The document discusses production budgets and flexible budgets. It provides information on how production budgets show estimated unit production and costs, including material, labor, and factory overhead costs. It also discusses how flexible budgets allow budget figures to change based on actual output achieved by analyzing costs into fixed and variable components and preparing a series of budgets for different activity levels. Budgets may also need revision due to changes in management policies, external factors, or errors in the original budget.

1. BUDGETARY CONTROL BY ANIMESH KALITA 2K10MKT37

2. PRODUCTION COST BUDGET THE PRODUCTION BUDGET SHOWS BOTH UNIT PRODUCTION DATA AND UNIT COST DETAILS. THIS BUDGET SHOWS ESTIMATED COST OF PRODUCTION. IT SHOWS OF PRODUCTION WHICH ARE IN RESPECT OF MATERIAL COST, LABOR COST AND FACTORY OVERHEAD.

3. NUMERICAL The following information has been made available from the records of Precision Tools Ltd. for the six months of 1998(and the sales of January 1999) in respect of product X; (i) The units to be sold in different months: July 1998 1,100 November 1998 2,500 August 1,100 December 2,300 September 1,700 January 1999 2,000 October 1,900

4. (ii) There will be no work-in-progress at the end of any month. (iii) Finished units equal to half the sales of the next month will be in stock at the end of evry month (including June, 1998). (iv) Budgeted production and production cost for the year ending 31st Dec, 1998 are: Production (units) 22,000 Direct materials per unit Rs. 10 Direct wages per unit Rs. 4 Total factory o/h apportioned Rs. 88,000 to production

5. You are required to prepare: Production Budget for the six months of 1998. Summarized Production Cost Budget for the same period.

6. PRODUCTION BUDGETfor the six months ending Dec, 1998

7. PRODUCTION COST BUDGETfor the six months ending Dec, 1998

8. FLEXIBLE BUDGET FLEXIBLE BUDGETING HAS BEEN DEVELOPED WITH THE OBJECTIVE OF CHANGING ATHE BUDGET FIGURES TO CORRESPOND WITH THE ACTUAL OUTPUT ACHIEVED. THESE BUDGETS NECESSITATES THE ANALYSIS OF ALL COSTS INTO FIXED AND VARIABLE COMPONENTS. IN THIS BUDGET, A SERIES OF BUDGETS ARE PREPARED FOR EVERY MAJOR LEVEL OF ACTIVITY.

9. NUMERICAL The expenses budgeted for production of 10,000 units in a factory are furnished below: Rs. Per unit Materials 70 Labour 25 Variable overheads 20 Fixed overheads(Rs. 1,00,000) 10 Variable expenses(direct) 5 Selling expenses(10% fixed) 13 Distribution expenses(20% fixed) 7 Administration expenses(Rs. 50,000) 5 ― Total 155 Prepare a budget for the prod. Of (a) 8,000 units and (b) 6,000 units. Assume that administration expenses are rigid for all levels of production.

10. FLEXIBLE BUDGET

11. REVISION OF BUDGETS Sometimes the original budget prepared may have to be revised due to one or more of the following factors: Changes in mgmt policies and other internal factors like change in the capacity utilisation or addition to the production capacity, etc. Unforeseen changes in uncontrollable or external factors like change in market prices of materials and other inputs, changes in fashion and consumer tastes, etc. Errors committed in the preparation of original budget.

12. NUMERICAL A Company produces two products and budgets at 60% level of activity for the year 2,000. It gives the following information : Product A Product B Raw materials cost Rs. 7.50 Rs. 3.50 per unit Direct wages per unit Rs. 4.00 Rs. 3.00 Var o/h per unit Rs. 2.00 Rs. 1.50 Fixed o/h per unit Rs. 6.00 Rs. 4.50 Selling price per unit Rs. 20.00 Rs. 15.00 Production and sales(units) 4000 6000 The managing director is not satisfied with the budgeted results as stated above and wants to improve the performance. The managing director proposed that the sales quantities of products A and B could be increased by 50% provided the SP was reduced by 5% in the case of product A and 10% in product B. The price reduction should be made applicable to the entire quantity of sales of each of the two products. You are required to present the overall profitability under the original budget and revised budget after taking the increased sales into consideration.

14. Working Note : Revised Sales figures are computed as follows: A B Selling Price per unit Rs. 20 15 Less : 5% and 10% Re. 1 1.50 Rs. 19 13.50 Sales Value = 6000 units × Rs. 19 = 114000 = 9000 units × Rs.13.50= 121500

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