Example -1 Excellent Manufacturing can produce 4000 Units of a certain product at 100% Capacity .

The following information is obtained from the books of accounts : Units Produced Repairs & Maintenance Power Labor Consumables Stores Salaries Inspection Depreciation August 2006 2800 Rs.500 1800 700 1400 1000 200 1400 September 2006 3600 Rs.560 2000 900 1800 1000 240 1400

The rate of production per hour is 10 units . Direct material per unit is Re. 1 & direct wages per hour is Rs. 4.You are required to 1. Compute the cost of production @ 100%, 80%, and 60 % capacity showing the variable, fixed, & semi fixed items. 2. Find out overhead absorption rate @ 80 % capacity. Solution: Working Note: Calculation of Semi Variable Overheads

Power

Difference In capacity 20% Difference in Capacity 1%

Difference in Overheads 200 ?

So at 1% it is Rs. 10 Variable At 80 % it will be 10 x 80 = 800 Rs. & fixed power cost will be Rs.1100. (At 80% capacity total semi variable overheads will be Rs. 1900)

Repairs & Maintenance

Difference In capacity 20% Difference in Capacity 1%

Difference in Overheads 60 ?

So at 1% it is Rs. 3 Variable At 80 % it will be 3 x 80 = 240 Rs. So fixed Repairs & Maintenance cost will be Rs.290 ( At 80% capacity total semi variable overheads will be Rs.530)

Inspection

Difference In capacity 20% Difference in Capacity 1%

Difference in Overheads 40 ?

So at 1% it is Rs. 2 Variable At 80 % it will be 2 x 80 = 160 Rs. & fixed cost will be Rs.60. (At 80% capacity total semi variable overheads will be Rs. 220) Same way semi variable overheads @ 100% & 60 % can be found.

Production Budget for various Capacity

Particulars Units Production hours @ 10 units per Hour Direct Material Direct Wages Prime Cost Production variable Overheads: Labour Consumable Stores Semi variable Overheads: Power Repairs & Maintance 2100 590 260 1900 530 220 1700 470 180 100 % 4000 400 4000 1600 5600 1000 2000 80% 3200 320 3200 1280 4480 800 1600 60% 2400 240 2400 960 3360 600 1200

Fixed Overheads: Depreciation Salaries Total Overheads Cost Of Production Cost Per Unit 1400 1000 8350 13950 3-49 1400 1000 7450 11930 3-73 1400 1000 6550 9910 4-13

II. Overhead absorption @ 80 % capacity :

Total Units 3200 1

Total Overheads Rs. 7450 ?

Ans : Rs. 2-33

Example 2 From the following prepare the following budgets for the year 2009 a. Production budget b. Material usage Budget c. Material purchase Budget Particulars Products Units Sales Units Finished Stock on 1st January 2009 Finished Stock on 31st December 2009 P 10000 2000 7000 Q 20000 6000 1000 R 15000 5000 10000

Stock on 1st January 2009 Kgs Stock on 31st December 2009 kgs Quantities Used in Kgs. P Q R Rate of Materials per kg Rs. Solution:

Materials used In Production S1 S2 S3 20000 50000 20000 60000 35000 55000 3 7 3 5 5 8 6 4 5 4 9 6

Production Budget for the year 2009

Particulars Estimated Sales Add: Closing Stock of finished Goods Total Less: Opening Stock of Finished Goods Estimated Production (Budgeted) Particulars Material S1 Qty. Requir ed Per Unit Kg. 3 7 3 Total Kg. Product P Units 10000 7000 17000 2000 15000 Product Q Units 20000 1000 21000 6000 15000 Product R Units 15000 10000 25000 5000 20000 Material S3 Qty. Requir ed Per Unit Kg. 5 4 9 Total Kg. Total Units 45000 18000 63000 13000 50000 Total (kg) Total Kg.

Material Usage Budget for the Year 2009

Material S2 Qty. Require d Per Unit Kg. 5 8 6 Total Kg.

For Production of 15000 units of product P For Production of 15000 units of product Q For Production of 20000 units of product R Budgeted Usage of Material

45000 105000 60000 21000 0

75000 120000 120000 315000

75000 60000 180000 31500 0

195000 285000 360000 840000

Material Purchase Budget for the Year 2009

Particulars Estimated Usage As find Above Add: Closing Stock of Material Total Less : Opening Stock Budgeted Purchase Rate Per KG Budgeted Cost Of Purchase Example 3 :

Material S1 Kg 210000 60000 270000 20000 250000 Rs.5 1250000

Material S2 Kg 315000 35000 350000 50000 300000 Rs.4 1200000

Material S3 Kg 315000 55000 370000 20000 350000 Rs.6 2100000

Total (kg) 840000 150000 990000 90000 900000 455500 0

Sunrise Ltd. Has given the forecast sales from March 2010 to September 2010 and actual sales for January & February 2010. Prepare cash budget for Five Months from March to July 2010 with the information given as below. 1. Sales January February MarchApril May June July August September Rs. 160000 Rs. 140000 Rs. 160000 Rs. 200000 Rs. 160000 Rs. 200000 Rs. 180000 Rs. 240000 Rs. 200000

2. Cash sales : 20% ; Credit sales 80% receivable in third month 3. Variable Expenses : 5 % on turn over ,time lag half month.

4. Commssion 5 % on credit sales payable in the third Month. 5. Purchase 60 % of the sales of the next third month ,Payment will be made in third month from purchase. 6. Rent & other expenses Rs. 6000 paid every month 7. Other payment : Tax March- Rs.40000 Fixed Assets purchased May Rs. 100000 8. Opening cash Balance Rs. 50000.

Solution : Working : Payment of Purchase :

Month Purchase (60% of the sales of next Third Month) Payment of Purchase

Jan. 9600 0

Feb. 1200 00

March. 96000

April 120000

May 1080 00

June 1440 00

July 12000 0

96000

120000

9600 0

1200 00

10800 0

Calculation of Sales