MASTER BUDGETS

Q 1 Manufacturing Company has been adopting overall budgeting practices in its profit plan
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
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 unit
Falgun 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.
Company sales are mostly on credit and 70% of credit sales would be realized in the month o
Details of indirect cost per month would be:
Items Fixed Variable
Indirect 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 the
The company would like to add on its capital assets at a cost of Rs. 120,000 in the month o
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 (MBA, Model)
Solution: Production Budget (In units)
For 3 months ending Ashad
Particulars
Months Planned
Sales Add: Closing
Stock Total stock
Needed Less: Opening
Stock Production
Baishak
Jestha
Ashad 30,000
30,000
20,000 24,000
16,000
24,000 54,000
46,000
44,000 24,000
24,000
16,000 30,000
22,000
28,000
Total 80,000 24,000 104,000 24,000 80,000
Shrawan 30,000 28,000 58,000 24,000 34,000
Bhadra 35,000
*Note: Closing stock equals to 80% of next month sales.
Material Usage Budget (in quantity)
For 3 months ending Ashad
Material
Time Production
Units Material A Material B
Usage Rate Total Usage Usage Rate Total Usage
Baishak
Jestha
Ashad 30,000
22,000
28,000 2
2
2 60,000
44,000
56,000 3
3
3 90,000
66,000
84,000
Total 80,000 2 160,000 3 240,000
Shrawan 34,000 2 68,000 3 102,000
Material Purchase Budget
For 3 Months Ending Ashad
Particular
Material Total
Usages Add: Closing
Stock Total
Needed Less: Opening
Stock Purchase
Units Price
(Rs.) Amount
(Rs.)
Material A:
Baishak
Jestha
Ashad
60,000
44,000
56,000
44,000
56,000
68,000
104,000
100,000
124,000
60,000
44,000
56,000
44,000
56,000
68,000
2
2
2
88,000
112,000
136,000
Total 160,000 68,000 228,000 60,000 168,000 2 336,000
Material B:
Baishak
Jestha
Ashad
90,000
66,000
84,000
66,000
84,000
102,000
156,000
150,000
186,000
90,000
66,000
84,000
66,000
84,000
102,000
1
1
1
66,000
84,000
102,000
Total 240,000 102,000 342,000 90,000 252,000 1 252,000
Total (A+B)
Baishak
Jestha
Ashad
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
154,000
196,000
238,000
Total – – – – – – 588,000
Direct Labour Cost Budget
For 3 months ending Ashad
Particulars
Time Production
Units Standard cost
per unit (Rs.) Total
(Rs.)
Ref. Sch.1=1 Input=2 1x2=3
Baishak
Jestha
Ashad 30,000
22,000
28,000 2
2
2 60,000
44,000
56,000
Total 80,000 2 160,000
Indirect Cost Budget (in Rs.)
For 3 Months Ending Ashad
Particular
Time Fixed Cost *Variable Cost Total
Baishak
Jestha
Ashad 30,000
30,000
30,000 30,000
22,000
28,000 60,000
52,000
58,000
Total 90,000 80,000 170,000
Variable cost = Production units Variable cost per unit
Budgeted Cost of Goods Sold for 3 Months Ending Ashad
Particulars Amount (Rs.)
Direct Raw Material Used
A: 160,000 @ 2 = 320,000
B: 240,000 @ 1 = 240,000
Direct Labour Cost (80,000 Units @ Rs.2)
Variable Overhead (80,000 Units @ Re.1)
560,000
160,000
80,000
Variable Cost of Production (80,000 Units @ Rs.10)
Add: Opening Stock of Finished Goods (24,000 units @ Rs.10) 800,000
240,000
Total Finished Goods Available
Less: Closing Stock of Finished Goods (24,000 Units @ Rs.10) 1,040,000
240,000
Variable cost of Goods Sold (80,000 Units @ Rs. 10) 800,000
Cash Budget for 3 months ending Ashad
Particulars Baishak Jestha Ashad Total
a. Opening cash balance 30,000 34,000 83,900 30,000
b. Cash receipt:
Collection from debtors
–During the month (40%)
–last month (20%)
–2nd last following (10%)
252,000
72,000
30,000
252,000
72,000
36,000
168,000
72,000
36,000
672,000
216,000
102,000
Total 354,000 360,000 276,000 990,000
c. Cash available (a+b) 384,000 394,000 365,000 1,020,000
d. Cash payment:
Creditors
Wages
Indirect Expenses
Capital Assets
210,000
–
55,000
120,000
154,000
60,000
55,000
–
196,000
44,000
47,000
¬–
560,000
104,000
157,000
120,000
Total payment 385,000 269,000 287,000 821,000
e. Cash surplus (deficit)(c–d) (1,000) 125,000 78,300 79,000
Min. balance 30,000 30,000 30,000 30,000
f. Borrowing (payment)
(Interest on borrowing) 35,000
– (35,000)
(700) –
– –
(700)
g. Closing Balance (e+f) 34,000 83,900 78,300 78,300
Note:
Interest rate of loan is not given. So interest is assumed 12% p.a.
Wages of Chaitra last year is payable in Baishak, but there is no outstanding wages
Planned Income Statement
For 3 Month Ending Ashad
Particulars Amount (Rs.)
Planned Sales Revenue (80,000 units @ Rs.12)
Less: Variable cost of goods sold (80,000 units @ Rs.10) 960,000
800,000
Gross contribution margin 160,000
Less: Fixed overhead 90,000
Gross margin 70,000
Less: Operating expenses –
Earning before interest and tax 70,000
Less: Interest expenses 700
Earning before tax 69,300
Budgeted Balance Sheet
As on 31st Ashad
Capital & Liabilities Amount (Rs.) Assets & Properties Amount (Rs.)
Equity & Retained earning
Profit for the period
Account payable
Liability of expenses
Outstanding wages 553,000
69,300
238,000
53,000
56,000 Fixed Assets:
Add: New plant
Less: Depreciation
Closing stock:
Finished goods (24,000 units @ Rs 10)
Raw material @ Rs 10)
A : 68,000 units @ Rs 2
B : 102,000 units @ Rs. 1
Account receivable
Cash at bank 200,000
120,000
320,000
15,000
305,000
240,000
136,000
102,000
108,000
78,300
Total 969,300 Total 969,300
Q 2. Nepal Batteries Ltd. prepares its master budget on a quarterly basis. The following da
i. As of March 31, 19 8 (the end of the prior quarter), the company's balance were as
Cash Rs.9,000
Account receivable 48,000
Inventory 12,600
Plant and equipment 200,000
Account payable 180,000
Capital stock Rs.18,300
Retained earnings 71,300
Rs.239600 Rs.269,600
ii. Actual sales for March and budgeted sales for April, July are as follows:
March Rs.60,000
April 70,000
May 85,000
June 90,000
July 50,000
iii. Sales are 20% for cash and 80% on credit. All credit sale term are net 30. The acco
iv. The company's gross profit rate is 40% of sales.
v. Monthly expenses are budgeted as follows:
Salaries and wages, Rs.7,500 per month;
Freight-out 6% of sales;
Advertising, Rs.6,000 per month;
Depreciation Rs.2,000 per month;
Other expenses 4% of sales.
vi. At the end of each month, inventory is to be on hand equal to 30% of the following
vii. Half a month's inventory purchases are paid for in the month of purchase and half i
viii. Equipment purchases during the quarter will be as follows;
April, Rs.11,500 and May, Rs.8,250.
ix. Dividends totaling Rs.4,000 will be declared and paid in June.
x. The company must maintain a minimum cash balance of Rs.8,000. An open line of credi
Required:
1. Cash budget and financial requirement.
2. Projected income statement for the quarter ending June 30.
3. Projected balance sheet as of June 30. (TU 2058)
Solution:
Material Purchase Budget (In Units & Rupees)
For 3 months
Particulars Cost of sales (60%) Add: Closing
Stock Total Less: Opening
Stock Purchase
(Rs.)
Time
April
May
June 42,000
51,000
54,000 15,300
16,200
9,000 57,300
67,200
63,000 12,600
15,300
16,200 44,700
51,900
46,800
Total 147,000 9,000 156,000 12,600 143,400
July 30,000
Cash Budget with Financial Requirement
By month, for the year 19´8
Particulars April May June
Opening balance 9,000 8,350 8,800
Add cash received
Cash sales (20% of sales) collection from debtors
Previous month sales (80 % of sales)
14,000
48,000
17,000
56,000
18,000
68,000
Total cash available 71,000 81,350 94,800
Less: Payment
Creditors
Same month’s purchase - 50%
Previous month’s purchase - 50%
Salaries and wages
Freight out - 6%of sales
Advertising
Others expenses (4% of sales)
Equipment of purchase
Dividend paid
22,350
18,300
7,500
4,200
6,000
28,000
11,500
25,950
22,350
7,500
5,100
6,000
3,400
8,250
23,400
25,950
7,500
5,400
6,000
3,600
-
4,000
Total payment 72,650 78,550 75,850
Cash deficit or (surplus) (72,650) 2,800 18,950
Borrowing (Repayment)
(Interest) 10,000
- 6,000
- 10,000
300
Closing balance 8,350 8,800 8,650
Working note;
Calculation of Interest = Rs.10,000 ´ 12% ´ 3/12 = Rs.300
Outstanding interest = Rs.6,000 ´ 12% ´ 2/12 = Rs.120
Total = Rs.420
Income statement
For three months ending ..........
Particulars Amount (Rs.)
Sales revenue
Less cost of goods sold (60%) 245000
147000
Gross margin 98,000
Less: other cost
Salaries and wages (7,500 x3)
Depreciation (2,000 x3)
Freight out (6% of sales )
Other expenses(4% of sales)
 Advertising
22,500
6,000
14,700
9,800
18,000

71,000
Total other cost
Earning before interest and tax 27,000
Less: Interest paid
Outstanding interest 300
120
420
Earning before tax 26,580
Add: Opening retained earning of last year
Less; dividend paid 71,300
4,000
67,300
Closing retained earning 93,880
Balance Sheet
For three months ending
Capital and Liabilities Amount (Rs.) Assets and properties Amount (Rs.)
Capital stock 180,000 Cash 8,650
Retained earning 93,880 Account receivable 72,000
Account payable 23,400 Inventory 9,000
Outstanding interest 120
Bank overdraft 6,000 Plant and equipment Rs. 200,000
Add; Purchase 19,750
219750
Less; depreciation 6,000 213,750
Total 303,400 Total 303,400
P 3 The Manufacturers Ltd., in the process of preparing master budget has gathered the
SCHEDULE I Past sales and sales forecasts
Months Nov Dec Jan Feb Mar Apr May
Sales 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 II Manufacturing overhead cost budget
Months Jan Feb Mar
Indirect 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% i
The company will have to retire debenture debts of Rs.100,000 in the month of January. Soft
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. (TU 2059)
Solution:
Production Budget (In Quantities)
For three months ending March
Particulars January February March April May
Sales 20,000 30,000 35,000 40,000 35,000
Add: Inventory closing 30,000 35,000 40,000 35,000
50,000 65,000 75,000 75,000
Less: Opening inventory 20,000 30,000 35,000 40,000
Production 30,000 35,000 40,000 35,000
Material Purchase Budget (In Units & Rupees)
For three months ending March
Particulars Production units Usage rate Total usages Add: Closing
Stock Total Less: Opening
Stock Purchase
Time Units Price amounts(Rs.)
Jan.
Feb.
Mar. 30,000
35,000
40,000 1
1
1 30,000
35,000
40,000 35,000
40,000
35,000 65,000
75,000
75,000 20,000
35,000
40,000 45,000
40,000
35,000 4
4
4 180,000
160,000
140,000
Total 105,000 1 105,000 35,000 140,000 20,000 120,000 480,000
Apri. 35,000 1 35,000
Cash Budget (in Rs.)
For 3 months ending March
Particulars Jan. Feb. Mar. Total
Opening balance 10,000 15,000 14,000 10,000
Add: Receipts
1. Cash sales
2. Collection from debtors
- 50% of same month sales
- 30% of last month sales
- 20% of second last month sales 200,000
100,000
45,000
40,000 300,000
150,000
60,000
30,000 350,000
175,000
90,000
40,000 850,000
425,000
195,000
110,000
Cash available 395,000 555,000 669,000 1,590,000
Less: Payments
Creditors 80,000 180,000 160,000 420,000
Wages (production units @ Rs.4) 120,000 140,000 160,000 420,000
Indirect material 30,000 35,000 40,000 105,000
Indirect Labour 60,000 70,000 80,000 210,000
Supervision 15,000 17,500 20,000 52,500
Repair and maintenance 15,000 17,500 20,000 52,500
Selling and other expenses (sales units @ Re.1) 20,000 30,000 35,000 85,000
Debenture 100,000 - - 100,000
Total 380,000 490,000 515,000 1,445,000
Surplus (deficit) (45,000) 65,000 (154,000) 145,000
Minimum Balance 10,000 10,000 10,000
Borrowing (Payment)
(Interest) 60,000
– (50,000)
(1,000) (10,000)
(300) -
(1,300)
Closing balance 15,000 14,000 143,700 143,700
Income statement
For three months ending March
Particulars Amount (Rs.)
Sales revenue 1,700,000
Less: cost of goods sold
Direct Materials (production x 1 unit x Rs.4) 420,000
Direct labor (production x 2 hour x Rs.2) 420,000
Variable overhead: (Production x Rs 4) 420,000
Cost of production @ Rs.12 per unit 1,260,000
Add: Opening stock of finished goods (20,000 units @ Rs.12) 240,000
Total cost of goods available for sale 1,500,000
Less: closing stock of finished goods ( 40,000 units @ Rs.12) 480,000
Variable Cost of goods sold 1,020,000
Gross contribution margin 680,000
Less: Depreciation (Rs.5,000 X3) 15,000
Gross contribution margin 665,000
Less Selling and other expenses 85,000
Net income before interest and tax 580,000
Less: Interest 1,300
Earning after tax 578,700