Report

On
Practicing Managerial Accounting
Of

Bengal Pacific (Private) Limited

Submitted to: Prof. Dr. Md. Kismatul Ahsan

Course Teacher
Managerial Accounting
Master of Professional Finance (MPF) Program
Department of Finance

Prepared by: Mohd. Abu Sayem Shake FIN-04-17-043

Monjur Morshed FIN-04-17-030
Md Oahid-Uz-Zaman FIN-04-17-038
Sami Mahmud Chowdhury FIN-04-17-041
Date of submission: 6th June 2016

University of Dhaka
Date: June 04, 2016
Prof. Dr. Md. Kismatul Ahsan
Course Teacher
Managerial Accounting
Master of Professional Finance (MPF) Program
Department of Finance
University of Dhaka

Subject: Submission of report on Practicing Managerial Accounting on Bengal Pacific (Private)

Limited.

Dear Sir,

We have completed our report on Practicing Managerial Accounting on Bengal Pacific (Private)
Limited that you asked for and we are pleased to submit in due time. This reports contains cost
behavior, cost control and overall budgetary control process.

It has been pleasure and challenges working on this report. As there was a time and privacy
limitation, we work hard to make a clear picture of management practice on accounting. We would
like to thanks especially to Mr. Shahedul Islam, Director of Bengal Pacific (Private) Limited for
opportunity to prepare this report on his company. I also would like to express our sincere thanks to
Mrs. Syeda Ashrafun Nahar Sumi (Head of Finance), Mr. Habibur Rahman (Manager, Sales and
Marketing) and Mr. Aminul Islam (Manager, Production and factory affairs) and all other staffs in
Bengal Pacific (Private) Limited for their cooperation during our reporting time.

If you require any further clarification or information in this regard, please do not hesitate to contact
us.

Thanking you

Yours faithfully,

a) Mohd Abu Sayem Shake FIN-04-17-043 _______________

b) Monjur Morshed FIN-04-17-030 _______________
c) Md Oahid-Uz-Zaman FIN-04-17-038 _______________
d) Sami Mahmud Chowdhury FIN-04-17-041 _______________

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Contents
Executive summary......................................................................................................................................1
Introductory part:........................................................................................................................................2
I. Origin of the study:..........................................................................................................................2
II. Objective of the report:...................................................................................................................2
III. Limitation of the study:................................................................................................................2
IV. Sources and methodology:..........................................................................................................3
Body part:....................................................................................................................................................3
1. Company overview:.........................................................................................................................3
2. Vision statement:.............................................................................................................................3
3. Mission statement:..........................................................................................................................3
4. Strategic goals..................................................................................................................................3
5. Objectives........................................................................................................................................4
6. Key product:.....................................................................................................................................4
7. Process of manufacturing:...............................................................................................................5
8. Business organogram.......................................................................................................................6
Report part..................................................................................................................................................7
9. Cost and its behaviour.....................................................................................................................7
10. Nature of cost..............................................................................................................................7
10.1. Variable cost.........................................................................................................................7
10.2. Fixed cost...........................................................................................................................10
11. Cost volume profit analysis........................................................................................................11
11.1. Calculation of break-even point.........................................................................................12
12. Business Plan & Annual Budget.................................................................................................13
12.1. Business Plan.....................................................................................................................13
12.2. Annual Budget...................................................................................................................13
12.3. Operational reviews...........................................................................................................14
12.4. Budget Period and Format.................................................................................................14
12.5. Process of Budget Preparation...........................................................................................15
12.6. Timing of Budget Preparation............................................................................................15

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 12.7. Budgetary Control..............................................................................................................15
12.8. Budget Monitoring.............................................................................................................16
12.9. Budget Variance Analysis...................................................................................................16
12.10. Line Item Flexibility............................................................................................................17
12.11. Submission of Budgets:......................................................................................................17
12.12. Master budget...................................................................................................................17
12.13. Sales budget:......................................................................................................................17
12.14. Schedule of cash collection................................................................................................18
12.15. Production budget.............................................................................................................19
12.16. Purchase budget................................................................................................................20
12.17. Schedule of cash payment.................................................................................................21
12.18. Direct labor budget............................................................................................................21
12.19. Overhead budget...............................................................................................................22
12.20. Selling and administrative budget......................................................................................23
12.21. Cost of goods manufactured..............................................................................................24
12.22. Cash Flow Reporting..........................................................................................................25
1.1.1. Cash Flow forecasting report.........................................................................................25
12.23. Budgeted financial statement............................................................................................27
1.1.2. Variance explanations....................................................................................................30
Conclusion.................................................................................................................................................31

Figure index

Figure 1: variable cost chart.........................................................................................................................9

Figure 2: fixed cost chart............................................................................................................................11
Figure 3: Process of budget calculation.....................................................................................................15
Figure 4: Budget variance chart.................................................................................................................31

Table index
Table 1: Cost of raw material per Kg............................................................................................................8
Table 2: budgeted labor cost.......................................................................................................................9
Table 3: Fixed cost over the period............................................................................................................10
Table 4: budgeted sales............................................................................................................................18

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Table 5: budgeted collection schedule.......................................................................................................19
Table 6: production budget........................................................................................................................20
Table 7: purchase budget...........................................................................................................................20
Table 8: Budgeted payment schedule........................................................................................................21
Table 9: Budgeted labor cost sheet............................................................................................................22
Table 10: Budgeted overhead cost sheet...................................................................................................23
Table 11: Budgeted selling and administrative expense............................................................................24
Table 12: Cost of goods manufacture budget............................................................................................25
Table 13: Budgeted cash flow statement...................................................................................................27
Table 14: Budgeted financial position........................................................................................................28
Table 15: Budgeted financial performance................................................................................................29
Table 16: Budgeted finance coat................................................................................................................29
Table 17: Budgeted fixed asset schedule...................................................................................................30
Table 18: Budget variance analysis............................................................................................................30

Equation index
Equation 1: Breakeven point calculation....................................................................................................13

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 Executive summary

This is the report on practicing managerial accounting on Bengal Pacific (Private)

Limited. Bengal Pacific (Private) Limited is one of the leading poly manufacturing
companies in Bangladesh. They have approximately 50 cror yearly turnover. BPL
factory is situated in Siddirganj, Narayanganj and head office is in Niketon, Gulshan-1.
They produce different type and different size poly bag. The main raw material is resin
namely LLDP, HDP, PP, BOP. The breakeven point of the company is 293 Metric Ton by
in total of Poly bag sale and resin sale. But there is a rough time for the company over
the year. Rest of time they can meet the BEP easily. They have near 300 staffs and 24
working hour par day. It is actually capital intensive business. The has to be careful in
some sensitive area like promotional expenses.

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Introductory part:
I. Origin of the study:
As we are MPF students, Managerial Accounting is one of our pre-requisite subjects.
Cost concept, cost volume profit analysis, budgeting and performance analysis are the
part of this subject. Business plan is the part of this subject. Our guide teacher proposed
us to prepare this report on a Managerial Accounting on a particular company. And so
we are going to prepare this report.

II. Objective of the report:

a. Primary objective:

The broad objective of the study was to expert and having practical
knowledge on managerial accounting

b. Secondary object:

There are several secondary objects to prepare this report. Those are given
below:
 To analyze cost behavior and different types of costing
 To find out cost volume profit analysis
 To find the key factors of budgeting and budget preparation
 To know flexible budget

III. Limitation of the study:

Managerial accounting is one of the major parts of Accounts and Finance profession. So
we have to try to provide our best effort in making this report. Though we have enough
time to make this report we have also faces several problems to make this report. We
have not enough information. Again operation levels ignore about their activities. So
they cannot provide proper information. They cannot realize their problems. They also
deny interview. We have also page limitation.

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IV. Sources and methodology:

a. Primary data sources: face to face interview

b. Secondary data sources:

i. Internet

ii. Books

Through both primary and secondary method have been used, maximum portion
has been estimated. Average method has been used to calculate the growth rate for
the development of export of poly bag industrial sector.

Body part:
1. Company overview:
Bengal Pacific (Private) Limited was incorporated in Bangladesh under the Companies
Act, 1994 as a private limited company on September 13, 1995 vide registration no. C-
29401(689)/95. Its business operation is going on not only across the country but also
over the world.

2. Vision statement:
Our relentless endeavor is contributing to Bangladesh’s economic advancement in a
global context, enhancing the country's position as an international provider of quality
products.

3. Mission statement:
To strive hard to be a provider of world class poly bag and garment accessories
products and services, while positioning the country in the higher value segment of the
international textile market.

4. Strategic goals
To satisfy customers through technological superiority and synergic synchronization of
man and machine, tailoring quality products and services to harvest the reward of
responsibility.

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5. Objectives

The proposed project, when implemented would fulfill to the following objects-
5.1 Ensure development of entrepreneur
5.2 Earn a good return on investment by way of value addition.

5.3 Create a good number of the employment opportunity

5.4 Generate adequate profit for the sponsor

6. Key product:

7. Process of manufacturing:
Figure 1: Graphical presentation of production Process

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 Step1: Heat the machine Step2: Put the resin into Step 3: Make the bubble Step 4: Make the film Step 4: Print the roll
the machine of film roll over the bobbin poly and cut as the
measurement

5|Page
8. Business organogram

Board of Director

Managing Director

CFO

Company Secretary

Manager Manager R Manager Manager Sales Head of Accounts Manager QC &

Admin &D Production and Marketing Procurement

Officer HR Officer Officer Officer Officer Officer QC

Design Manufacture Sales Accounts

Officer Officer Printing Officer Officer Officer

Design Marketing Audit Procurement

Officer Officer Cutting Officer

Administrative & Commercial
Logistic Officer
Distribution
Industry
Engineer

Figure 2: Company organogram

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Report part

9. Cost and its behaviour

“Profitability is just around the corner.” This is a common expression in the business
world; you may have heard or said this yourself. But, the reality is that many businesses
don’t make it. Business is tough, profits are illusive, and competition has a habit of
moving into areas where profits are available. And, sometimes, business owners
become frustrated because revenue growth only seems to bring on waves of additional
expenses, even to the point of going backwards. How does one realistically assess the
viability of a business? This is perhaps the most critical business assessment a manager
must make.

10. Nature of cost

Before one can begin to understand how a business is going to perform over time and
with shifts in volume, it is imperative to first consider the cost structure of the business.
This requires drilling down into the specific types of costs that are to be incurred and
trying to understand their unique attributes.

10.1. Variable cost

Variable costs will vary in direct proportion to changes in the level of an activity. For
example, direct material, direct labor, sales commissions, fuel cost for a trucking
company, and so on, may be expected to increase with each additional unit of output.

Lets discuss about Bengal Pacific (Private) Limited. They produce garments poly by
mixing different types of resin. Basically resins are the only one raw material if poly bag
output of the bag weight is almost same except wastage. Here the maximum wastage is
12% in practice.

10.1.1. Types of resin used in BPL

HDPE (High-density polyethylene)

LLDPE (Linear low-density polyethylene)
PP (polypropylene)
LDPE (Low-density polyethylene)
BOPP (Biaxially oriented polypropylene)

10.1.2. Measurement of material per unit

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Let’s measure a poly bag with the height of 18”, width of 12”, thickness 0.05 and
Density 92%. The calculation will be

{ ( H × 2.5× 10 ) × ( W ×2.5 ×10 ) } × 2× T × D

¿
1000000
Here
{ ( 18× 2.5× 10 ) × ( 12× 2.5 ×10 ) } ×2 × 0.05× .92 H= for height
¿
1000000 W = for width
T= for Thickness
=0.0128 gram for one piece bag
D= for Density
Then if it is 1000 pieces the weight will be (0.0128x1000) or
12.8 gram. Raw material will require same except having wastage. So raw material per
unit in weight is 1:1.12 units. Basically it measures at Metric Ton (MT).

10.1.3. Variable Cost of material per unit

Bengal Pacific (Private) Limited uses weight average method to calculate their
inventory. As there are some different types of resin and the cost of those are almost
similar, BPL uses this method since very first. Cost sheet is given below;

T
Carriag Bank Total Tk k
Raw Stock Base : e Insurenc Clearin Loading cost as
materials as at Base: L/C e g / charg unloadin per attributabl Pe
Apr, 17 L/C value inwards import charge e g initial l/c e r
Resin Kg Kg Tk. Tk. Tk. Tk. Tk. Tk. Tk. Tk. kg
HDP 3
Transparent 325 500 3,000 - 20 33,020 21,463 66
HDPE 49
Borouge FB 5000 5,000 0,000 200 490,200 490,200 98
PP 520 L - 2,13
Sabic 38200 24,750 8,400 38,000 3,430 18,280 15,333 990 2,214,433 3,417,832 89

LLDPE - 10
Sabic 118 NJ 26475 24,750 2,557,170 36,666 3,900 19,303 15,501 990 2,633,530 2,817,079 6

LLDPE - 5,37 11
324- Taisox 41150 50,000 1,000 74,400 9,411 34,416 19,334 2,000 5,510,561 4,535,192 0

LDPE 1 12,52 12,863,66 10

-Sabic HP 4 13300 23,750 9,647 169,400 19,845 69,033 70,789 4,950 4 1,382,519 4

LDPE 10
Sabic- 218 37125 24,750 2,557,170 36,668 3,900 19,303 15,501 990 2,633,532 3,950,298 6
19
BOPP 1135.4 529 102,136 3,000 - - 21 105,157 225,614 9
HDPE 2,30
Sabic 150 5900 24,750 5,422 73,800 3,785 16,572 13,990 990 2,414,559 575,592 98
HDPE 19050
Sabic

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 24,750 2,374,516 36,666 3,900 19,257 15,501 990 2,450,830 1,886,396 99
10
187,660 19,302,185 3
Table 1: Cost of raw material per Kg.

So the variable cost per Kg of resin 103 in BDT. This value is used in calculating cost of
goods sold.

Of course, when plotted on a “per unit” basis, the variable cost is constant at 103 lei per
unit. Increases in volume do not change per unit cost. In summary, every additional
unit produced brings another incremental unit of variable cost. The activity base is the
item or event that causes the incurrence of a variable cost. It is easy to think of the
activity base in terms of units produced, but it can be more than that. Activity can relate
to labor hours worked, units sold, customers processed, or other such “cost drivers”.
Each variable cost must be considered independently and with careful attention to what
activity drives the cost.

Figure 3: variable cost chart

10.1.4. Variable Cost of labor per hour and per unit

Bengal Pacific (Private) Limited is a capital intensive business. But they have to paid
labor for highly technical machine operator. There are three shifts by 20 hours in a day
to continue their operations. Details labor cost schedule is given below;

Bengal Pacific (Private) Limited

Budgeted Labor Cost Sheet
For the year ended 30th June 2018
Quantity in MT & Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Planned Production in MT 278 283 290 298 1,149
× Direct Labor Hours per MT 170 170 170 170
Budgeted Direct Labor Hours 47,317 48,167 49,300 50,575 195,358
× Cost per Direct Labor Hour 50 50 50 50

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 Budgeted Direct Labor Cost in '000 2,366 2,408 2,465 2,529 9,768
Table 2: budgeted labor cost

10.1.5. Variable overhead Cost per unit

There are some variable overhead costs in making garments poly. Electricity is highly
required for such factory. They have two powerful generators to backup the electricity.
Electricity is required for both for converting resin to poly, cutting section and printing
section. Another variable cost is printing ink. It cost for Tk. 12000 per Metric Ton for
total variable overhead cost.

10.2. Fixed cost

The opposite variable costs are fixed cost. Fixed costs do not fluctuate with the changes
in the level of activity. Bengal Pacific (Private) Limited has lot of variable cost. We have
shown a schedule of fixed cost in our budget part. One quarter cost sheet are given
below;
Head of expenses Amount in thousand
Fixed Factory Overhead:
Depreciation 5,608
Fuel & lubricant - Generator 240
Security Guard (factory) 150
Salary & allowances 600
Repair and maintenance 320
Factory Insurance 240
Total Fixed Overhead 7,158
Budgeted Selling Expenses:
Sales Commission 2,600
Selling expenses 2,300
Freight-out 130
Total selling expenses 5,030
Budgeted Admin. Expenses:
Office Rent 156
Car Maintenance 180
Printing and stationery 60
Entertainment 240
Head Office Salary 2,250
Conveyance 280
Fuel & Lubricant 360
Depriciation 1,402
Utility Bill 120
Office Supplies 1,120
Miscellaneous Expenses 1,200
Total Selling & Admin. Expense 12,398
Total Fixed cost 24,586
Total Fixed cost other than depreciation 17,576
Table 3: Fixed cost over the period

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The above costs are said to be “fixed” cost, because those will not change as output rises
and falls. But the fixed cost per unit will decline with increases in production. The
nature of fixed cost is as follows;

Figure 4: fixed cost chart

This attribute of fixed costs is important to consider in assessing the scalability of a

business proposition.

11. Cost volume profit analysis

Good managers must not only be able to understand the conceptual underpinnings of
cost behavior, but they must also be able to apply those concepts to real world data that
do not always behave in the expected manner. Cost data are impacted by complex
interactions.

Cost-Volume-Profit (CVP) analysis is a managerial accounting technique that is

concerned with the effect of sales volume and product costs on operating profit of a
business. It deals with how operating profit is affected by changes in variable costs,
fixed costs, selling price per unit and the sales mix of two or more different products.

CVP analysis has following assumptions:

 All cost can be categorized as variable or fixed.

 Sales price per unit, variable cost per unit and total fixed cost are constant.
 All units produced are sold.

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 11.1. Calculation of break-even point

This is fairly simple. To conduct your breakeven analysis, take your fixed costs divided
by your price minus your variable costs. As an equation, this is defined as:

Breakeven Point = Fixed Costs/Contribution margin

This calculation will clearly show you how many units of a product you must sell in
order to break even. You've recovered all costs associated with producing your product,
both variable and fixed, when you've reached this point.

Every additional unit sold after this increases profit by the amount of the unit
contribution margin, which is defined as the amount each unit contributes to covering
fixed costs and increasing profits. This is defined as an equation as:

Unit Contribution Margin = Sales Price - Variable Costs

For Bengal Pacific (Private) Limited, it’s not much easier to calculate break-even point
as there are different product line for sale. So contribution should be at different type of
product.

Contribution for poly bag:

For Poly Bag Amount in Tk.

Material Cost 102,857
Labor Cost 8,500
Overhead Cost 12,000
Total Variable cost 123,357
Selling price 185,000
Contribution Per MT 61,643

For Resin sale Amount in Tk.

Material 102,857
Selling price 115,000
Contribution Per MT 12,143

Fixed Costs Amount in Tk.

Total Fixed Overhead 7,157,526
Total Selling & Admin. Expense 12,397,881
Finance cost 2,100,000
Total Fixed Cost 21,655,407

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 ¿ cost
Breakeven point=
Contribution Margin

21,655,407
Breake ven point=
( 61,643+12,143 )

=293.49 MT per quarter

Equation 1: Breakeven point calculation

But there is a limitation for the company first two quarter to sale bag because of down
market. In that period, they cover their fixed cost contribution by selling resin to local
market. There is a huge demand for resin in the local market. But they cannot sale lot
more because their operation permitted under bond. So whatever they import is
recorded in the customs office. So have to maintain a range of sales.

12. Business Plan & Annual Budget

12.1. Business Plan

Key Strategies include:

a. Increase huge number of order

b. Reduce maximum level of overhead cost
c. Reduce overtime for the worker
d. Improve maximum level of production efficiency
e. Reduce wastage in knitting and dyeing section up to minimum limit

12.2. Annual Budget

The Annual Budget shows how the Business Plan Goals is achieved financially.

Budget committee

The organization chart defines the functional relationships used to manage the
company, from the Board, Chief Executive, and Departmental Management, together
with supporting regions/branches.

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The budget documents how each function will operate financially, detailing sales,
headcount, expenses, and capital fixed assets for the next 12 months, by quarterly. Each
Departmental Manager will submit his budget for approval by the Head of Finance,
CEO, and then the Board prior to the start of the financial year. Following approval by
the Board, each Manager will have defined authorization levels for Capital, Expenses,
and Headcount.

12.3. Operational reviews

Monthly the CEO & the departmental managers take a brief review of the company’s
performance, including the Balance Sheet, Income Statement and Cash Flow and send a
report to the Board. The purpose of the review is to ensure that the annual budget is
achieved by monitoring current performance.

This review will analyse major variations from budget by functional manager, the
potential dollar impact, corrective action required, by whom and a timetable. A
summary will be sent to the Board.

Quarterly the Chief Executives will present to the Board the results to date, to
demonstrate how the budget is being achieved, identify significant variations and
corrective actions, and to review overall strategies.

12.4. Budget Period and Format

12.4.1. Type of Budget:

On an annual basis (starting from July 1 each year), and based on the organogram, each
cost centre prepares: an Annual Budget for Bengal Pacific (Private) Limited Operational
Activities detailing headcount, expenses and capital requirements by quarter. This
budget will be consolidated by Finance, who will produce a summary, together with a
forecast of cash flow.

12.4.2. Format of budget:

Amounts in Bengal Pacific (Private) Limited Operational Activities Budget will be

shown in later part of the report.

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 12.5. Process of Budget Preparation

Budget for Bengal Pacific (Private) Limited Operational Activities:

S
Step
tep-1
-2
-3
-4
Step-5
-6
Figure 5: Process of budget calculation

12.6. Timing of Budget Preparation

The Annual budget is prepared for the one year from July to June. The budget for the
year should be finalized by the Head of Finance by 31st March of each year.

12.7. Budgetary Control

Budgetary Control is a system of planning and controlling cost, which starts with the
establishment of budget relating to activities to be carried out in order to achieve the
Company goals and regular comparison between budget and actual results / costs;
analysis of variances and taking corrective measures.

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Objectives of the Budgetary Control System
From the functional point of view, a system of Budgetary Control will serve the
purpose of Planning, Co–ordination and Control. The objectives of the budgetary
control are detailed below:

 Combining the ideas of all levels of management in the preparation of different

functional budget
 Coordinating all the activities of a program and Company
 Helping to centralize control and de-centralize responsibilities
 Planning and controlling income and expenditure to determine Company needs
 Acting as a guide for management decisions
 Providing a yardstick against which actual results are compared
 A tool helping to point out the areas where management action is required

12.8. Budget Monitoring

Bengal Pacific (Private) Limited Finance Department shall closely control and monitor
the budget with the actual results on monthly basis. At all levels of Bengal Pacific
(Private) Limited , the persons concerned with the Expenditure Process (requisition /
authorization / disbursement / approval) will be responsible for ensuring that the
expenses are incurred within the budgetary previsions. Before making any commitment
for any expenditure, the concerned person(s) shall ensure that disbursement and
unpaid obligations do not exceed the budget limit.

The Budget shall be closely monitored by the Finance Department of Bengal Pacific
(Private) Limited , who are responsible for preparation of monthly Financial Statement,
Variance Report showing Budget VS Actual amounts and reasons for major variances.
The Head of Finance will oversee the budget monitoring/controlling process.

12.9. Budget Variance Analysis

Bengal Pacific (Private) Limited’s Finance Department shall prepare line –wise
comparative statement of income and expenditure showing Budget VS Actual (income
and expenditure) and variance thereon on a quarterly basis, along with explanations for
variations. The main reports should be:

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 a) Month a year to date actual VS budget and
b) Trend by month a year to date VS budget.

12.10. Line Item Flexibility

There will be a flexibility of 10% in any particular line item, for which no prior approval
will be required, provided that the actual total expenditure in all line items does not
exceed the total budget. However, such flexibility is not to be considered as a budget
revision, and the actual excess expenditure, of any, will need to be shown as an adverse
variance against the original budget.

12.11. Submission of Budgets:

The respective departments shall submit their budgets to the Bengal Pacific (Private)
Limited Secretariat as per agreed terms and conditions and time frame. On receipt of
the Budgets, the Secretariat shall release funds to programs based on the approved
work plan and estimated budget requirements for a period of 1 year quarterly basis.
However, all projects are required to submit expenditure report to the Bengal Pacific
(Private) Limited on a monthly basis.

12.12. Master budget

A master budget is a set of interconnected budgets of sales, production costs, purchases,
incomes, etc. and it also includes pro forma financial statements. A budget is a plan of
future financial transactions. A master budget serves as planning and control tool to the
management since they can plan the business activities during the period on the basis of
master budget. At the end of each period, actual results can be compared with the
master budget and necessary control actions can be taken.

12.13. Sales budget:

Sales budget is the first and basic component of master budget and it shows the
expected number of sales units of a period and the expected price per unit. It also shows
total sales which are simply the product of expected sales units and expected price per
unit.

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Sales Budget influences many of the other components of master budget either directly
or indirectly. This is due to the reason that the total sales figure provided by sales
budget is used as a base figure in other component budgets. For example the schedule
of receipts from customers, the production budget, pro forma income statement, etc.

Bengal Pacific (Private) Limited makes sales budget based of market demand. They
always try to improve their market area. There is a limitation on the market on first
quarter and a little bit in the 2 nd quarter. But they try in best to make profit in the 1 st
quarter. Sales budget is given below;
Bengal Pacific (Private) Limited
Budgeted sales
For the year ended 30th June 2016
Quantity in MT & Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Poly Bag 275 280 285 293 1,133
× Price per Unit 185 187 190 192
Total export sales 50,875 52,360 54,150 56,160 213,545

Wastage sale 33 34 34 35 136

× Price per Unit 75 75 75 75
Total wastage sales 2,475 2,520 2,565 2,633 10,193

Resin Sales 525 540 555 570 2,190

× Price per Unit 115 117 120 122
Total resin sales 60,375 63,180 66,600 69,540 259,695

Grand Total Sales 113,725 118,060 123,315 128,333 483,433

Table 4: budgeted sales

During production, maximum 12% resin becomes wastage. The company sells it later
within the quarter.

12.14. Schedule of cash collection

Schedule of expected cash collections from customers shows the budgeted cash
collections on sales during a period. It is a component of master budget and it is
prepared after the preparation of sales budget and before the preparation of cash
budget.
The calculation of expected cash collections is based on the total sales figure obtained
from sales budget. The management estimates the proportion in which sales are

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expected to be collected in the current and following periods. This is used to determine
how much sales are expected to be collected during a period.

Bengal Pacific (Private) Limited

Budgeted Collection Schedule
For the year ended 30th June 2016
Quantity in MT & Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Beginning AP 32,130 32,130
Quarter 1 Sales (a) 79,608 34,118 113,725
Quarter 2 Sales (b) 82,642 35,418 118,060
Quarter 3 Sales (c) 86,321 36,995 123,315
Quarter 4 Sales (d) 89,833 128,333
Total Expected Payments 111,738 116,760 121,739 126,827 515,563
Table 5: budgeted collection schedule

The sales figures are obtained from the sales budget of the company. 70% of sales are
expected to be collected in the quarter in which sales are made and the rest are expected
to be collected in the next period. Bad debts are negligible.

12.15. Production budget

Production budget is a schedule showing planned production in units which must be

made by a manufacturer during a specific period to meet the expected demand for sales
and the planned finished goods inventory. The required production is determined by
subtracting the beginning finished goods inventory from the sum of expected sales and
planned ending inventory of the period. Thus:

Planned Production in Units

= Expected Sales in Units
+ Planned Ending Inventory in Units
− Beginning Inventory in Units

Production budget is prepared after sales budget since it needs the expected sales units’
figure which is provided by the sales budget. It is important to note that only a
manufacturing business needs to prepare the production budget.

Bengal Pacific (Private) Limited

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 Production Budget
For the year ended 30th June 2016
Quantity in MT
Quarter
Particulars 1 2 3 4 Year
Budgeted Sales Units 275 280 285 293 1,133
+ Planned Ending Units 187 190 195 200 200
− Beginning Units (183) (187) (190) (195) (183)
Planned Production in Units 278 283 290 298 1,149
Table 6: production budget

The planned ending units of 1st, 2nd and 3rd period are the beginning units in 2nd, 3rd
and 4th period respectively.

12.16. Purchase budget

Direct material purchases budget shows budgeted beginning and ending direct material
inventory, the quantity of direct material that will be used in production, the amount of
direct material that must be purchased and its cost during a specific period.

Bengal Pacific (Private) Limited

Purchase Budget
For the year ended 30th June 2016
Quantity in MT & Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Budgeted Production in MT 278 283 290 298 1,149
× DM Required including wastage 1.12 1.12 1.12 1.12
DM Required of Production 312 317 325 333 1,287
+ Resin sales 525 540 555 570 2,190
Total Required Resin 837 857 880 903 3,477
+ Budgeted Ending DM 572 587 602 620 620
− Beginning Direct Material (558) (572) (587) (602) (558)
Budgeted DM Purchases (MT) 850 872 895 921 3,539
Cost per Kg 1
103 103 103 103 103
Budgeted Purchases in BDT in '000 87,476 89,723 92,098 94,738 364,036
Table 7: purchase budget

Wastage is included in direct raw material purchase. Bengal Pacific (Private) Limited
maintains inventory for the next two months for smooth operation.

1 Table 1: Cost of raw material per Kg.

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 12.17. Schedule of cash payment
Schedule of expected cash payments to suppliers shows the budgeted cash payments on
purchases during a period. The schedule of expected cash payments is a component of
master budget and it is prepared after direct material purchases budget but before cash
budget.
The expected cash collections during a period is calculated on the basis of total
purchases figure, that is obtained from direct material purchases budget, and on the
percentage / proportion in which purchases are to be paid for in the current and
following periods.

Bengal Pacific (Private) Limited

Budgeted Payment Schedule
For the year ended 30th June 2016
Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Beginning AP 23,580 23,580
Quarter 1 Purchases (a) 61,234 26,243 87,476
Quarter 2 Purchases (b) 62,806 26,917 89,723
Quarter 3 Purchases (c) 64,469 27,629 92,098
Quarter 4 Purchases (d) 66,317 94,738
Total Expected Payments 84,814 89,049 91,386 93,946 387,616
Table 8: Budgeted payment schedule

The company expects to pay 70% of the purchases in the period of purchase and 30% in
following period.

12.18. Direct labor budget

Direct labor budget shows the total direct labor cost and number of direct labor hours
needed for production. It helps the management to plan its labor force requirements.
Direct labor budget is a component of master budget. It is prepared after the
preparation of production budget because the budgeted production in units figure
provided by the production budget serves as starting point in direct labor budget.

Bengal Pacific (Private) Limited

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 Budgeted Labor Cost Sheet
For the year ended 30th June 2016
Quantity in MT & Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Planned Production in MT 278 283 290 298 1,149
× Direct Labor Hours per MT 170 170 170 170
Budgeted Direct Labor Hours 47,317 48,167 49,300 50,575 195,358
× Cost per Direct Labor Hour 50 50 50 50
Budgeted Direct Labor Cost in '000 2,366 2,408 2,465 2,529 9,768
Table 9: Budgeted labor cost sheet

12.19. Overhead budget

The factory overhead budget shows all the planned manufacturing costs which are
needed to produce the budgeted production level of a period, other than direct costs
which are already covered under direct material budget and direct labor budget. The
overhead budget is an operational budget contained in the master budget of a business.
It has two sections, one for variable overhead costs and other for fixed overhead costs.

Total variable overhead may be calculated as the product of estimated variable cost per
unit (also called variable overhead rate) and the budgeted production units (obtained
from production budget). However most businesses will prefer to prepare a detailed
overhead budget showing individual variable costs such as electricity, fuel, supplies
etc.. The fixed overhead costs are calculated as the sum of individual fixed overhead
costs for example rent, depreciation, etc. which are planned for the period.

It is also useful to calculate the expected cash disbursements for factory overhead costs
at the end of overhead budget.

Variable overhead cost includes electricity bill, printing ink, etc. It is estimated that it
will cost Tk. 12000 per metric ton.

Bengal Pacific (Private) Limited

Budgeted Overhead Cost Sheet
For the year ended 30th June 2016

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 Quantity in MT & Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Variable Factory Overhead:
Budgeted Production Units 275 280 285 293 1,133
× Variable Overhead Rate/MT in '000 12 12 12 12
Total Variable Overhead 3,300 3,360 3,420 3,510 13,590
Fixed Factory Overhead:
Depreciation 5,608 5,608 5,608 5,608 22,430
Fuel & lubricant - Generator 240 240 240 240 960
Security Guard (factory) 150 150 150 150 600
Salary & allowances 600 600 600 600 2,400
Repair and maintenance 320 320 320 320 1,280
Factory Insurance 240 240 240 240 960
Total Fixed Overhead 7,158 7,158 7,158 7,158 28,630
Total Factory Overhead 10,458 10,518 10,578 10,668 42,220
− Depreciation 5,608 5,608 5,608 5,608 22,430
Cash Disbursements for FOH 4,850 4,910 4,970 5,060 19,790
Table 10: Budgeted overhead cost sheet

12.20. Selling and administrative budget

Selling and administrative expense budget is a schedule of planned operating expenses

other than manufacturing costs. It is a component of master budget and it is prepared
by all types of businesses (i.e. manufacturers, retailers and service providers) before the
preparation of budgeted income statement. Usually it is divided in two sections: the
selling expenses and the administrative expenses.

Both selling expenses and administrative expense may be fixed or variable. For example
sales commission and freight cost on sales are variable selling expenses where as sales
salaries are fixed selling expenses. Similarly depreciation and rent on office building are
fixed administrative expenses whereas office supplies and utilities expense are variable
administrative expenses.

Different variable selling and administrative expenses vary with different types
activities. For example sales commission vary with number of units sold, entertainment
expenses with number of employees in the organization etc., therefore an accurate
selling and administrative expenses budget can be made by using activity based
costing.

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 Bengal Pacific (Private) Limited
Budgeted Selling and Administrative Expenses
For the year ended 30th June 2016
Quantity in MT & Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Budgeted Selling Expenses:
Sales Commission 2,600 2,700 2,800 2,900 11,000
Selling expenses 2,300 2,350 2,400 2,450 9,500
Freight-out 130 140 150 160 580
Total selling expenses 5,030 5,190 5,350 5,510 21,080
Budgeted Admin. Expenses:
Office Rent 156 156 156 156 624
Car Maintenance 180 180 180 180 720
Printing and stationery 60 60 60 60 240
Entertainment 240 240 240 240 960
Head Office Salary 2,250 2,250 2,250 2,250 9,000
Conveyance 280 280 280 280 1,120
Fuel & Lubricant 360 360 360 360 1,440
Depreciation 1,402 1,402 1,402 1,402 5,608
Utility Bill 120 120 120 120 480
Office Supplies 1,120 1,030 1,560 2,370 6,080
Miscellaneous Expenses 1,200 1,200 1,200 1,200 4,800
Total Selling & Admin. Expense 12,398 12,468 13,158 14,128 52,152
Less: Depreciation 1,402 1,402 1,402 1,402 5,608
Cash Disbursement for S&A exp 10,996 11,066 11,756 12,726 46,544
Table 11: Budgeted selling and administrative expense

12.21. Cost of goods manufactured

Cost of goods manufactured budget is an operational component of master budget. It is

prepared to calculate the manufacturing costs that are expected to be incurred on
budgeted finished goods. The cost of goods manufactured budget is based on direct
material purchases budget, direct labor cost budget and factory overhead budget.

Bengal Pacific (Private) Limited

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 Cost of Goods Manufacture Budget
For the year ended 30th June 2018
Quantity in MT & Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Direct Material Purchases 87,476 89,723 92,098 94,738 364,036
Beginning Direct Material 57,376 58,788 60,329 61,934 57,376
Ending Direct Material (58,788) (60,329) (61,934) (63,771) (63,771)
Direct Material Cost 86,064 88,183 90,494 92,900 357,641
Direct Labor Cost 2,366 2,408 2,465 2,529 9,768
Manufacturing Overhead 10,458 10,518 10,578 10,668 19,790
Total Manufacturing Costs 98,887 101,109 103,536 106,097 387,199
Beginning Finished goods 20,743 21,120 21,497 22,063 20,743
Ending Finished goods (21,120) (21,497) (22,063) (22,629) (22,629)
Budgeted Cost of Goods
Manufactured 98,510 100,731 102,970 105,531 385,313
Table 12: Cost of goods manufacture budget

12.22. Cash Flow Reporting

The forecasting and control of cash is vital for the operation of the company.

The annual budget & cash flow by month will be the main measurement for controlling
cash. Each month Finance will prepare a 1 year quarterly basis cash flow report, and
compare to the budgeted cash flow.

1.1.1. Cash Flow forecasting report

The Finance Manager will prepare each month a forecast of receipts and payments,
together with bank balances, for the next 1 year quarterly basis. This report (see below)
will be reviewed by the Head of Finance and approved by the CEO.

This report will be prepared from input from the departmental managers of estimated
purchases (from planned purchase orders), sales, and special expenses etc.

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A weekly review will be made of actual cash flow and any variances of more than
100,000 taka will be reported to the Head of Finance. Major variances may require a
new forecast to be prepared.

At the end of each month a variance report will be prepared for the Head of Finance’s
review to measure the accuracy of the forecast, and to help to improve the next forecast
preparation.

Cash budget is a financial budget prepared to calculate the budgeted cash inflows and
outflows during a period and the budgeted cash balance at the end of the period. Cash
budget helps the managers to determine any excessive idle cash or cash shortage that is
expected during the period. Such information helps the managers to plan accordingly.
For example if any cash shortage in expected in future, the managers plan to change the
credit policy or to borrow money and if excessive idle cash is expected, they plan to
invest it or to use it for the repayment of loan.

All businesses need to maintain a safe level of cash to enable them to carry on business
activities. The managers of a business need to determine that safe level. The cash budget
is then prepared by taking into consideration, that safe level of cash. Thus, if a cash
shortage is expected during a period, a plan is made to borrow cash.

Bengal Pacific (Private) Limited

Budgeted Cash Flow Statement
For the year ended 30th June 2018
Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Beginning Cash Balance 5,200 5,000 5,000 11,740 5,200
Add: Budgeted Cash Receipts: 37,150 54,190 53,730 62,300 207,370

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 Total Cash Available for Use 42,350 59,190 58,730 74,040 212,570
Less: Cash Disbursements
Direct Material 14,960 16,550 16,810 19,410 67,730
Direct Labor 8,830 9,610 9,750 11,900 40,090
Factory Overhead 10,020 10,400 11,000 11,780 43,200
Selling and Admin.
Expenses 7,640 8,360 8,500 9,610 34,110
Equipment Purchases 6,000 14,000 20,000
Total Disbursements 41,450 50,920 46,060 66,700 205,130
Cash Surplus/(Deficit) 900 8,270 12,670 7,340 7,440
Financing:
Borrowing 4,100 4,000
Repayments (3,188) (912) (4,000)
Interest (82) (18) (100)
Net Cash from Financing 4,100 (3,270) (930) - (100)
Budgeted Ending Cash Balance 5,000 5,000 11,740 7,340 7,340
Table 13: Budgeted cash flow statement

12.23. Budgeted financial statement

Budgeted financial statements are usually limited to a summary-level income statement and
balance sheet, and are compiled within the budget model. Once finalized, the budget
information is carried over into the budget field for each line item in the financial
statements within a company.

Bengal Pacific (Private) Limited

Budgeted Financial Position
For the year ended 30th June 2018
Quantity in MT & Amount in thousand
Quarter
Particulars 1 2 3 4 Last Year
ASSETS:

Non-Current Assets:
Property, Plant and Equipment 302,301 295,292 296,282 289,273 299,311

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 Current Assets:
Inventories 79,908 81,826 83,996 86,400 78,119
Trade Receivables 34,118 35,418 36,995 38,500 32,130
Cash and Cash Equivalents 12,952 16,278 13,540 20,306 20,340
Total Asset 429,279 428,814 430,813 434,479 429,899
EQUITY AND LIABILITIES:

Shareholders' Equity:
Share Capital 50,000 50,000 50,000 50,000 50,000
Retained Earnings 273036 275,897 281,184 288,058 272,319

Non-Current Liabilities:
Long Term Liabilities 80,000 76,000 72,000 68,000 84000

Current Liabilities:
Trade Payables 26,243 26,917 27,629 28,421 23,580
Total Equity and Liability 429,279 428,814 430,813 434,479 429,899
Table 14: Budgeted financial position

Bengal Pacific (Private) Limited

Budgeted Financial Performance
For the year ended 30th June 2018
Quantity in MT & Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Sales Revenue 113,725 118,060 123,315 128,333 483,433
- Cost of Goods Manufacture 98,510 100,731 102,970 105,531 407,743

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 Gross Profit 15,215 17,329 20,345 22,801 75,690
- Selling and Administrative Expenses 12,398 12,468 13,158 14,128 52,152
EBIT 2,817 4,861 7,187 8,674 23,538
- Finance Cost 2,100 2,000 1,900 1,800 7,800
EBT 717 2,861 5,287 6,874 15,738
- Provision for TAX 251 1,001 1,850 2,406 5,508
Profit After Tax 466 1,859 3,436 4,468 10,230
Table 15: Budgeted financial performance

Bengal Pacific (Private) Limited

Budgeted Finance Cost
For the year ended 30th June 2018
Quantity in MT & Amount in thousand
Quarter
Particulars 1 2 3 4 Year
Loan Outstanding Beginning 84,000 80,000 76,000 72,000 84,000
Principal payment 4,000 4,000 4,000 4,000 16,000
Interest Payment 2,100 2,000 1,900 1,800 7,800
Outstanding Balance Ending 80,000 76,000 72,000 68,000 68,000
Table 16: Budgeted finance coat

Bengal Pacific (Private) Limited

Budjeted Fixed Asset Schedule
For the year ended 30th June 2016
Quantity in MT & Amount in thousand
At Cost Depreciation
During
Opening the
Particulars Opening Addition Disposal Closing Acc. Dep Rate year Closing WDV
Land 43,996 43,996 0% - 43,996
Buildings 112,622 8,000 120,622 9,140 5% 5,574 14,714 105,908
Machinery 129,007 10,000 139,007 42,790 10% 9,622 52,412 86,595

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 Factory equipment 2,743 2,743 1,783 10% 96 1,879 864
Factory UPS 2,837 2,837 2,541 50% 148 2,689 148
Tools & equipment 1,860 1,860 1,663 10% 20 1,683 178
Motor vehicles 66,123 66,123 4,501 20% 12,324 16,826 49,297
Electric installation 5,215 5,215 4,888 10% 33 4,921 294
Diesel generator 3,287 3,287 1,604 10% 168 1,772 1,515
H.O. equipment 276 276 67 10% 21 88 189
Furniture & Fixture 64 64 16 10% 5 21 43
Fire extinguisher 345 345 70 10% 28 97 248
Total Asset 368,374 18,000 - 386,374 69,063 28,038 97,101 289,273
Distribution of Depreciation expenses Amount
Depreciation charged in production 22,430
Depreciation charged in Administration 5,608
Total 28,038
Table 17: Budgeted fixed asset schedule

1.1.2. Variance explanations

Variance in
Particulars Budgeted Actual Variance %
Sales 483,432,500 478,598,175 (4,834,325) U -1.00%
Purchase 364,036,052 349,474,609 14,561,442 F -4.00%
Lebor cost 9,767,917 9,914,435 146,519 U 1.50%
Overhead csot 19,790,000 20,185,800 395,800 U 2.00%
Selling expense 21,080,000 20,447,600 (632,400) F -3.00%
Admin expense 31,071,526 31,108,812 37,286 U 0.12%
COGS 385,312,837 392,171,406 6,858,569 U 1.78%
Finance cost 7,800,000 7,800,000 - 0.00%
Net Profit 10,229,722 6,884,558 (3,345,164) U -32.70%
Table 18: Budget variance analysis

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 Budget variance analysis
1,200,000
1,000,000
800,000
Amount in thousand

600,000
400,000
Actual
200,000
Budgeted
-
es s e ost s ot e se GS st fit
l ha r c ns en CO e co Pro
Sa rc o d
c pe
x p c t
Pu Leb hea g ex i n e nan Ne
er li n m Fi
Ov Sel Ad

Analysis item

Figure 6: Budget variance chart

Explanation of the variance:

From the above table, there is a favorable position in selling expense. But it makes
unfavorable over the performance of the company. It reduces the sales of the year that
reduce the net profit of the year.

Conclusion
We recommend to the management to be careful a little bit more in sensitive area the
makes your company growing.

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