AGyawali, Associate Professor

Central Department of Management, TU.

Problem 1. The sales forecasts relating to a manufacturing company are summarized

below:
Sales (in units)

Shrawan
20,000

Bhadra
30,000

Aswin
40,000

Kartik
30,000

Selling price per unit is Rs.20. Each unit of output needs 2 units of raw materials
and each unit of raw materials will cost Rs.2. Labour cost and factory overheads are Rs.6
per unit. Selling and distribution expenses are 20% of sales.
The company's policy is to keep equal units of output required for the next
month's sale and uniform materials inventory of 30,000 units. 80% of sales are made in
credit and the rest in cash. 50% of the credit sales are collected in the same month and
the rest in the next month. Purchases and expenses are paid in the months when they
become due.
The Company holds a minimum cash balance of Rs.20,000. The company has
negotiation with its bank for a temporary borrowing in the multiple of Rs.1,000 with
interest of 12% p.a. on the loan paid. Assume that the loans are taken on the first date of
the month and repaid on the last date.
Uncollected debtor's of Ashad amounted to Rs.100,000. Opening finished goods
inventory and cash balance were 20,000 units and Rs.20,000 respectively.
Required
a)
Production budget for the first three months.
b)
Materials purchase budget for the first three months.
c)
Cash budget for the first three months.

Question 2. The past sales, forecasted sales and the manufacturing overhead budget
are presented below:
Schedule I
Past and forecasted sales
Months
Falgun
Chaitra
Baishakh
Jestha
Ashadh
Shrawan
Bhadra
Sales in units
20,000
30,000
40,000
40,000
30,000
20,000
30,000

Months
Indirect labour..................................
Heat, light and power.......................
Supervision......................................
Depreciation....................................

Schedule II
Manufacturing overhead budget
Baisakh
80,000
20,000
10,000
10,000
120,000

Jestha
60,000
20,000
10,000
10,000
100,000

Ashad
40,000
20,000
10,000
10,000
80,000

Selling price per unit will be Rs.20 each. All sales are credit sales, and credit sales
will be realised at 60% in the month, 30% in the next month; and the balance in the next
following month of sales. Purchases and all other expenses will be paid in the month of
purchases and the expenses.
Each unit of finished product will need one unit of raw material at a cost of Rs.4
and two direct labour hours @ Rs.2.50 per hour.
The ending balance of raw materials and the finished product will be equal units of
raw materials and finished products necessary to meet the production and sales need of
the next month respectively and the desired ending balance of cash Rs.20,000.

AGyawali, Associate Professor

Central Department of Management, TU.
The beginning balances of raw materials and finished products were 40,000 units
each and the cash balance of Rs.20,000.
Required
a)
Production Budget
b)
Material Purchase Budget
c)
Cash Collection and Disbursement Budget
Question 3. In its process of preparing a budget a company prepared the following
budgets.
Schedule 1
Past sales and sales budget:
Months
Chaitra
Baishakh
Jestha
Ashadh
Shrawan
Sales revenue
400,000
600,000
700,000
400,000
300,000
20% of sales will be cash and the remaining 80% will be credit. 80% of credit the
sales will be collected in the month of sales and the remaining in the next month of
sales. The gross profit margin on sales will be 40%. The desired ending inventory of
merchandise will be equal to meet the next months sales need and a minimum cash
balance of Rs.20,000. The operating expenses, selling and distribution expenses will be
20% of sales revenue, the purchases of the month will be paid in the month of the
purchase and the expenses.
The company intends to purchase a vehicle at a cost of Rs.120,000 in the month
of Baishak. The company has approached a commercial bank for a line of credit to meet
a temporary deficiency of cash. The borrowings will be made in multiples of Rs.5,000 and
the repayments in Rs.1,000 together with an interest of 18% p.a. The cash balance at the
end of Chaitra was Rs.20,000. Beginning inventory of merchandise was Rs.360,000.
Required
a)
Merchandise purchase budget for the three months ending Ashad.
b)
Operating selling and distribution budget for the three months.
c)
Cash and collection and disbursement budget for the three months.
Question 4. M/S Link Ltd., is a trading company which purchases and sales merchandise
manufactured by other company. The company has adopted a budgetary system in the
planning system. The data relating to the last quarter of the year have been presented
below:
Sales and Sales Forecast
Month
Sales in Rs.

Augu
Septe Octob Novem Decem
st
mber
er
ber
ber
400,0 500,000 500,0 600,00 800,00
00
00
0
0

Jan
2004
700,0
00

All sales will be on credit. Credit will realize 50% in the month of sales 30% in the next
month of the sales and remaining 20% in the next following month of sales. The gross profit
margin on sales will be 40%.
The purchase of merchandise and all other related expenses will be made in the
month of purchase and the expenses became due. The administrative and distribution
expenses excluding the depreciation on office equipment of Rs.5,000 per month will be 20%
of the sales revenue. Company will retire debenture debts of Rs.200,000 at a premium of
10% in the month of October and buy a new computer for Rs.50,000.

AGyawali, Associate Professor

Central Department of Management, TU.
As a policy company will maintain Rs.25,000 as cash balance and merchandise
inventory necessary to meet next months sales.
A line of credit at an interest rate of 12% p.a. will be available from a commercial
bank. The borrowing will be in a multiple of 5,000 and repayments in Rs.1,000 plus the
interest on the amount of principal repaid.
Required
a) Merchandise Purchase Budget for last quarter.
b) Administrative and Distribution Cost Budget for the last quarter
c) Cash collection and distribution budget for last quarter
Question 5. The Manufacturers Ltd., in the process of preparing master budget has
gathered the following information:
SCHEDULE I

Past sales and sales forecasts

Months
Sales in unit
Sales revenue
SCHEDULE II

Nov
20,000
400,000

Dec
15,000
300,000

Jan
20,000
400,000

Feb
30,000
600,000

Mar
35,000
700,000

Apr
40,000
800,000

May
35,000
700,000

Manufacturing overhead cost budget

Months
Indirect materials
Indirect labour
Supervision
Repairs and maintenance
Depreciation
Total

Jan
30,000
60,000
15,000
15,000
5,000
125,000

Feb
35,000
70,000
17,500
17,500
5,000
145,000

Mar
40,000
80,000
20,000
20,000
5,000
165,000

50% of sales will be in cash and balance on credit. Credit sales will be collected as 50% in
the month of credit sales, 30% in the next month of sales and balance in the next following
month of sales. Purchase will be paid in the next month of purchases and all other expenses
will be paid in the month when they are due. Selling and other expenses will be Re. 1 per
unit of sales. Each unit of output will require 1 unit of material and 2 hours of direct labour
hours. Direct labour hour will cost Rs.2 per hour and each unit of direct labour hours. Direct
labour hour will cost Rs.2 per hour and each unit of material will cost Rs.4. The raw material
inventory and finished goods inventory will be equal to next months production need and
sales need respectively. Company will keep minimum cash balance of Rs.10,000 each month
and in Dec. last year the cash balance was Rs.10,000 finished goods and raw material
inventory at the end of December were 20,000 units each. Creditors payable for December
purchases were of Rs.80,000.
The company will have to retire debenture debts of Rs.100,000 in the month of January. Soft
loan will be available at an interest rate of 12% per annum from the commercial banks.
Borrowing will be in a multiple of Rs.10,000 and repayment will be in Rs.5,000. The interest
will be paid at the time of repayment on the amount of loan.
Required:

AGyawali, Associate Professor

Central Department of Management, TU.
1.
2.
3.

Material purchase budget for 1st three months.

Budgeted income statement at the end of March.
Cash collection and disbursement budget for 1st three months.

Problem 6. Standard manufacturing company expects to sell 120,000 units of

product A and 180,000 units of product B in coming year. Product A and B are
sold for Rs. 12 and Rs. 50 each respectively. Annual sales are expected over
the 12 months of the year in following percentage.
Months
Percentage of annual Sales

Jan
.06

Mar
.08

Feb
.06

Apr
.06

May
.04

Jun
.02

Jul
.10

Aug
.12

Sep
.14

Oct
.14

Nov
.10

Dec
.08

The company policy is to have enough final inventories each month to fill 30% of
expected sales order in the next month. Initial inventory in January is expected to
be 4,500 units of product A and 6,000 units of product B. Expected sales for January
in coming year are 8,000 units of product A and 12,000 units of product B.
Required:
1.
2.

Sales budget by month for each product and in total.

Production quantity budget by product and time.

Problem 7. ABC Company engaged in manufacturing has forecasted its sales for
the first quarter as under:
Month
Sales in units

January

February

March

April

10,000

15,000

20,000

20,000

The company has a policy of maintaining finished goods inventory of 80% of the
next month's required sales. Each units of finished product needs two types of
materials i.e. material A and material B. The standard rate of consumption of these
materials for each units of finished product are material A, 1 unit and material B, 2
units. The company's raw material policy is to hold sufficient units of raw material
required to meet next month's production need. The standard material price for
material A and material B are Rs. 2 and Rs 3 respectively. The inventory positions of
finished goods and raw materials at the end of December are:
Finished goods
Raw materials:

8,000 units
A
B

Required: Production budget, material consumption budget and material

purchase budget for three months beginning January

14,000 units
28,000 units

AGyawali, Associate Professor

Central Department of Management, TU.
Micro products, Inc., has developed a very powerful electronic calculator. Each
calculator requires three small "chips" in its manufacture. The chips cost Rs.8
each and are purchased from an overseas supplier.
Micro
Products has prepared a production budget for the calculator by quarter
for 195 and for the first quarter of 196, as;

Problem 8.

19 5
First
6,000

Budgeted production

Second
9,000

19 6
Third
15,000

Fourth
10,000

First
7,000

The chip used in production of the calculator is often hard to get, so it is

necessary for the company to carry large inventories as a precaution against
stock outs. For this reason, the inventory of chips at the end of a quarter must
be equal to 25 percent of the following quarter's production needs. Some 4,500
chips will be on hand to start the first quarter of 195.
Required
Prepare a materials purchases budget for chip by quarter and in total for 195.
Show your budget both in number of chips and in rupees.
(Ans.: Planned purchase 1: Rs.162,000; 2: Rs.252,000;
3: Rs.330,000; 4: Rs.222,000; Total Rs.966,000 : Planned
purchase of chips units - 1: 20,250; 2: 31,500; 3: 41,250;
4: 27,750; Total 120,750)
Problem 9. A company produces a product which passes through departments one & two. The
production plan for for a particular year is as follows:
Period
Units

1st quarter
40,000

2nd quarter
50,000

3rd quarter
60,000

4th quarter
40,000

Standard labour hours per unit of finished product

Department
1
2

Std. labour hrs.

0.6
0.4

Average wage rate

Rs.4
Rs.5

Required
Direct labour cost budget and direct labour hour budget by departments.
Problem 10. The expenditures for selling and distribution in the last budget period of a company are;
Description

For

Mahakali
(Rs.)

Seti (Rs.)

Karnali (Rs.)

Sales commission.......................................

20,000

30,000

10,000

Selling expenses.........................................
Warehouse expenses.................................

10,000
16,000

30,000
16,000

50,000
60,000

Salary..........................................................
Advertising expenses..................................

12,000
20,000

20,000
20,000

50,000
50,000

Total............................................................

78,000

116,000

220,000

the coming years budget, the following changes are to be allowed:

Sales commission in Karnali decreases by 10%.
Warehouse expenses in the case of Seti & Mahakali will increase by 10%.
Salaries will increase by Rs.5,000, Rs.10,000 & Rs.15,000 for Mahakali, Seti and Karnali
respectively.
In Seti & Mahakali, advertising expenses will increase by 10% & 20% respectively.
Selling expenses will be decreased by 10% in each area. You are required to prepare the
selling expenses budget for the coming year.

AGyawali, Associate Professor

Central Department of Management, TU.
Required
Selling Expenses Budget for the coming year.

Problem 11. Prepare a Cash Budget of Rajeev & Company for April, May and June
2009:
Months
Jan.
Feb.
March
April
May
June

Sales
Rs.
80,000
80,000
75,000
90,000
85,000
80,000

(Actual)
(")
(")
(Budget)
(")
(")

Purchases
Rs.
45,000
40,000
42,000
50,000
45,000
35,000

Wages
Rs.
20,000
18,000
22,000
24,000
20,000
18,000

Expenses
Rs.
5,000
6,000
6,000
7,000
6,000
5,000

Additional information:
i)

10% of the purchases and 20% of Sales are for cash.

ii) The average collection period of the company is 1/2 month and the credit
purchases are paid regularly after one month.
iii) Wages are paid half monthly and the rent of Rs. 500 included in expenses is paid
monthly. Other expenses are paid after one month lag.
iv) Cash balance on April 1, 2014 may be assumed to be Rs. 15,000.
Problem 12. Prepare a cash budget for AprilJune 2014 from the following
information:
i)

Actual and Budgeted Sales:

Actual

Jan.
Feb.
March

ii)

Budget
Rs. 80,000
Rs. 80,000
Rs. 75,000

April
May
June

Actual and Budgeted Purchases:

Actual

Jan.
Feb.
March

iii)

Budget
Rs. 45,000
Rs. 40,000
Rs. 42,000

April
May
June

Rs. 50,000
Rs. 45,000
Rs. 35,000

Actual and Budgeted Wages and expenses:

Actual

Jan.
Feb.
March

Rs. 90,000
Rs. 85,000
Rs. 80,000

Budget
Rs. 25,000
Rs. 24,000
Rs. 28,000

April
May
June

Rs. 31,000
Rs. 26,000
Rs. 23,000

iv)

Special: Advance incometax in May Rs. 4,000, plant in April Rs. 10,000.

v)

Rent Rs. 300 payable each month not included in wages and expenses.

vi)

10% of purchases and sales are on cash basis.

AGyawali, Associate Professor

Central Department of Management, TU.
vii) Credit purchases are paid after one month and credit sales are collected after 2
months. Time lag in wages and expenses 1/2 month.
viii) Opening balance of cash on 1st April 2014 Rs 13,000.
Problem 13. A Ltd. company prepares business budget to exercise control over
operations. The sales figure and purchase figure for recent month and
expected for next month are as follows:
Baishakh
Jestha
Ashad

Sales
Rs.200,000
300,000
350,000

Jestha
Ashad

Purchase
Rs.175,000
300,000

Credit sales are 80% of total sales, 50% of credit sales are collected in the following
month and balance 50% in the next following months of sales. All purchases are
credit purchases payable in the following month of purchase. Bank loan due for
Ashad is Rs.60,000 and interest due is Rs.6,000. Depreciation for Ashad Rs.10,000.
Wages due for Ashad but payable next month Rs.50,000 and other expenses due
and payable in Ashad Rs.60,000. Cash balance on 31st Jestha 50,000.
Required:
Cash balance showing cash receipt and disbursement for the month of Ashad. (TU
2050)
Problem 14. A manufacturing company in a process of preparing master budget
forecasted the following sales and also collected the actual related figures of
last year.
Beginning inventories

Beginning balances

Finished goods
Material A
Material B

10,000 units
30,000 units
40,000 units

Months
Sales in units

Baisakh
10,000

Accounts payable
Cash balance
Accounts receivable

Rs.50,000
Rs.20,000
40,000
(Rs.10,000 of Falgun and Rs.30,000 of Chaitra sales)

Sales forecasts
Jestha
15,000

Ashad
15,000

Shrawan
20,000

Bhadra
20,000

Sales are mostly on credit. 50% of sales will realize on the month of sales, 30% in
the next month and remaining 20% in the following next month of sales. Suppliers
will be paid for in the next month of purchase, and other expenses including wages
will be paid for at the time when they are due. Normal selling price will be Rs.10 per
unit. Each unit of finished product will need 3 units of materials A at a cost of Rs.3,
and 4 units of material B at a cost of Rs.2, other expenses and wages cost will be
Rs.2 per unit.
Company has a policy to keep minimum cash balance of Rs.20,000 finished goods
and raw material inventories to meet next months sales and production needs

AGyawali, Associate Professor

Central Department of Management, TU.
respectively.
Required:
a. Material purchase budget for 1st three months.
b. Cash receipts and disbursement budget to ascertain bank borrowings if needed
for 1st three months.
(TU 2054)

Problem 15.

The past sales, forecasted sales and the manufacturing overhead budget are

presented below:

Months
Sales in units

Falgun
20,000

Chaitra
30,000

Schedule I
Past and forecasted sales
Baishakh
Jestha
40,000
40,000

Ashadh
30,000

Shrawan
20,000

Bhadra
30,000

Schedule II
Manufacturing overhead budget
Months
Indirect labour.............................................
Heat, light and power..................................
Supervision.................................................
Depreciation................................................

Baisakh
80,000
20,000
10,000
10,000

Jestha
60,000
20,000
10,000
10,000

Ashad
40,000
20,000
10,000
10,000

120,000

100,000

80,000

Selling price per unit will be Rs.20 each. All sales are credit sales, and credit sales will be
realised at 60% in the month, 30% in the next month; and the balance in the next following month
of sales. Purchases and all other expenses will be paid in the month of purchases and the
expenses.
Each unit of finished product will need one unit of raw material at a cost of Rs.4 and two
direct labour hours @ Rs.2.50 per hour.
The ending balance of raw materials and the finished product will be equal units of raw
materials and finished products necessary to meet the production and sales need of the next
month respectively and the desired ending balance of cash Rs.20,000.
The beginning balances of raw materials and finished products were 40,000 units each and
the cash balance of Rs.20,000.
Required
a)
Production Budget
b)
Material Purchase Budget
c)
Cash Collection and Disbursement Budget.
(TU 2056 )

Problem 16. The information needed for the preparation of master budget has
been provided below:
Schedule 1
Balance sheet at the beginning of 2055
Liabilities

Amount (Rs.)

Assets

Amount (Rs.)

AGyawali, Associate Professor

Central Department of Management, TU.
Share capital
Retained earnings
Loan
Accounts payable
Total liabilities

125,000
45,000
20,000
75,000
265,000

Cash at bank
Raw material
Accounts receivable
Machinery and plant
Total assets

10,000
75,000
60,000
120,000
265,000

Schedule 2
Sales budget for 4 months
Baishak
300,000

Budgeted sales value (Rs.)

Jestha
400,000

Ashad
500,000

Shrawan
500,000

Schedule 3
Cost of goods sold budget for three months
Expenses
Direct materials: 25% of sales
Direct wages: 30% of the sales
Factory supervision
Other factory expenses
Depreciation

Baisakh
75,000
90,000
10,000
4,000
1,000

Jestha
100,000
120,000
15,000
4,000
1,000

Ashad
125,000
150,000
20,000
4,000
1,000

20% of sales of the month are cash sales and balances are credit sales. 60% credit
sales are collected in the month of sales and balance in the following month of
sales. Purchases are paid in the next month of purchase and all other expenses are
paid in the month when they are due.
Company maintained no inventory of finished goods. Therefore, productions are
equal to sales of the month. The inventory of materials is maintained to meet the
next months production and sales need. A minimum cash balance of Rs.10000 to
be maintained. Interest are payable together with amount of loan paid. Operating
expenses are 20% of sales revenue.
Required:
a)

Budgeted income statement

b)

Cash collection and disbursement budget

c)

Budget balance sheet at the end of 2055

Answers: a. Net income Rs.2,4,0000 b. Ending cash balance Rs.1,53,000 c. Balance sheet
Rs.5,55,000

(TU MBS Model)

Problem 17. A Company in its planning process prepared various budgets and also
furnished the Balance Sheet of last year as follow:
Opening Balance Sheet of 1st Baishak
Shareholders equity
Accounts payable
Bank loan (Payable every month
Rs. 10,000 with interest @ 12%)

440,000
60,000
200,000

Inventory of finished goods 10,000 units

Raw materials inventory 30,000 units
Account receivable
Cash
Other fixed assets

700,000
Sales forecast for 1st three months & for Shrawan

100,000
120,000
60,000
20,000
400,000
700,000

AGyawali, Associate Professor

Central Department of Management, TU.
Months

Baishak
10,000
Rs. 200,000

Sales in unit
Sales Revenue

Jestha
12,000
Rs. 240,000

Ashad
12,000
Rs.240,000

Shrawan
15,000
Rs.300,000

Total
34,000
Rs.680,000

Production Budget
Months
Units Produced

Baishak
12,000

Jestha
12,000

Ashad
15,000

Total
39,000

Ashad
30,000
Rs.120,000

Total
97,500
Rs.390,000

Materials Purchase Budget

Months
Units Purchased
Purchase Price

Baishak
30,000
Rs.120,000

Jestha
37,500
Rs.150,000

Wages and other manufacturing expenses are Rs. 6 per unit, and operating
expenses are 10% of gross sales figure. 80 percent of sales is in cash and remaining
20 percent on credit of 30 days. Credit sales are collected in the next month of
sales. 50% of the purchases are paid in the month of purchase and balance only in
the next month. Wages and other expenses are paid for at the time when they are
due. Each unit of finished product needs 2.5 units of raw materials.
Required:
a.
Statement of cost of goods sold budget
b.
Budgeted income statement
c.
Cash collection and disbursement budget
d.
Budgeted balance sheet at the end of Ashad. (TU 2053)

Problem 18. Nepal Batteries Ltd. prepares its master budget on a quarterly basis.
The following data have been assembled to assist in preparation of the
master budget for the second quarter of 198
i.
As of March 31, 198 (the end of the prior quarter), the company's balance
were as follows:
Cash
Account receivable
Inventory
Plant and equipment
Account payable
Capital stock
Retained earnings

Rs.9,000
48,000
12,600
200,000

Rs.269600

ii.

Actual sales for March and budgeted sales for April, July are as follows:
March
April
May
June
July

Rs.60,000
70,000
85,000
90,000
50,000

Rs.18,300
180,000
71,300
Rs.269,600

AGyawali, Associate Professor

Central Department of Management, TU.
iii. Sales are 20% for cash and 80% on credit. All credit sale term are net 30. The
accounts receivable at March 31 are a result of March credit sales.
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 month's sales needs, stated at cost.
vii.Half a month's inventory purchases are paid for in the month of purchase and
half in the following month.
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 credit is available at a local branch of Nepal bank ltd. All borrowing is line at
the beginning of a month, and all payments are made at the end of a month.
Borrowings and repayments of principal must be made in multiple of rs.1000.
Loan repayments are on a FIFO basis, interest is paid only at the time of
repayment of principal. However, any interest on unpaid loans should be
properly accrued when statements are prepared. The interest rate is 12% per
annum. (Figure interest on whole month, e.g., 1/12 ,2/12)
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)

Problem 19. The Manufacturers Ltd., in the process of preparing master budget has
gathered the following information:
SCHEDULE I

Past sales and sales forecasts

Months
Sales in unit
Sales revenue

Nov
20,000
400,000

Dec
15,000
300,000

Jan
20,000
400,000

Feb
30,000
600,000

Mar
35,000
700,000

Apr
40,000
800,000

May
35,000
700,000

AGyawali, Associate Professor

Central Department of Management, TU.
SCHEDULE II

Manufacturing overhead cost budget

Months
Indirect materials
Indirect labour
Supervision
Repairs and maintenance
Depreciation
Total

Jan
30,000
60,000
15,000
15,000
5,000
125,000

Feb
35,000
70,000
17,500
17,500
5,000
145,000

Mar
40,000
80,000
20,000
20,000
5,000
165,000

50% of sales will be inc ash and balance on credit. Credit sales will be collected as
50% in the month of credit sales, 30% in the next month of sales and balance in the
next following month of sales. Purchase will be paid in the next month of purchases
and all other expenses will be paid in the month when they are due. Selling and
other expenses will be Re. 1 per unit of sales. Each unit of output will require 1 unit
of material and 2 hours of direct labour hours. Direct labour hour will cost Rs.2 per
hour and each unit of direct labour hours. Direct labour hour will cost Rs.2 per hour
and each unit of material will cost Rs.4. The raw material inventory and finished
goods inventory will be equal to next months production need and sales need
respectively. Company will keep minimum cash balance of Rs.10,000 each month
and in Dec. last year the cash balance was Rs.10,000 finished goods and raw
material inventory at the end of December were 20,000 units each. Creditors
payable for December purchases were of Rs.80,000.
The company will have to retire debenture debts of Rs.100,000 in the month of
January. Soft loan will be available at an interest rate of 12% per annum from the
commercial banks. Borrowing will be in a multiple of Rs.10,000 and repayment will
be in Rs.5,000. The interest will be paid at the time of repayment on the amount of
loan.
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 1 st three months.
Problem 20. The Nepal Trading House Ltd. have collected the following information
to prepare Master budget.
Balance Sheet on January1, 2004
Rs.
Equity
10% debenture

150,000
20000

Retained earnings

26000
196000

Rs.
Merchandise inventory
Account receivable
November sales
16000
December 60000
Cash at bank

100000

76000
20000
196000

Merchandise sales budget

Particulars/Months

Jan

Sales revenue Rs.

200000

Feb
300000

Mar

Apr

350000

300000

AGyawali, Associate Professor

Central Department of Management, TU.
Sales would be 20% in cash and 80% on credit. Credit sales would realise 50% in
the month of sales, 30% in the next month; 16% in the following next month of
sales and bad debts would be 4%. All expenses including purchases would be paid
in the same month of expenses and purchases. Gross profit margin would be 50%
on sales and administrative and distribution expenses would be 10% of gross sales.
Sufficient merchandise inventory would be maintained to meet next months sales
need. The company would desire to have minimum cash balance of Rs.20000. The
10% debenture would retire on January 1st, and payable at a premium of 10%.
A line of credit in a multiple of Rs.10000 at an interest rate of 12% would be
available to meet cash shortage and repayment would be in Rs.1000 with the
interest on principal repaid.
Required:
a)

Merchandise purchase budget.

b)

Cash collection and disbursement budget

c)

Budgeted balanced sheet at the end of March. (TU 2060)

Problem 21. M/S Link Ltd., is a trading company which purchases and sales
merchandise manufactured by other company. The company has adopted a
budgetary system in the planning system. The data relating to the last quarter of
the year have been presented below:
Sales and Sales Forecast
Month

August

Sales in Rs.

400,000

Septembe
r
500,000

October
500,000

Novembe
r
600,000

December

Jan 2004

800,000

700,000

All sales will be on credit. Credit will realize 50% in the month of sales 30% in the
next month of the sales and remaining 20% in the next following month of sales.
The gross profit margin on sales will be 40%.
The purchase of merchandise and all other related expenses will be made in
the month of purchase and the expenses became due. The administrative and
distribution expenses excluding the depreciation on office equipment of Rs.5,000
per month will be 20% of the sales revenue. Company will retire debenture debts of
Rs.200,000 at a premium of 10% in the month of October and buy a new computer
for Rs.50,000.
As a policy company will maintain Rs.25,000 as cash balance and
merchandise inventory necessary to meet next months sales.

AGyawali, Associate Professor

Central Department of Management, TU.
A line of credit at an interest rate of 12% p.a. will be available from a
commercial bank. The borrowing will be in a multiple of 5,000 and repayments in
Rs.1,000 plus the interest on the amount of principal repaid.
Required
a) Merchandise Purchase Budget for last quarter.
b) Administrative and Distribution Cost Budget for the last quarter
c) Cash collection and distribution budget for last quarter
Problem 22.The information needed for the preparation of master budget have been
provided below.
Schedule: I Balance sheet at the beginning of 2055
Liabilities
Share capital
Retained earning
Loan
Accounts payable
Total

Amounts
Rs.1,25,000
45,000
20,000
75,000
2,65,000

Assets
Cash at bank
Raw material
Accounts receivable
Plant &Machinery
Total

Amounts
Rs.10,000
75,000
60,000
1,20,000
2,65,000

Schedule:2 Sales Budget for 4 months

Budgeted Sales
value (Rs.)

Baishak
3,00,000

Jestha
4,00,000

Ashadh
5,00,000

Shrawn
5,00,000

Scheduel:3 Cost Goods Sold Budget for three months

Baishak
Rs.75,000
90,000
10,000
4,000
1,000

Jestha
Rs.1,00,000
1,20,000
15,000
4,000
1,000

Ashadh
Direct material 25% of sales
Rs.1,25,0
Direct wages 30% of the sales
00
Factory supervision
1,50,000
Other factory expenses
20,000
Depreciation
4,000
1,000
20% sales of the month are cash sales & balances are credit sales. 60% credit sales
are collected in the month of sales & balance in the following month of sales.
Purchases are paid in the next month of purchase and all other expenses are paid in
the month when they are due.
Company maintained no inventory of materials is maintained to meet the next
month's production & sales need.
A minimum cash balance of Rs.10,000 to be maintained.
Interest are payable together with amount of loan paid.
Operating expenses are 20% of sales revenue.
Required:
a. Budgeted income statement
b. Cash collection and disbursement budget.
c. Budget balance sheet at the end of 2055.

AGyawali, Associate Professor

Central Department of Management, TU.
Answers: a. Net income Rs.2,4,0000 b. Ending cash balance Rs.1,53,000 c.
Balance sheet Rs.5,55,000

Problem 23. Kathmandu Trading Company in its process of preparing a master budget has
gathered the following information.
Beginning balance from the last year
Schedule: I
Computing Machine
Rs.50,000
Merchandise inventory
Rs.1,20,000
Account receivable
Rs.1,50,000
(50% of Chaitra Sales)
Rs.20,000
Cash at bank
Rs.1,20,000
Account payable (Chaitra
purchase)
Schedule III
Merchandise purchase budget

Schedule II: Forecasted Sales

Baishakh
Rs.2,00,000
Jestha
Rs.3,00,000
Ashad
Rs.3,00,000
Shrawan
Rs.2,00,000

Baishak
Rs.1,80,000
Jestha
Rs.1,80,000
Ashad
Rs.1,20,000
The gross profit margin in sales will be 40% of merchandise sales. Administrative and
selling and distribution expenses will be 20% of sales revenue of the month. Sales are
all credit sales' merchandise purchase will be paid in the following months of
purchase. All other expenses will be paid in the month when they will be due. The
company has intended to purchase additional unit of computing machine at a cost of
Rs.80,000 in the month of Baishakh. The minimum cash balance required for the
months under review will be Rs.20,000. Merchandise inventory at the end of Ashad
will be Rs.1,20,000. The company has an agreement with Nepal Bank Ltd. for a
temporary loan to meet cash deficiency of any months at an interest rate of 12% p.a.
payable for the amount of loan repaid. The borrowing will be in a multiple of Rs.5,000
and payment in a multiple of Rs.1,000.
Required:
a. Budgeted income statement for three months ending Ashad.
b. Cash collection and disbursement budget for three months.
c. Budgeted balances sheet at end of Ashad.
Answers: a. Net income Rs.1,60,000 b. Ending balance of Cash Rs1,00,000 c.
Balance sheet Rs.5,00,000.
Hints:-Ending inventory for the month = cost of goods sold of the next month.

Problem 24. The balance sheet and other operating budgets of a company has been
summarized below:
Balance sheet as at 31st Dec.2004
Rs.

Rs.

AGyawali, Associate Professor

Central Department of Management, TU.
Equity share capital
Accounts payable
Retained earnings

5,00,000
3,00,000
50,000

Machinery & plant

Merchandise inventory
Accounts receivable:
50% December sales
2,40000
20% November Sales
64,000
Cash at bank
Total
8,50,000
Total
Past Sales and Merchandise Sales Budget I:
Particulars\Mont Nov.
Dec.
4,00,00
6,00,000
hs
Sales (Rs.)
Merchandise Purchase Budget II:

Jan.
5,00,000

2,00,000
3,00,000
3,04,000
46,000

8,50,000

Feb.
6,00,000

March.
8,00,000

Particulars\Month
Dec.
Jan.
Feb.
March.
3,00,000
3,60,000
4,80,000
3,60,000
s
Merchandise
purchase
budget(Rs.)
20% of the sales will be in cash and 80% on credit. Credit sales will be realized 50%
in the month of sales, 30% in the next month of sales and 18% in the following next
month of sales; and bad debts will amount to 2% of the credit sales. Purchases of
merchandise will be paid in the next month of purchases. Administrative and
distribution cost other than depreciation of Rs.3,500 will be 30% of the gross sales
value and they will be payable in the month when due. The company will maintain a
minimum cash balance of Rs.30,000 and merchandise inventory sufficient to meet
next month's sales.
The company will buy a machine at a cost of Rs.1,50,000 on Jan. 1 st 2005, and
pay a dividend of Rs.50,000 in the month of Feb.
The company has entered into agreement with the Investment Bank for a soft
loan to meet cash deficiency. The borrowing will be in a multiple of Rs.10,000 and
repayment is Rs.1,000. The bank will charge 12% per annum as interest on the
amount of loan due.
Required:
a. Cash collection and disbursement budget for 1st three month of the year.
b. Income statement for 1st three month.
c. Balanced sheet on 31st March 2005.
[Answers: a. Ending balance of cash Rs.30,000 b. Retained EarningRs. 1,02,200
c. Balance sheet Rs. 11,45,500]
1.

Problem 25.

The summary Balance Sheet of a company as on 31st December

last year was as under:
Liabilities
Share capital
Retained earning
Accounts payable

Rs.
4,00,000
60,000
2,70,000
7,30,000

Assets
Fixed assets
Inventory
Accounts receivable
Cash in hand

Rs.
1,50,000
2,70,000
2,80,000
30,000
7,30,000

AGyawali, Associate Professor

Central Department of Management, TU.
Additionally, you are informed:
Actual and budgeted sales for different months are:

i.

Months

Nov

Dec

Jan

Feb

March

April

Actual sales
(Rs.)
Budgeted
sales(Rs.)

5,00,000
-

5,00,00
0
-

4,50,000

4,00,000

5,00,000

4,50,000

ii.

iii.

iv.

Sales are 20% for cash and 80% on credit. 50% of credit sales will be realized in
the month of sale, 30% in the next month of sales and the balance in the next
following month of sales.
. Gross profit average 40% of sales. Operating expenses and selling expenses will
be 15% and 5% of sales respectively. All expenses are paid for at the time when
they are due:
Desired ending balance of inventory at the end of each month will be sufficient
inventory to meet the following month sales. All purchases will be paid in the next
month of purchase.
Fixed assets costing Rs. 1,50,000 will be acquired on Jan 20th . The company has a
policy of maintain minimum cash balance of Rs.25,000. The company arranged a
loan from bank at 12% per annum. Amount of interest due are paid for the loan
repaid with the repayment amount.

Required:
a. Inventory purchase budget for 3 months ending March.(Ans:2,40,000,
3,00,000 & 2,70,000)
b. Cash Budget for 3 months ending March.(Ans:1,65,300,)
c. Balance Sheet at the end of March.(Ans:9,99,300)
Hints:-Net income Rs.2,69,300.