80000 6900000 21600000 28500000
90000 6900000 24300000 31200000
100000 6900000 27000000 33900000

Break-even Chart
60000000 20000000
50000000
Revenue and Costs

15000000
40000000

30000000
15000000 10000000
20000000

10000000 5000000

0
0 20000 40000 60000 80000 100000 120000 0
Units 0

-5000000
TOTAL FIXED COST TOTAL VARIABLE COST
TOTAL COST TOTAL REVENUE -10000000
TOTAL COST TOTAL REVENUE -10000000

Break-even Chart
60000000

50000000

Revenue and Cost

40000000
Profits
30000000
15000000
20000000

10000000 Losses
0
0 20000 40000 60000 80000
Units

TOTAL COST TOTAL REVENUE

PROFIT RELATIONSHIPS

Variable cost per unit

÷ Selling price per unit
tribution per unit

TOTAL REVENUE PROFIT

0 -6900000
5000000 -4600000
10000000 -2300000
15000000 0
20000000 2300000
25000000 4600000
30000000 6900000
35000000 9200000
40000000 11500000
45000000 13800000
50000000 16100000

PROFIT VOLUME CHART

20000 40000 60000 80000 100000 120000

 Profits

80000 100000 120000

OTAL REVENUE
 CASH BUDGET
The following data relates to ABC Ltd.
The financial manager has made the following sales forecast for the first 5 months of the coming year, commencing from
Month Sales (₹)
April 40,000
May 45,000
June 55,000
July 60,000
August 50,000
Other data
1. Debtor's and creditor's balance at the beginning of the year are ₹ 30,000 and ₹ 14,000 respectively. The balance of oth
(a) Cash Balance ₹ 7,500
(b) Stock ₹ 51,000
© Accrued sales commission ₹ 3,500
2. 40% sales are on cash basis. Credit sales are collected in the month following the sale.
3. Cost of sales is 60% of sales.
4. The only other variable cost is 5% commission to sales agents. The sales commission is paid in a month after it is earned
5. Inventory is kept equal to sales requirements for the next 2 months budgted sales.
6. Trade creditors are paid in the following month after purchases.
7. Fixed costs are ₹ 5,000 per month including ₹ 2,000 depreciation.
You are required to prepare a cash budget for the month of April, May and June 2023 respectively. Also show Sales, Credi

Solution:
Opening Debtors 30000
Opening Creditors 14000
Opening Cash Balance 7500 60000
Opening Stock Balance 51000 50000
Accrued Sales Commission 3500
40000

30000
Working Notes
Particulars April May June July August 20000
Sales 40000 45000 55000 60000 50000 10000
Credit sales (60% of sales) 24000 27000 33000 36000 30000
Creditors
Cost of sales (60% of sales) 24000 27000 33000 36000 30000
Desired closing inventory (add next 60000
two months69000 66000
84000 96000 99000
Less: opening inventory 51000 60000 69000
Purchases 33000 36000 30000
Payment to creditors 14000 33000 36000

Cash Budget
Particulars April May June
Opening Balance 7500 33000 37000
Add receipts
Cash Sales (40% of sales) 16000 18000 22000
Receipt from debtors 30000 24000 27000
Total receipts 53500 75000 86000
Payments
Creditors 14000 33000 36000
Fixed cost (5000-2000) 3000 3000 3000
Commission to sales agent 3500 2000 2250
(5% of prev month sales)
Total payment 20500 38000 41250
Closing balance 33000 37000 44750
GET

coming year, commencing from 1 April 2023

respectively. The balance of other relevant assets and liabilities are

paid in a month after it is earned.

pectively. Also show Sales, Creditors, Total Receipts and Total

sales graph
60000

50000

40000

30000

20000

10000 18000 22000

16000
0
april may june

cash sales credit sales

total receipts

50000
40000
30000
20000
10000
0
april may june
april may june

cash sales(40%) receipt from debtors

 FLEXIBLE BUDGET
The following information relates to a company:

At 80% Capacity
Variable Cost:
Direct Labour 16,000
Material Cost 8,000
Semi-Variable Cost
Power (30% fixed and 70% variable) 50,000

Repairs and maintenance (80% fixed and 20% variable) 7,000

Fixed Overehads:
Depreciation 12,000
Insurance 6,000
Salaries 11,000

Draw a flexible budget at 70% and 80% plant capacity

Solution:

FLEXIBLE BUDGET FOR THE PERIOD OF 2023-24

PARTICULARS 70% 80%

Direct Labour 14000 16000

Material Cost 7000 8000
Variable Cost 21000 24000

Power (30% fixed and 70% variable)

Fixed 15000 15000
Variable 30625 35000
Repairs and Maintenance cost (80% fixed and 20% variable)
Fixed 5600 5600
Variable 1225 1400
Semi variable cost 52450 57000

Depreciation 12000 12000

Insurance 6000 6000
Salaries 11000 11000
Fixed Overheads 29000 29000
Total Cost 102450 110000
 10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
 COST VOLUME PROFIT
Following information is available with respect to ABC Ltd.
Selling Price
Fixed Cost
Variable Cost
Capacity (in units)

The pedicted units of output are 0, 100, 200, 300, 400, 500, 600 and 700

Based upon the information, you are required to compute the following
A) Cost Volume Profit Chart
B) Break Event Point (in units and rupees)
C) Contribution Income Statement at 300 units of output

SOLUTION:
Contribution margin
Profit volume ratio

table of predicted cost and revenue

units
0
100
200
300
400
500
600
700

BREAK EVEN POINT

IN UNITS

IN RUPEES

Contribution income statement at 300 units of output

SALES
LESS: VX
CONTRIBUTION
LESS: FC
PROFIT
0
ROFIT
₹700 cvp graph of ABC LTD.
₹84,000 600000

₹420 490000
500000
8000 420000
400000 350000

RUPEES
280000
300000
210000
200000 140000

100000 70000
0
0
0 100 200 300 400 500 600 700
UNITS
280
0.4 total cost total revenue

table of predicted cost and revenue

fixed cost total variable cost total cost total revenue

84000 0 84000 0
84000 42000 126000 70000
84000 84000 168000 140000
84000 126000 210000 210000
84000 168000 252000 280000
84000 210000 294000 350000
84000 252000 336000 420000
84000 294000 378000 490000

FIXED COST 300

CONTRIBUTION PER UNIT

FIXED COST/ PROFIT VOLUME RATIO 210000

210000
126000
84000
84000
0
 COMPOSITE BREAK EVEN
PQR manufacture and sells 3 types of products A,B,C.The selling price per unit of these products are rs.200, 160,100 res
respectively.total fixed costs are Rs. 1160000. qty. wise or sales mix in which these products are manufactured and sold

(i) The Overall break-even quantity

(ii) The product-wise BEP in units
(iii) Product-wise BEP (in rupee)
(iv) Overall BEP (in value)
(v) Overall P/V ratio
(vi) The predicted units of output are 10000, 15000, 20000, 25000 and 30000
(vii) Graphically show Overall BEP and P/V Chart

SOLUTION:

PRODUCT SELLING PRICE VARIABLE COST CPU SALES MIX

A 200 120 80 0.2
B 160 120 40 0.3
C 100 40 60 0.5
Composite CPU
FIXED COST 1160000 OVERALL BEP(fixed cost/ comp CPU)
COMP. CPU 58 20000
TABLE FOR THE COMPUTATION OF PRODUCT WISE BEP
PRODUCT WEIGHTED CPU BEP(in units)
weighted avg. selling price Weighted avg. VC
A 40 24 16 4000
B 48 36 12 6000
C 50 20 30 10000
Total 138 80 58 20000
OVERALL PV Ratio(total fixed cost/overall BEP) 42.03%
OVERALL BEP 2760000
TABLE OF PREDICTED COST AND REVENUE
Units FC VC TC SALES
10000 1160000 800000 1960000 1380000
15000 1160000 1200000 2360000 2070000
20000 1160000 1600000 2760000 2760000
25000 1160000 2000000 3160000 3450000
30000 1160000 2400000 3560000 4140000
SITE BREAK EVEN
roducts are rs.200, 160,100 resoectively. The corresponding VC per unit are 120,120,40
ucts are manufactured and sold are 20%, 30% and 50% respectively. Calculate the following:

WEIGHTED CPU
16
12
30 Weighted CPU Formula= sales mix
58 *contribution per unit

20000
Chart Title
BEP(in value) 4500000 4140000

4000000
800000 3560000
3450000
960000 3500000 3160000
1000000 3000000 2760000
2760000
2360000
2500000
RUPEES

2070000
1960000
2000000
1380000
PROFIT/LOSS 1500000

-580000 1000000
-290000
0 500000

290000 0
580000 10000 15000 20000 25000 30000
UNITS

Units TC SALES
 COST INDIFFERENCE POINT
A firm wants to replace one of its existing machines. Two alternative machines - Machine A and Machine B are
The costs associated with these alternatives are as follows:
MACHINE A MACHINE B
Variable cost per unit (₹) 50 10
Total Fixed Cost per annum (₹) 50000 150000
You are required to:

(i) Calculate the cost indifference point.

(ii) Suggest the most economical alternative machine to replace the existing one when the expected level of annual
(a) 5,000 units (b) 1,000 units

SOLUTION:

COST INDIFFERENCE POINTS (UNITS) 2500

MACHINE A

Units produced Total variable cost Total fixed cost

0 0 50000
500 25000 50000
1000 50000 50000
1500 75000 50000
2000 100000 50000
2500 125000 50000
3000 150000 50000
3500 175000 50000
4000 200000 50000
4500 225000 50000
5000 250000 50000
5500 275000 50000
6000 300000 50000
ine A and Machine B are

n the expected level of annual

(difference in fixed cost)/( difference in variable point)

MACHINE B
Total variable
Total cost (A) cost Total fixed cost Total cost (B)
50000 0 150000 150000
75000 5000 150000 155000
100000 10000 150000 160000
125000 15000 150000 165000
150000 20000 150000 170000
175000 25000 150000 175000
200000 30000 150000 180000
225000 35000 150000 185000
250000 40000 150000 190000
275000 45000 150000 195000
300000 50000 150000 200000
325000 55000 150000 205000
350000 60000 150000 210000
 PRODUCT PRICING DECISION

ABC ltd is a power bank manufacturing company and is currently selling its products for the travellers through online port
supply the power banks to an airline. The accounts department has provided the following information about the current
Particulars amount
Direct materials 160
Direct Labour 20
Variable manufacturing overhead 50
Fixed overhead 10
Depreciation 10
variable selling overhead 5
Royalty 10
profit 50
315
central excise duty 30
selling price per unit 345
(a) Airlines is ready to buy 200 such power banks at 250 each. Advice the company weather offer
(b) At what price the company should supply the power banks to its sister concerns, if the policy of the company is

Solution:
Cost Benefit analysis of export order
particulars cost benefits
Offered sales price 250
variable costs
direct material 160
direct labour 20
variable overheads 50
royalty 10
central excise duty 30
total 270 250

Particulars amount
Sales price 345
Less: Profit 50
Less: variable selling overheads 5
Price to be quoted 290
CISION

ravellers through online portals. The company is now exploring to

formation about the current cost structure of its product.

licy of the company is

 SALES OVERHEAD BUDGET

AB Ltd. manufactures two types of product A and B and sells them in X and Y markets. The following information is

Market Product Budgeted Price

Quantity (Rs.)
X A 4,000 9
B 3,000 41

Y A 6,000 9

Sales forecast for the next year reveals that product A is very popular but at the same time underpriced. It is estima
even if its price is increased by Rs.1. On the other hand, product B is over-priced and it can bring more sales if price
approved the plan to give effect to the above price changes. The sales manager has made the following estimates:

Product % increase in sales over current year's

Market X Market Y
A 10 5
B 20 10
He also estimates that the following additional sales are possible with the help of an intensive
advertisement campaign.
Product Market X (Units) Market Y (Units)

A 500 650
B 600 600
You are required to prepare the sales budget for the next year, i.e., 2024-25 based on the sales managers estimate

Solution:

Workings: Calculation of budgeted estimates of sales for 2024-25

Market X (units) Y (units)
Product
A: Actual for the year 2023-24 5,000 7,000
Add: Increase of 10 % and 5% for X
&Y 500 350
Add: Increase due to advt. campaign
(as given) 500 650
Total 6,000 8,000

Product B: Actuals for current

Add: Increase of 20%year 2023-24
and 10% for X 2,000 4,000
&Y 400 400
 Add: Increase due to advt. campaign 600 600
Total 3,000 5,000

Sales Budgets for the Year 2024-

Product Market X

Unit Price (Rs.) Value (Rs.)

A 6,000 10 60000
B 3,000 40 120000
9,000 180000
BUDGET

following information is available for the year 2023-24

Actual Price
Quantity (Rs.)
5,000 9
2,000 41

7,000 9

underpriced. It is estimated that it will also continue to find a ready market

bring more sales if price is reduced to Rs.40. The management has
he following estimates:

ales managers estimates both in quantitative and monetary terms.

ets for the Year 2024-25
Market Y Total

Unit Price (Rs.) Value (Rs.) Unit Price (Rs.) Value (Rs.)
8,000 10 80000 14,000 140000
5,000 40 200000 8,000 320000
13,000 280000 22,000 460000
 SPECIAL ORDER DECISION
XYZ Ltd. is a small enterprise that started its business 2 years ago. Inspired by the government initatives to promote SMEs

Particulars Amount (₹)

Direct Materials 10
Direct Labour 7
Factory expenses
Fixed 12
Variable 4
Office and Selling expenses
Fixed 6
Variable 3
An offer from Canada to export 6,000 packs at a price of ₹ 30 per unit is under consideration. Execution of Canadian orde
You are required to suggest whether the Canadian order should be accepted or not? Also, show the supportive calculatio

Solution:
Packs
Incremental Approach
Cost Benefit Analysis of Export Offer
Particulars Rs. Costs Benefits
Export Sales (6000 packs @ Rs 30) 30 180000
Savings in maintenance cost 1000
Differential Cost
Direct materials 10 60000
Direct labour 7 42000
Variable Overheads
Factory Overheads 4 24000
Office and selling overheads 3 18000
Additional Fixed Cost 10000
Rental Income Foregone 9000
163000 181000
Incremental Benefit 18000
 PECIAL ORDER DECISION
ment initatives to promote SMEs, company is exploring to sell in the overseas markets. Company is presently

on. Execution of Canadian order will result in an additional fixed cost of ₹ 10,000 over and above the variable
show the supportive calculations. Adopt differential approach.
 EXPORT ORDER
X Ltd. annually manufactures 10,000 units of a product at a cost of Rs. 4 per unit and sells
these in the home market at a selling price ofRs. 4.25 per unit. In the next year, there is fall in
demand in home market which can absorb 10,000 units only at price of Rs.3.72 per unit.
The total cost of 10,000 units is as follows:
Materials Rs. 15000
Wages Rs. 11,000
Fixed overheads Rs. 8,000
Variable overheads Rs. 6,000

The foreign market is explored and it is found that this market can consume 20,000 units of
the product at a price of Rs. 3.55 per unit. (Assume that the company has sufficient plant
capacity to produce additional output). It is also discovered that fixed overheads will increase
by 10% for additional output above initial output of 10,000 units. Is it worthwhile to try to
capture the foreign market? Give reasons

SOLUTION:

Comparative Statement of Profitability

Sales (units)

Selling Price
Sales
Variable Cost:
Material Cost
Labour Cost
Variable Overheads
Total Variable Cost
Contribution
Less: Fixed Cost
Profit
t of Profitability
Existing Proposed
Domestic Export Total
10000 10000 20000 30000
Rs. Rs. Rs. Rs.
4.25 3.72 3.55
42500 37200 71000 108200

15000 15000 30000 45000

11000 11000 22000 33000
6000 6000 12000 18000
32000 32000 64000 96000
10500 5200 7000 12200
8000 8000 800 8800
2500 -2800 6200 3400