Question 1

Goody Co manufactures 3 products and the following sales are anticipated next period;

X1 X2 X3

Sales in units 7000 5500 4000

Selling price per unit 150 100 110

Opening Inventory of these products is expected to be:

X1 4000 units

X2 3000 units

X3 2000 units

In an effort to reduce inventory holding costs a reduction in inventory is expected such that closing
inventories at the end of the period will be as follows:

X1 2200 units

X2 1800 units

X3 1000 units

Each product requires the use of 3 different types of material. Requirements per unit are shown
below:

X1 X2 X3

Plastic 3kg 4kg 2kg

Metal 5kg 1kg 4kg

Rubber 6kg 3kg 1kg

It is expected that 100kg of plastic will be wasted in the manufacture of X2

The opening inventory of raw material is expected to be

Plastic 6800kg

Metal 4200kg

Rubber 8000kg

A reduction in inventory (as per above) means that closing material inventories are expected to be:

Plastic 3000kg

Metal 1500kg

Rubber 3000kg

Material prices are to be expected to be as follows:

 Plastic 2/kg

Metal 4/kg

Rubber 2.50/kg

Two types of labour are used in producing the three products. Standard hours per unit are shown
below together with information on wage costs:

Hours per unit X1 X2 X3

Skilled labour 2 2 4

Semi-Skilled labour 5 3 1

Skilled labour is to be paid at the rate of 14/hour and Semi-Skilled labour at the rate of 8/hour

Prepare –

 Sales budget
 Production budget
 Raw material purchase budget
 Labour

Question 2

The Sales Director of Andhra Paraffin Company expects to sell 25,000 units of a particular product
next year, The Production director consulted the store-keeper who gave the necessary details as
follows:

Two kind of raw materials, P and Q are required for manufacturing the product. Each unit of the
product requires 2 units of P and 3 units of Q. The estimated opening balance at the commencement
of the next year are:

Finished : 7,000 units

Raw material P : 6,500 units
Raw material Q : 8,000 Units

The desirable closing balance at the end of the next year are

Finished : 7,000 units

Raw material P : 6,500 units
Raw material Q : 8,000 Units

Prepare Materials Purchase budget for the next year.

Question 3

Draw up a material purchase budget from the following information:

Estimated sales of a product is 30,000 units. Two kinds of raw materials A and B are required for

manufacturing the product. Each unit of the product requires 3 units of A and 4 units of B. The
estimated

opening balance in the beginning of the next year: finished goods 5,000 units; A, 6,000 units; B,
10,000

units. The desirable closing balance at the end of the next year: finished product, 8,000 units; A,
10,000

units; B 12,000 units.

Question 4

X Y Z & Co. manufacture two products X and Y and sell them through two divisions East and West.
For the purpose of submission of sales budget to the budget committee the following information
has been made available

Budgeted sales for the current year were:

Product East West

X 400 at ₹9 600 at ₹9

Y 300 at ₹21 500 at ₹21

Actual sales for the current year were:

Product East West

X 500 at ₹9 700 at ₹9

Y 200 at ₹21 400 at ₹21

It is observed that if price of X is increased by ₹1, it will find a ready market. The market could
absorb more if sales price of Y be reduced by ₹1. The management has agreed to the above price
changes

From the information based on these price changes and reports, the following estimates have been
prepared by divisional managers:

Percentages increase in sales over budget is:

 Product East West

X +10% +5%

Y +20% +10%

With the help of an intensive advertisement campaign the following additional sales above the
estimated sales of divisional managers are possible:

Product East West

X 60 70

Y 40 50

You are required to prepare a budget for sales incorporating the above estimates and also show the
budgeted and actual sales of the current year