1.JOURNAL Analyse and then journalise the following transactions in the books of Mr. B. 2009 Jan. 1 1.

Started business with a capital of Rs. 7,500. Jan. 1 2. Purchased goods from Mr. Z for Rs. 2,000 on credit Jan. 1 3. Loan taken from W Rs. 300. Jan. 1 4. Goods sold to Mr. L for cash Rs. 2,500. Jan. 5 5. Cash paid to Mr. Z Rs. 2,000. Jan. 5 6. Purchased Furniture for office Rs. 700. Jan. 5 7. Paid Office Rent out of personal cash of B Rs. 400. Solution JOURNAL OF B Date No. Particulars LF Dr. 2010 Amount. Jan. 1 1. Cash A/c Dr. 7,500 To Bs Capital A/c [Being cash brought in by B to start business] 2. Purchase A/c Dr. 2,000 To Zs A/c [Being goods purchased from Z on credit] 3. Cash A/c Dr. 300 To Ws A/c [Being Loan received from W] 4. Cash A/c Dr. 2,500 To Sales A/c [Being goods sold to L for cash] Jan.5 5. Zs A/c Dr. 2,000 To Cash A/c [Being cash paid to Z for previous credit purchases] 6. Furniture A/c Dr. 700 The Cash A/c [Being furniture purchased for cash] 7. Rent A/c Dr. 400 To capital a/c (Being rent paid out of personal expenditure) Total Rs. 15,400 Illustration 2 2005 Dec 1 3 5 7 11 From the following particulars, prepare the journal of A. Rs. Started business with cash 3,000 Purchased goods for cash 400 Advertisement expenses paid 250 Sold goods for cash 575 Further capital introduced 1,000

Cr. Amount 7,500

2,000

300

2,500

2,000

700

400 15,400

14 17 19 22 29 Solution: Journal of A Date No. 2005 Jan. 1 1.

Paid to B, a creditor 900 Received commission from C in cash 600 Paid to D on account 175 Received from E, a debtor 2,000 Salary paid in cash 1,000

Particulars

LF

Debit Amount. 3,000

Credit Amount

3 2.

5 3.

7 4.

11 5.

Cash A/c Dr. To Capital A/c [For cash introduced as capital] Purchase A/c Dr. To Cash A/c [For cash purchases] Advertisement A/c Dr. To Cash A/c [For advertisement expenses paid] Cash A/c Dr. To Sales A/c [For cash sales] Cash A/c Dr. To Capital A/c [For additional capital] Bs A/c Dr. To Cash A/c [For paid against purchases] Cash A/c Dr. To Commission A/c [For commission from C] Ds A/c Dr. To Cash A/c [For cash paid on account] Cash A/c Dr. To Es A/c [For receipt from E] Salary A/c Dr. To Cash A/c [For salaries paid] Total Rs.

3,000 400 400 250 250 575 575 1,000 1,000

14 6.

900 900 600 600 175 175 2,000 2,000 1,000 1,000 9,900 9,900

17 7.

19 8.

12 9.

10 10.

Illustration 3: Journalise the following transactions: 2005

Jan.

1. 2. 3. 4. 5.

B started business with cash worth Rs. 10,000, Purchased goods for Rs. 15,000 in cash Purchased goods from M for Rs. 3,0O0 on credit Sold goods to Y for Rs. 4,000 on credit Sold goods for Rs. 5,000 in cash Y returned goods worth Rs. 1,000. Returned goods to M worth Rs. 2,000. B took away goods worth Rs. l,000 for personal purpose Goods worth Rs. 2,000 were destroyed in fire. Distributed goods worth Rs. 500 as free samples.

Solution: Journal Date No. 2005 Jan. 1 1.

Particulars

LF

Debit Amount. 10,000

Credit Amount

2 2.

2 3.

3 4.

3 5.

4 6.

4 7.

5 8.

5 9.

5 10.

Cash A/c Dr. To Bs Capital A/c [For goods brought in by B] Purchase A/c Dr. To Cash A/c [For cash purchases; see Note(1)] Purchase A/c Dr. To Ms A/c [For credit purchase from M] Ys A/c Dr. To Sales A/c [For credit sale to Y] Cash A/c Dr. To Sales A/c [For goods returned by Y] Sales return A/c Dr. To Ys A/c [For goods returned by Y] Ms A/c Dr. To Purchase return A/c [For goods returned to M] Drawings A/c Dr. To Goods Taken By B A/c [For goods taken by B] Loss of Fire A/c Dr. To Goods Lost by Fire A/c [For goods lost by fire ] Advertisement A/c Dr. To Goods Given as Samples A/c [For goods given as samples] Total Rs.

10,000 15,000 15,000 3,000 3,000 4,000 4,000 5,000 5,000 1,000 1,000 2,000 2,000 1,000 1,000 2,000 2,000 500 500 43,500 43,500

Illustration 4: Give Journal entries for the following transactions: 1. B started business by bringing in cash Rs. 3,000, goods worth Rs. 4,000 and vehicle worth Rs. 5,000. 2. B purchased goods worth Rs. 8,000 from X and paid him Rs. 2,000. 3. B sold goods worth Rs. 3,000 to A who paid him , immediately. 4. B took goods worth Rs. 1,000 and cash Rs. 2,500 for his own use. Solution: Journal of B Date No. Particulars LF Debit Credit Amount. Amount 1 1. Cash A/c Dr. 3,000 Purchase A/c Dr. 4,000 Vehicle A/c Dr. 5,000 To Bs Capital A/c 12,000 [For items brought in by B to start business] 2 2. Purchase A/c Dr. 8,000 To Cash A/c 2,000 To Xs A/c 6,000 [For purchases from X partly on cash, partly on credit] 2 3. Cash A/c Dr. 1.000 As A/c Dr. 2,000 To Sales A/c 3,000 [For sales to A partly on cash and partly on credit] 3 4. Bs Drawings A/c Dr. 3,500 To Goods Taken by BA/c 1,000 To Cash A/c 2,500 [ goods and cash taken by B] Total Rs. 26,500 26,500 Illustration 5: Journalise the following transactions in the books of both A and B. 2004 Jan. 1 Goods sold by A to B on Credit Rs. 3,000. 2 Goods returned by B to A Rs. 500. 15 Cash paid by B Rs. 2,500 to A. 20 Loan taken by A from B Rs. 10,000. 21 Furniture purchased by A from B worth Rs. 2,000 on credit Solution: Journal of A Date No. Particulars LF Jan. 1 1. Bs A/c Dr.

Debit Amount. 3,000

Credit Amount

2 2.

15 3.

20 4.

22 5.

To Sales [Being goods sold to B on credit] Sales Returns A/c Dr. To Bs A/c [Being goods returned by B out of Jan. 1 transaction] Cash A/c Dr. To Bs A/c [Being cash received from B against credit sales] Cash A/c Dr. To Bs Loan A/c [Being loan taken from B] Furniture A/c Dr. To Bs A/c [Being furniture purchased from B on credit] Total Rs.

3,000 500 500

2,500 2,500

10,000 10,000 2,000 2,000 18,000 18,000

Journal of B Date No. Jan. 1 1.

Particulars Purchase A/c Dr. To As A/c [Being goods purchased from A on credit] As A/c Dr. To Purchase Returns A/c [Being goods purchased on Jan. 1, returned to A] As A/c Dr. To Cash A/c [Being cash paid to A against credit purchases] Loan to A A/c Dr. To Cash A/c [Being loan given to A] As A/c Dr. To Furniture A/c [Being furniture sold to A on credit] Total Rs.

LF

Debit Amount. 3,000

Credit Amount 3,000

2 2.

500 500

15 3.

2,500 2,500

20 4.

10,000 10,000 2,000 2,000 18,000 18,000

22 5.

Illustration 7: 1. B sold goods having a list price of Rs. 1,000 at 20% trade discount to Y on January 1, 2004. B allows cash discount of 10% if payment is received within 10 days. B receives cash from Y on January 8, 2004.

2. B purchased goods having list price of Rs. 800 at 25% trade discount from X on January 10, 2004. X allows 5% cash discount, if payment is made within 20 days. B pays the amount due on 25th January, 2004. 3. On January 30, 2004 B sold goods having a list price of Rs. 4,000 at a trade discount of 20% and received the amount due immediately in cash subject to cash discount of 10%. 4. On January 30, 2004 B purchased goods having a list price of Rs. 9,000 at a trade discount of 30% and paid the amount due immediately in cash subject to cash discount of 10%. 5. On 30th January, 2004 B sold goods having a list price of Rs. 2,000 at 20% trade discount to M and received half the amount due in cash immediately after allowing 10% cash discount. 6. On 31st January, 2004 B purchased goods having a list price of Rs. 4,000 at 25% trade discount from C and paid 1/3rd amount in cash subject to 10% cash discount. Pass necessary Journal Entries to record the above transactions. Solution: Journal of B Date No. Particulars LF Debit Credit Amount. Amount Ys A/c Dr. 800 Jan. 1 1. To Sales 800 [For goods sold to Y: Rs. 1,000 less 20% trade discount] 8 2. Cash A/c Dr. 720 Discount Allowed A/c Dr. 80 To Ys A/c 800 [For cash received from Y : Rs. 800 10% cash discount] 10 3. Purchase A/c Dr. 600 To Xs A/c 600 [For goods bought from X Rs. 800 25% trade discount] 25 4. Xs A/c Dr. 600 To Cash A/c 570 To Discount Received A/c 30 [For cash paid to X: Rs. 600 - 5% cash discount] 30 5. Cash A/c Dr. 2880 Discount Allowed A/c 320 To Sales A/c 3,200 [For goods sold for Rs. 4,000 less 20% trade discount and cash received Rs. 3,200 less 10% cash discount] 30 6. Purchase A/c Dr. 6,300 To Cash A/c 5,670 To Discount Allowed A/c 630 [For goods bought Rs. 9,000 less 30% trade discount and cash paid Rs. 6,300 less 10% cash discount]

30 7.

30 8.

5 9.

5 10.

Ms A/c Dr. To Sales A/c [For goods sold to M; Rs. 2,000 - 20% trade discount] Cash A/c Dr. Discount Allowed A/cDr. To Ms A/c [1/2 Amount paid by M Rs. 800 - 10% cash discount] Purchase A/c Dr. To Cs A/c [For goods purchased from C Rs. 4,00025% trade discount] Cs A/c Dr. To Cash A/c To Discount Received A/c [1/3 Amount paid to C: Rs. 1,000- 10% cash discount Total Rs.

1,600 1,600

720 80 800

3,000 3,000

1,000 900 100

18,700

18,700

Illustration 8: Prepare Arohis Journal from the following details for January, 2005: Jan. 1 Purchased goods of Rs. 50,000 from Suman. 2 Returned goods of Rs. 1,000 to Suman. 5 Purchased goods of Rs. 50,000 from Vimal @ 10% trade discount. 7 Returned goods having list price of Rs. 1,000 to Vimal. 16 Purchased goods of Rs. 1,00,000 from Naren on credit @ 10% trade discount. 26 Returned goods having list price of Rs. 10,000 to Naren. 31 Purchased goods for Rs. 12,000 @ 5% trade discount from Rakesh. Journal of Arohi Date No. Purchase A/c To Suman Suman a/c To Purchase Return Purchase A/c To Vimal A/c Vimal a/c To purchase return Particulars Dr. LF Debit Amount. 50,000 Credit Amount 50,000 Dr. 1,000 1,000 Dr. 45,000 45,000 Dr. 900 900

2005 1. Jan. 1 2 2.

5 3.

7 4.

16 5.

Purchase a/c To Naren Naren A/C To Purchase Return

Dr.

90,000 90,000

26 6.

Dr.

9,000 9,000

31 7.

Purchase A/c To Rakesh A/C

Dr

11,400 11,400

Total Rs.

2,07,300

2,07,300

Illustration 9 : Prepare Sonias Journal from the following details for January, 2005: Jan. 1 Sold goods of Rs. 5,000 to Monica. 2 Monica returned goods of Rs. 1,000. 5 Sold goods of Rs. 5,000 to Radhika @ 10% traae discount. 7 Radhika returned goods having list price of Rs. 1,000. 16 Sold goods of Rs. 10,000 to Namita on credit @ 10% trade discount. 26 Namita returned half the goods. 31 Sold goods for Rs. 12,000 @ 5% trade discount to Ruchita. Journal of Monica Date No. Monica A/c To Sales SalesReturnA/c To Monica Radhika A/c To Sales A/c Sales Return a/c To Radhika A/C Namita a/c To Sales A/C SalesReturnA/C To Namita Particulars Dr. LF Debit Amount. 5,000 Credit Amount 5,000 Dr. 1,000 1,000 Dr. 4,500 4,5000 Dr. 900 900 Dr. 9,000 9,000 Dr. 4,500 4,500

2005 1. Jan. 1 2 2.

5 3.

7 4.

16 5.

26 6.

31 7.

Ruchita A/c To Sales A/C

Dr

11,400 11,400

Total Rs.

36,300

36,300

Illustration 10 : Enter the following transactions in Journal of A. Dec. 1 Cash introduced in business Rs. 10,000. 3 Purchased goods for cash Rs. 2,700. 5 Received Rs. 2,500 from C and allowed discount of C 500. 7 Paid to B Rs. 450 and received a discount of Rs. 50. 11 Paid, wages to workers Rs. 4,300. 16 Paid for office rent Rs. 600 19 Received from B Rs. 1,800 after allowing him a discount of Rs. 200. 23 Received interest Rs. 150. 27 Received Rs. 2,400 from C for the balance due, the amount payable is Rs 3,000 Solution: Journal of A Date No. Particulars LF Debit Credit Amount. Amount 2005 Cash A/c Dr. 10,000 Dec. 1 1. To Capital A/c 10,000 [For cash introduced as capital] 3 2. Purchases A/c Dr. 2,700 To Cash A/c 2,700 [For cash purchases) 5 3. Cash A/c Dr. 2,500 Discount Allowed A/c Dr. 500 To Cs A/c 3000 [For cash received and discount allowed] 7 4. Bs A/c Dr. 500 To Cash A/c 450 To Discount Received A/c 50 [For cash paid and discount received] 11 5. Wages A/c Dr. 4,300 To Cash A/c 4,300 [For wages paid) 16 6. Office Rent A/c Dr. 600 To Cash A/c 600 [For office rent paid] 19 7. Cash A/c Dr. 1,800 Discount Allowed A/c Dr. 200 To Bs A/c 2,000 [ cash received and discount allowed)

23 8.

27 9.

Cash A/c Dr. To Interest A/c [For receipt of interest) Cash A/c Dr. Discount Allowed A/c Dr. To C A/c [For cash received and discount allowed] Total Rs.

150 150 2,400 600 3,000 26,250 26,250

Illustration 11: Record the following transactions in the books of D: 2004 Jan.1. Purchased machinery from B for Rs. 50,000. Expenses on transportation 2,000. Installation charges came to Rs. 3,000. Jan. 2 Purchased an office building for Rs. 75,000. Feb. 20 Paid Rs. 3,000 for repairs on machinery and Rs. 4,000 on electricity, machinery. Paid Insurance premium for office building Rs. 7,500. Oct. 10 Sold office building to M for Rs. 90,000 on credit Oct. 20 Sold machinery for Rs. 45,000 on cash Solution: Journal of D Date No. Particulars LF Debit Amount. Machinery A/c Dr. 55,000 Jan. 1 1. To Bs A/c [For machinery purchased and expenses on transportation and installation ) 2 3. Office Building A/c Dr. To Cash A/c [For office building purchased vide agreement dated .] Machinery Repairs A/c Dr. Electricity A/c Dr. Building Insurance A/c Dr. To Cash A/c [For various expenses paid] Ms A/c Dr. To Office Building A/c To Profit on Sale of Fixed Asset A/c [For sale of office building to M at profit: 90,000 - 75,000] Cash A/c Dr. Loss on Sale of Fixed Asset A/c Dr. To Machinery A/c [For sale of machinery at loss: 75,000

were Rs.

to run the

Credit Amount 55,000

75,000

Feb. 20 4.

3,000 4,000 7.500 14,500 90,000 75,000 15.000

Oct. 10 5.

20 6.

45,000 10,000 55,000

50,000 + 5,000 - 45,000] Total Rs. 2,89,500 2,89,500

Illustration 12: Record the following transactions in the books of C: 2004 Jan. 1 Purchased 100 Shares of BBC Limited having face value of Rs. 10 at Rs. 20 each. Paid brokerage at 1% of purchase price. Oct. 10 BBC Limited declared and paid dividend at the rate of 15%. Oct. 20 Sold the shares of BBC Limited at Rs. 25 each. Solution: Journal of C Date No. Particulars LF Debit Credit Amount. Amount Investment in Shares A/c Dr. 2,020 Jan. 1 1. To Cash A/c 2,020 [For purchase of 100 shares of BBC Ltd. at Rs. 20 each: 100 20 and paid the brokerage of 1%) Oct. 10 3. Cash A/c Dr. To Dividend A/c [Dividend received on shares : at 15% of Rs. 1,000] Cash A/c Dr. To Investment in Shares A/c To Profit on Sale of Investment A/c [For profit on sale of shares in BBC Ltd.] Total Rs. 150 150

20 4.

2,500 2,020 480 4,670 4,670

2. Depreciation Q1) On 1/4/2008 Amruta and company purchased a imported Machine from France the cost of the machine is Rs 15,00,000 and import duty of Rs 2,50,000 and installation charges 25,000. On 1/8/2009 the imported Machine was sold for Rs 5,00,000. On the same date it purchased another machine for Rs 1,00,000. On 1/8/2010 the company purchased another machine for Rs 4,00,000 Prepare machinery account and depreciation account for 2008-09, 2009-10, 2010-11, assuming that depreciation is charged on diminishing balance method at 10%.Assume the year to be calendar year Q2) On 1/8/2008 Shyam and company purchased a imported Machine from France the cost of the machine is Rs 18,00,000 and import duty of Rs 2,55,000 and installation charges 1,25,000. On 1/6/2009 the imported Machine was sold for Rs 5,00,000. On the same date it purchased another machine for Rs 1,00,000.

On 1/7/2010 the company purchased another machine for Rs 6,00,000 Prepare machinery account and depreciation account for 2008, 2009, 2010, assuming that depreciation is charged on Reducing balance method at 15% and the year to be the Financial year
3.

Final accounts
The Trial balance of M/s. Shubhang & Co as on 31st December, 2009 was as follows Debit Balance Rs. Credit Balance 0 - - 1,23,000 Sundry Creditors Opening stock of Raw Material Opening stock of Work in Progress Opening stock of Finished Goods Sundry Debtors Carriage Inward Carriage Outward Bills Receivable Wages Salaries Repairs of Plant Repairs of Office Furniture Purchases of raw material Cash at Bank Plant and Machinery Office Furniture Rent Lighting Expenses Factory Insurance General Expenses Drawings Bad debts 1,50,000 Bills Payable 1,60,000 Sales of Scrap 3,00,000 Commission 18,000 Provision for Doubtful Debts 19,000 Shubhang Capital A/c 28,000 Sales 14,000 30,000 3,200 800 2,00,000 1,00,000 1,00,000 20,000 5,000 6,800 4,000 5,600 2,00,000 4,000 14,91,400 Rs. 27,000 10,000 2,500 1,000 3,600 4,47,300 10,00,000

14,91,400

Following additional information is provided to you : 1. Closing Stock as on 31st December, 2009 was : Raw Materials Rs.1,20,000, Finished Goods Rs. 1,80,000 Semi Finished Goods Rs. 1,17,000. 2. Salaries Rs. 22,000 and Wages Rs.1 2,000 for the month of December was paid in January 2009. 3. Lighting expenses were outstanding Rs. 2000 whereas insurance was prepaid Rs. 1000. 4. 25% of the lighting expenses and rent is to be charged to office premises and the remaining amount is to be charged to factory. 5. Depreciation is to be written off on Machinery at 10% p.a. and on Furniture at 5% p.a.

6. Write of Bad debts to the extent of Rs 10,000. The provision for bad and doubtful debts 5%. Provision for discount on debtors is 2%. 7. Goods distributed to extent of Rs 1,00,000 as free sample 8. Goods destroyed by fire Rs 1,00,000 and insurance claim receivable is 40,000 You are required to prepare manufacturing account, trading account and profit and loss account for the year ended 31-12-2009 and Balance Sheet as on that date. Q4 You are supplied with the information relating to sales and costs of sales of a manufacturing company. You are required to find out: a. P.V. Ratio b. Break-even Point. c. Margin of Safety in 2002. d. Profit when sales are Rs. 1,20,000 e. Sales required to earn a profit of Rs. 75,000. 1) Calculate the revised P.V. ratio, break-even point in each of the following cases: a. Decrease of 10% in selling price. b. Increase of 10% in Variable costs. c. Increase of sales volume to 4000 units and increased in fixed costs by Rs. 40,000 d. Increase of Rs. 18,000 in fixed costs. e. Increase of 20% in selling price and increase of Rs. 8,000 in fixed costs. The sales and cost of sales during the two years were as follows: Year Sales Costs of Sales Units Rs. Rs. 2001 6,00,000 5,60,000 2,400 2002 7,50,000 6,80,000 3,000 Q5. COST SHEET Q1)The State Government granted licence to Sweet Sugar Ltd. to manufacture and sell sugar with a stipulation that 40% of the output should be sold to the State Government at a controlled price of Rs. 3,000 per ton and the balance Output can be sold in the open market at any price. Following are the details of Sweet Sugar Ltd. for the year ended 31 st March, 2004. During the year 3,600 tons Sugarcane was consumed @ Rs. 1,000 per ton. Direct labour amounted to Rs. 825 per ton of sugar produced. The details of other expenditure are as follows:Particulars Rs. Direct Expenses 4,20,000 Telephone Charges 3,52,695 Office Computer purchased 2,75,350 Factory Rent and Insurance 3,54,760 Machinery purchased 4,25,560 Machinery Repairs 98,847

Commission on Sales 3,37,650 Factory Salaries 2,19,588 Carriage Outward 1,54,090 Packing Expenses 1,94,450 Bank Interest 1,65,895 Factory Electricity 2,61,880 Delivery Van Expenses 1,06,850 Coal Consumed 3,80,125 Depreciation on Machinery 2,49,600 Depreciation Computer 2,04,180 Depreciation on Delivery Van 1,57,360 Office salaries 1,89,325 Printing and Stationery 1,13,000 During the year 2,400 tons of sugar was produced. The Companys Profit target for the year, for fixing the open market selling price on the basis of cost sheet, is 10% of its average paid-up Capital of Rs. 1,42,56,000. Prepare cost sheet and find various components of total cost and per unit cost and suggest the Selling Price for Open-Market. Q2)A Co. manufactures two types of products viz, A and B. the following information is available for the year ended 31st March, 2004: Direct material Rs. 6, 75,000 Direct Wages Rs. 9, 90,000 Works overheads Rs. 1, 95,000 Direct material used per unit in Product A were 3 times that of product B. Direct wages per unit in Product B were 2/3 that of Product A. Works overheads per unit were the same for both the products. Administration overheads were 100% of the Prime Cost in each of the products. Selling and Distribution cost per unit was Rs. 6 for both A & B. 35,000 units of Products A were produced, out of which 32,000 units were sold @ Rs. 100/- per unit. 30,000 units of Product B were produced, out of which 25,000 units were sold @ Rs. 65/- per unit. Prepare Cost Sheet showing total cost and cost per unit for both the products. Q3)Vajinath Polymers manufactures and sells a typical brand of tiffin boxes under its own brand name. The installed capacity of the plant is 1, 20,000 units per year, distributable evenly over each month of calendar year. The cost Accountant of the company has informed you about the cost structure of the product, which is as follows: Raw materials Rs. 20 per unit. Direct Labour Rs. 12 per unit Direct Expenses Rs. 2 per unit Variable Overheads Rs. 16 per unit Fixed Overheads for the year Rs. 3, 00,000.

Semi-Variable Overheads are as follows:Rs. 7,500 per month up to 50% capacity and Additional Rs. 2,500 per month for every additional 25% capacity utilization or part thereof. The plant was operating at 50% capacity during the first seven months of the calendar year 2003 and at 100% capacity in the remaining months of the year. The selling price for the period from 1st January 2003 to 31st July, 2003 was fixed at Rs. 69 per unit. The firm has been monitoring the profitability and revising the selling price to meet its annual profit target of Rs. 8 lacs. You are required to suggest the selling price per unit for the period from 1 st August, 2003 to 31st December, 2003. Prepare cost sheet clearly showing the total and per unit cost and also profit for the period:From 1st January 2003 to 31st July 2003 From 1st August 2003 to 31st December 2003.

Q6. Budgetory control Illustration 1: ABC manufacturing company produces 7500 units by utilizing its 75% capacity, supplies you the following cost information: Cost information at 75%. Capacity Utilization (For 7500 units) Particulars Rs. Direct Materials 7,50,000 Direct Labour 6,00,000 Direct Expenses 3,00,000 Factory Overheads 4,50,000 Office Overheads 3,00,000 Selling Overheads 1,50,000 Additional Information: a) Direct material, direct labour and direct expenses are variable cost. b) Factory overheads per unit increases by 10%, if capacity utilization goes down below the 75% and decrease by 15% if capacity utilization goes up above the 75%. c) Office overheads are fixed overheads. d) Selling overheads per unit increase by 20% if capacity utilization goes down below 75% and decreases by 25% if capacity utilization goes up above the 75%. e) It is the policy of the company to charge profit at 20% on selling price. You are required to prepare a flexible budget at 50%, 75% and 100% capacity utilization. Solution: ABC Manufacturing Company Flexible Budget Capacity (%) 75 50 100 Units 7,500 5,000 10,000 Per Unit Rs. Per Unit Rs. Per Unit Rs. A. Sales 425 31,87,500 462.50 23,12,500 395 39,50,000 B. Variable Costs Direct Materials 100 7,50,000 100.00 5,00,000 100 10,00,000 Direct Labour 80 6,00,000 80.00 4,00,000 80 8,00,000 Direct Expenses 40 3,00,000 40.00 2,00,000 40 4,00,000 Variable Overheads 60 4,50,000 66.00 3,30,000 51 5,10,000 Factory Overheads 20 1,50,000 24.00 1,20,000 15 1,50,000 Selling Overheads 300 22,50,000 310.00 15,50,000 286 28,60,000 Total Variable Costs 125 9,37,500 152.50 7,62,500 109 10,90,000 C. Contribution (A-B) D. Fixed Costs 40 3,00,000 60.00 3,00,000 30 3,00,000 Administrative 40 3,00,000 60.00 3,00,000 30 3,00,000 Total Fixed Costs E. Total Costs (B + D) 340 25,50,000 370.00 18,50,000 316 31,60,000 F. Profit (A E) [Note] 85 6,37,500 92.50 4,62,500 79 7,90,000 Note: Profit = 20% of Selling Price = 25% of cost.

Illustration 2: The following information relates to the productive activities of J.K. Ltd. for three months ending on 31st March 2000. Particulars Rs. Fixed Expenses: - Management Salaries 2,10,000 - Rent and Taxes 1,40,000 - Depreciation of Machinery 1,75,000 - Sundry Office Expenses 2,22,500 7,47,500 Semi variable Expenses: (at 50% Capacity) - Plant Maintenance 62,500 - Indirect Labour 2,47,500 - Salesmans Salaries 72,500 - Sundry 65,000 4,47,500 Variable Expenses: (at 50% Capacity) - Material 6,00,000 - Labour 6,40,000 - Salesmens Commission 95,000 13,35,000 It is further noted that semi-variable expenses remain constant between 40 and 70% capacity, increase by 10% of the above figures between 70 and 85% capacity and increase by 15% of the above figures between 85 and 100% capacity. Fixed expenses remain constant whatever the level of activity may be. Sales at 60% capacity are Rs. 25, 50,000, 80% capacity Rs. 34, 00,000 and 100% capacity Rs. 42, 50,000. Assuming that all items produced are sold you are required to prepare a flexible budget at 60, 80 and 100% capacity. Solution In the Books of J. K. Ltd. Flexible Budget for 3 Months ending on 31-3-2000. Capacity 60% 80% 100% A. Fixed Expenses Management Salaries 2,10,000 2,10,000 2,10,000 Rent and Taxes 1,40,000 1,40,000 1,40,000 Depreciation on Machinery 1,75,000 1,75,000 1,75,000 Sundry Office Expenses 2,22,500 2,22,500 2,22,500 7,47,500 7,47,500 7,47,500 B. Semi Variable Expenses Plant Maintenance 62,500 68,750 71,875 Indirect Labour 2,47,500 2,72,250 2,84,625 Salesmens Salaries 72,500 79,750 83,375 Sundry 65,000 71,500 74,750

4,47,500 C. Variable Expenses Materials Labour Salesmens Commission D. Total Expenses (A+B+C) E. Sales F. Profit / (Loss) 7,20,000 7,68,000 1,14,000 16,02,000 27,97,000 25,50,000 2,47,000

4,92,250 9,60,000 10,24,000 1,52,000 21,36,000 33,75,750 34,00,000 24,250

5,14,625 12,00,000 12,80,000 1,90,000 26,70,000 39,32,125 42,50,000 3,17,875

Illustration 3: For production of 5000 electrical tubes the following are budgeted expenses: Particulars Per Unit Rs. Direct Material 60.00 Direct Labour 30.00 Direct Expenses 10.00 Variable Overheads 25.00 Fixed Overheads (Rs. 1,50,000) 30.00 Selling Expenses (10% Fixed) 30.00 Administrative Expenses (Rs. 20,000 Fixed) 10.00 Distribution Expenses (20% Fixed) 10.00 Total Cost of Sales 205.00 Prepare a budget for production of 3,000; 4,000 and 6,000 units of electrical tubes. Solution: Flexible Cost Budget (for Electrical Tubes)
Units Production Costs Variable Costs Direct Materials Direct Labour Direct Expenses Variable Overheads - Factory OH - Admn. OH - Selling OH - Distribution OH Total Variable Costs Fixed Costs - Factory - Administration - Selling - Distribution Total Fixed Costs Total Costs 5,000 Per Unit Rs. 3,000 Per Unit Rs. 4,000 Per Unit Rs. 6,000 Per Unit Rs.

60.00 30.00 10.00 25.00 6.00 27.00 8.00 166.00 30.00 4.00 3.00 2.00 39.00 205.00

3,00,000 1,50,000 50,000 1,25,000 30,000 1,35,000 40,000 8,30,000 1,50,000 20,000 15,000 10,000 1,95,000 10,25,000

60.00 30.00 10.00 25.00 6.00 27.00 8.00 166.00 50.00 6.67 5.00 3.33 65.00 231.00

1,80,000 90,000 30,000 75,000 18,000 81,000 24,000 4,98,000 1,50,000 20,000 15,000 10,000 1,95,000 6,93,000

60.00 30.00 10.00 25.00 6.00 27.00 8.00 166.00 37.50 5.00 3.75 2.50 48.75 214.75

2,40,000 1,20,000 40,000 1,00,000 24,000 1,08,000 32,000 6,64,000 1,50,000 20,000 15,000 10,000 1,95,000 8,59,000

60.00 30.00 1.00 25.00 6.00 27.00 8.00 166.00 25.00 3.33 2.50 1.67 32.50 198.50

3,60,000 1,80,000 60,000 1,50,000 36,000 1,62,000 48,000 9,96,000 1,50,000 20,000 15,000 10,000 1,95,000 11,91,000

Illustration 4:

The following expenses relate to a cost centre operating at 80% of normal capacity (sales are Rs. 2, 40,000). Draw up flexible administration selling and distribution costs budget operating at 90%. 100% and 110% of normal capacity. Particulars Rs. Administration Costs Office Salaries 6,000 General Expenses 2.5% of Sales Depreciation 4,500 Rates and Taxes 3,500 Selling Costs Salaries 4% of Sales Traveling Expenses 2% of Sales Sales Office 1% of Sales General Expenses 1% of Sales Distribution Costs Wages (40% Fixed) 16,000 Rent 0.4% of Sales Other Expenses 2% of Sales Solution: Flexible Cost Budget
Capacity (%) Units Sales Variable OH (12.9% of Sales) - Distr. Wages (60%) Total Variable Costs Fixed Costs -Depreciation - Off. Salaries - Rates & Taxes -Distr. Wages (40%) Total Fixed Costs Total Costs 80 8,000 Per Unit Rs. 30.00 2,40,000 3.87 30,960 9.600 40,560 4,500 6,000 3,500 6,400 20,400 60,960 90 9,000 Per Unit Rs. 30.00 2,70,000 3.87 34,830 10,800 45,630 4,500 6,000 3,500 6,400 20,400 66,030 100 10,000 Per Unit Rs. 30.00 3,00,000 3.87 38,700 12,000 50,700 4,500 6,000 3,500 6,400 20,400 71,100 110 11,000 Per Unit Rs. 30.00 3,30,000 3.87 42,570 13,200 55,770 4,500 6,000 3,500 6,400 20,400 76,170

4.35 0.56 0.75 0.44 0.80 2.55 6.90

4.35 50.00 0.67 0.39 0.71 51.77 56.12

5.00 45.00 0.60 0.35 0.64 46.59 51.66

5.00 40.91 0.55 0.32 0.58 42.35 47.42

Variable Overheads (12.9% of Sales) include expenses (general, salaries, traveling etc.) which vary directly as percentage of sales i.e. 2.5 + 4 + 2 + 1 + 1 + 0.4 + 2 = 12.9%. Illustration 5: (Budgeted P & L A/c) CTB Ltd. produces and markets three products. C. T and B. the company is presenting its budget for the next quarter ending 31st March 2004. It expects to sell 4,200, 800 and 500 Nos. at selling price of 50, Rs. 85 and Rs. 158 per unit respectively of the products C, T and B during the above period. The following data is furnished: 1) Material and Labour requirements C T B Timber per unit (in cu. ft.) 0.5 1.2 2.5 Upholstery per unit ((in sq. yds) 0.25 ---

Carpenters time (Mins. Per unit) 45 60 75 Fixer and Finishers time (mins per unit) 15 15 30 Timber costs Rs. 50 per cu. ft. and upholstery costs Rs. 20 per sq. yds. Fixing and Finishing Material costs 5% of the cost of timber and upholstery. Carpenter get Rs. 6 per hour and Fixer and Finisher gets Rs. 4.80 per hour. 2) Inventory Levels Planned: Timber Upholstery C T B (cu. ft.) (sq. yds.) (Nos.) (Nos.) (Nos.) Opening 600 400 400 100 50 Closing 650 260 200 300 50 3) Fixed overheads would be Rs. 8,000 per month. You are required to prepare: a) A Production Budget showing quantities of C, T, B to be manufactured. b) A Raw Materials Purchases Budget in quantities as well as in Rupees. c) A Direct Wage Cost Budget. d) A statement showing variable cost of manufacture per unit of all three products viz. C, T and B. e) Budget Net Income / Profit for the quarter ending 31st March 2004. Solution: Budget (Production + Wages + Variable Cost + Profit)
Particulars A. Budgeted Sales (Rs.) B. Budgeted Sales (Units) C. Closing Stock (Units) D. Opening Stock (Units) E. Production (Units) F. Timber: 1. Material P.U. (Cu. Ft.) 2. Material Consumed 3. Rate Per Kg. (Rs.) 4. Materials Consumed (Rs.) G. Upholstery 1. Material P.U. (Sq. Yd.) 2. Material Consumed 3. Rate Per Kg. (Rs.) 4. Material Consumed (Rs.) H. Timber + Upholstery Cost I. Fixing Material @ 5% J. Carpenter: 1. Time P.U. 2. Time (Hrs.) 3. Wages P. Hr. (Rs.) 4. Total Wages K. Fixer 1. Time P.U 2. Time (hrs) 3. Wages P. Hr. (Rs.) 4. Total Wages L. Total Variable Costs Variable Costs P.U. M. Contribution N. Fixed Overheads Working Units x Price Given Given Given B+CD C 2,10,000 4,200 200 400 4,000 0.5 2,000 50 1,00,000 0.25 1,000 20 20,000 1,20,000 6,000 45 3,000 6 18,000 15 1,000 4.80 4,800 1,48,800 37.20 T 68,000 800 300 100 1,000 1.2 1,200 50 60,000 0.0 0 20 0 60,000 3,000 60 1,000 6 6,000 15 250 4.80 1,200 70,200 70.20 B 79,000 500 50 50 500 2.5 1,250 50 62,500 0.0 0 20 0 62,500 3,125 75 625 6 3,750 30 250 4.80 1,200 70,575 141.15 Total 3,57,000

Ex1 2x3

4,450 50 2,22,500

1,000 20 20,000 2,42,500 12,125

2x3 F+G

Given Ex1 Given 2x3 Given Ex1 Given 2x3 H + I + J+ K L /E AL

27,750

7,200 2,89,575 67,425 24,000

O. Profits

MN

43,425

Particulars A. Consumption B. Add: Closing Stock C. D. E. F.

Purchase Budget Timber 4,450 650 5,100 Less: Opening Stock 600 Purchases (Units) 4,500 Rate P.U. 50 Purchase Budget (Rs.) [D x E) 2,25,000

Upholstery 1,000 260 1,260 400 860 20 17,200

Total

2,42,200

Illustration 6: (Cash Budget) A newly started SSG. Co. Ltd. wishes to prepare cash budget from May. You are required to prepare a cash budget for the first six months from the following estimated revenue and expenses. Month Total Sales Materials Wages Overheads Production Selling & Distribution Rs. Rs. 3,200 800 3,300 900 3,300 800 3,400 900 3,500 900 3,600 1,000 to be installed at Rs. 30,000 on

Rs. Rs. Rs. May 20,000 20,000 4,000 June 22,000 14,000 4,400 July 24,000 14,000 4,600 August 26,000 12,000 4,600 September 28,000 12,000 4,800 October 30,000 16,000 4,800 st Cash balance on 1 May was Rs. 10,000. A new machine is credit to be repaid by two equal installments in July and August. Sales commission at 2.5% on total sales is to be paid within the month following actual sales. Rs. 10,000 being the amount of second call may be received in July, share premium amounting to Rs. 2,000 is also obtainable with Second call. 1) Period of credit allowed by suppliers is to be two months. 2) Period of credit allowed to customers is to be one month. 3) Delay in payment of overheads is to be one month. 4) Delay in payment of wages is 15 days (i.e. month) 5) Assume cash sales to be 50% of total sales. Solution: Cash Budget WN M J J A S O A. OPENING 10,000 18,000 30,300 21,050 7,750 11,100 B. RECEIPTS Sales (Cash) 1 10,000 11,000 12,000 13,000 14,000 15,000 Received from Debtors 2 10,000 11,000 12,000 13,000 14,000 Call 10,000

Premium C. TOTAL D. PAYMENTS Paid to Creditors Wages Commission Production OH S and D OH Machine TOTAL CLOSING Working Notes: M No. (M) Month Sales Sales (Cash) Sales (Credit) Received from Debtors (1) Materials Paid to Creditors Wages Due Wages Paid (1) Wages Paid (2) Wages Paid (Total) Sales Commission Paid Production OH Due Production OH Paid S and D OH Due S and D OH Paid

20,000 3 4 5 6 7

39,000

2,000 65,300 20,000 4,500 550 3,300 900 15,000 44,250 21,050

46,050 14,000 4,600 600 3,300 800 15,000 38,300 7,750

34,750 14,000 4,700 650 3,400 900 23,650 11,100

40,100 12,000 4,800 700 3,500 900 21,900 18,200

2,000

4,200 500 3,200 800 8,700 30,300

2,000 18,000

1. 2.

(1 / 2)

1 M 20,000 10,000 10,000 0 20,000 4,000

2 J 22,000 11,000 11,000 10,000 14,000 4,400 2,000 2,200 4,200 500 3,300 3,200 900 800

3 J 24,000 12,000 12,000 11,000 14,000 20,000 4,600 2,200 2,300 4,500 550 3,300 3,300 800 900

4 A 26,000 13,000 13,000 12,000 12,000 14,000 4,600 2,300 2,300 4,600 600 3,400 3,300 900 800

5 S 28,000 14,000 14,000 13,000 12,000 14,000 4,800 2,300 2,400 4,700 650 3,500 3,400 900 900

6 O 30,000 15,000 15,000 14,000 16,000 12,000 4,800 2,400 2,400 4,800 700 3,600 3,500 1,000 900

(M - 1) (M - 2) (M-1) /2 (M / 2)

3.

2,000 2,000

4. 5.

2.5% x (M 1)

0 3,200

6.

(M 1) 800 (M 1)

7.

Illustration 7: (Production / Consumption / Purchase Budget) A Company estimate sales of its product X during the last five months of 2006 as under. Month Units August 21,600 September 31,200 October 24,400 November 20,800 December 19,600

Inventory of product X at the end of every month is to be equal to 50% of sales estimate for the next month. Closing inventory of July was maintained on the above basis. There was no work in progress at the end of any month. Every unit of product requires two types of materials in the following quantities. Materials A 5 ltr. Material B 6 ltr. Materials equal to 25% of the requirement for the next month consumption are kept as closing stock. The stock position on 31st July was as under. Materials A 32000 ltr. Material B 28000 ltr. The purchase price of Material A Rs. 3/- per ltr. and Materials B Rs. 2/- per ltr. There was no closing stock of Material A and B on 30 November 2006. From the above, prepare following Budgets for the period August to November. 1) Production Budget 2) Materials Consumption Budget 3) Purchase Budget showing quantity and value. Solution: 1) Production Budget (Units) Particulars Aug. Sep. Oct. Nov. Units required to sale 21,600 31,200 24,400 20,800 Add: Closing Stock (50% of next month sale) 15,600 12,200 10,400 9,800 Total Units Required 37,200 43,200 34,800 30,600 (-) Opening Stock (50% of Current Sales) 10,800 15,600 12,200 10,400 Production Units 26,400 27,800 22,600 20,200 2) Materials Consumption Budget (Liter) Particulars Aug. Sep. Oct. 1,32,000 1,58,400 2,90,400 1,39,000 1,66,800 3,05,800 1,13,000 1,35,600 2,48,600

Nov. 1,01,000 1,21,200 2,22,200

Materials: A (5 liter / Unit) B (6 liter / Unit) Total Material Consumption 3)

Particulars Materials Consumption Add: Closing Stock (25% of next month Consumption (-) Opening Stock given

Purchase Budget (Quantity and Value)

August Mat. A Mat. B 1,32,000 1,58,400 September Mat. A Mat. B 1,39,000 October Mat. A Mat. B 1,35,600 November Mat. A Mat. B 1,01,000 1,21,200

1,66,800 1,13,000

34,750

41,700

28,250

33,900

25,250

30,300

12,250

14,700

and 25% of current month Purchase of Material (Ltr.) Rate / Liter Purchase Price

32,000

28,000

34,750 1,32,500 3 3,97,500

41,700

28,250

33,900 1,32,000 2 2,64,000

25,250 58,000 3 2,64,000

30,300 1,05,600 2 2,11,200

1,34,750 1,72,100 3 2 4,04,250 3,44,200

1,59,000 1,10,000 2 3 3,18,000 3,30,000

Working Notes: Material Consumption for December Material A 9,800 x 5 = 49,000 Material B 9,800 x 6 = 58,800 Illustration 8: The following information is extracted from the various functional budgets prepared for a concern whose financial year starts from 1st April.
a) Particulars Sales Materials Wages Overhead: Manufacturing Administration Selling Distribution Jan. Rs. 30,000 12,500 5,000 4,000 1,500 2,000 1,500 Feb. Rs. 35,000 15,000 5,500 4,500 2,000 2,000 2,000 Mar. Rs. 30,000 15,000 5,500 4,500 2,000 2,000 2,000 Apr. Rs. 25,000 12,500 5,000 4,000 1,500 2,500 1,500 May Rs. 22,500 9,000 4,500 3,500 1,500 2,000 1,000 June Rs. 32,500 15,000 4,500 3,500 1,500 1,500 1,000 July Rs. 35,000 15,000 5,000 4,000 2,000 1,500 1,500 Aug. Rs. 37,500 20,000 5,000 4,000 2,000 1,500 2,000 Sept. Rs. 40,000 15,000 5,500 4,500 2,000 2,000 2,000

b) Plant to be purchased for Rs. 30,000. The price is to be in six equal installments, the first installment to start in June. c) A provision of Rs. 2,500 per month has to be made for machinery purchased in the previous period. d) A commission of 10% is required to be paid on sale in the month following the actual sales. e) Cash sales would amount to Rs. 2,000 per month on which no commission is payable. f) Dividend to shareholder amounting to Rs. 50,000 is to be paid on 1st July. g) Interest on investment amounting to Rs. 40,000 will be received on 1st August. h) Income tax to be paid in August Rs. 40,000. i) Balance of call on ordinary shares to be received on 1st April Rs. 20,000. Prepare a monthly cash budget for six months from April to September assuming suitable figures for loan and overdraft whenever required. The periods of credit allowed to debtors and allowed by creditors are 3 months and 2 months respectively and payment of wages and overhead expenses are made one month in arrears. The estimated cash balance on 1st April was Rs. 50,000. Solution: Cash Budget Particulars April May June July Aug. Sept. A. OPENING 50,000 63,700 64,400 59,850 3,300 -B. RECEIPT i. Revenue

Sales (Cash) Received from Debtors Interest on Investment ii. Capital Call Bank Loan C. TOTAL D. PAYMENTS i. Revenue Paid to Creditors Expenses - Wages - Commission - Production OH - S & D OH - Administration OH - Cash Discount ii. Capital Machine Assets Income Tax Dividends E. TOTAL F. CLOSING Working Notes:
a) b) c) d) a) b) a) b) a) b) a) b) a) b) a) M. No. (M) Month Sales Sales (Cash) Sales (Credit) (Total Cash) Recd. From Debtors (1) [(M 3)] Materials Paid to Creditors (M- 2) Wages Due Wages Paid (1) [M 1)] Sales Eligible for Comm. (Total-Cash) Sales Comm. Paid [10% x (M 1)] Production OH Due Production OH paid (M-1) S & D OH Due S & D OH Paid (M 1) Admin. OH Due 1 Jan. 30,000 2,000 28,000 -12,500 -5,000 -28,000 -4,000 -2,000 -1,500

2,000 28,000

2,000 33,000

2,000 28,000

2,000 23,000

2,000 20,500 40,000

2,000 30,500

20,000 1,00,000 98,700 94,400 84,850 14,000 79,800 8,050 40,550

15,000 5,500 2,800 4,500 2,000 2,000 2,000

15,000 5,000 2,300 4,000 2,500 1,500 1,500

12,500 4,500 2,050 3,500 2,000 1,500 1,000 5,000 2,500

9,000 4,500 3,050 3,500 1,500 1,500 1,000 5,000 2,500 50,000 81,550 3,300
6 June 32,500 2,000 30,500 28,000 15,000 12,500 4,500 4,500 30,500 2,050 3,500 3,500 1,500 2,000 1,500

15,000 5,000 3,300 4,000 1,500 2,000 1,500 5,000 2,500 40,000 79,800 -7 July 35,000 2,000 33,000 23,000 15,000 9,000 5,000 4,500 33,000 3,050 4,000 3,500 1,500 1,500 2,000

15,000 5,000 3,550 4,000 1,500 2,000 2,000 5,000 2,500

2,500

2,500

36,300 63,700
2 Feb. 35,000 2,000 33,000 -15,000 -5,500 5,000 33,000 2,800 4,500 4,000 2,000 2,000 2,000

34,300 64,400
3 Mar. 30,000 2,000 28,000 -15,000 12,500 5,500 5,500 28,000 3,300 4,500 4,500 2,000 2,000 2,000

34,550 59,850
5 May 22,500 2,000 20,500 33,000 9,000 15,000 4,500 5,000 20,500 2,300 3,500 4,000 2,000 2,500 1,500

40,550 -8 Aug. 37,500 2,000 35,500 20,500 20,000 15,000 5,000 5,000 35,500 3,300 4,000 4,000 1,500 1,500 2,000 9 Sept. 40,000 2,000 38,000 30,500 15,000 15,000 5,500 5,000 38,000 3,550 4,500 4,000 2,000 1,500 2,000

4 April 25,000 2,000 23,000 28,000 12,500 15,000 5,000 5,500 23,000 2,800 4,000 4,500 2,500 2,000 1,500

b) Admin. OH Paid (M 1) a) Dist. OH Due b) Distr. OH Paid (M 1)

-1,500 --

1,500 2,000 1,500

2,000 2,000 2,000

2,000 1,500 2,000

1,500 1,000 1,500

1,500 1,000 1,000

1,500 1,500 1,000

2,000 2,000 1,500

2,000 2,000 2,000