MANAGEMENT ACCOUNTING PRACTICAL QUESTIONS

BUDGETING

Q1 The following information has been made available from the records of Precision Tools Ltd. for six months of 2024 (an

1) The units to be sold in different months are :

JULY 1200 NOV 2500
AUG 1200 DEC 2300
SEPT 1800 JAN 2000
OCT 2000
2) There will be no work-in-progress at the end of any month.
3) Finished units equal to half the sales of the next month will be in stock at the end of every month (including June 2024
4) Budgeted production and production cost for the year ending 31st Dec., 2024 are thus:
Production (units)
Direct materials per unit
Direct wages per unit
Total factory overhead apportioned to production
You are required to prepare :
a) Production Budget for the six months of 2024, and
b) Summarised Production Cost Budget for the same period.

Solution:
PRODUCTION BUDGET
for the six months ending Dec 2024
Particulars JULY AUG SEP OCT
SALES ₹ 1,200.00 ₹ 1,200.00 ₹ 1,800.00 ₹ 2,000.00
add: Closing stock ₹ 600.00 ₹ 900.00 ₹ 1,000.00 ₹ 1,250.00
₹ 1,800.00 ₹ 2,100.00 ₹ 2,800.00 ₹ 3,250.00
less: opening stock ₹ 600.00 ₹ 600.00 ₹ 900.00 ₹ 1,000.00
PRODUCTION ₹ 1,200.00 ₹ 1,500.00 ₹ 1,900.00 ₹ 2,250.00

PRODUCTION COST BUDGET

for the six months ending Dec 2024
Particulars Rate per unit(₹) Units (11050)
DIRECT MATERIALS ₹ 10 ₹ 114,000.00
DIRECT WAGES ₹4 ₹ 45,600.00
FACTORY OVERHEAD ₹4 ₹ 45,600.00
TOTAL PRODUCTION COST ₹ 205,200.00

Factory overhead per unit

Total factory overhead apportioned to production
Production (units)
Q2 The manager of Repairs and Maintenance Department in response to a request, submitted the following budget estim

Hours
Details of cost 6000
Employee salaries ₹ 30,000.00
Indirect repair materials ₹ 40,200.00
Miscellaneous cost, etc. ₹ 13,200.00
a) Prepare a flexible budget for the department up to activity level of 10,000 repair hour (
b) What would be the budget allowance at 8,500 direct repair hours?

ANS FLEXIBLE BUDGET

for the period
HOURS 6000 7000 8000
₹ ₹ ₹
Salaries ₹ 30,000.00 ₹ 30,000.00 ₹ 30,000.00
Materials ₹ 40,200.00 ₹ 46,900.00 ₹ 53,600.00
Misc(Fixed) ₹ 6,000.00 ₹ 6,000.00 ₹ 6,000.00
Misc(Var) ₹ 7,200.00 ₹ 8,400.00 ₹ 9,600.00
TOTAL ₹ 83,400.00 ₹ 91,300.00 ₹ 99,200.00

Working notes:

Indirect Repair Materials: The material cost increases as hours increase, with the cost difference helping us determine
Between 6,000 and 9,000 hours, the material cost goes from ₹40,200 to ₹60,300, giving us a rate of (60300−40200)/(9

60300-40200 = 6.7
9000-6000

Part (b): Budget Allowance for 8,500 Repair Hours

The budget allowance formula for 8,500 hours is:

Total Budget=Fixed Costs+(Variable Cost per Hour×Total Hours)

Fixed Costs = ₹36,000 (sum of fixed salaries and miscellaneous costs).

Variable Costs = 8500×6.7 = 56950

So,

Budget Allowance= 36000+56950 = 92950

The budget allowance at 8,500 hours is ₹92,950.

ools Ltd. for six months of 2024 (and the sales of January 2025) in respect of product X;

f every month (including June 2024).

22000
₹ 10
₹4
₹ 88,000

NOV DEC TOTAL

₹ 2,500.00 ₹ 2,300.00
₹ 1,150.00 ₹ 1,000.00
₹ 3,650.00 ₹ 3,300.00
₹ 1,250.00 ₹ 1,150.00
₹ 2,400.00 ₹ 2,150.00 ₹ 11,400.00

₹ 88,000 ₹4
22000
bmitted the following budget estimates for his department that are to be used to construct a flexible budge following information is obtain

Hours Fixed cost

9000 ₹ 6,000.00
₹ 30,000.00
₹ 60,300.00
₹ 16,800.00
ctivity level of 10,000 repair hour (use increments of 1,000 hours).
repair hours?

Budget allowance for 8500 repair hours

Fixed cost + Variable cost for 8500 repair hours
9000 10000 36000+(8500*7.9)
₹ ₹ 103150
₹ 30,000.00 ₹ 30,000.00
₹ 60,300.00 ₹ 67,000.00
₹ 6,000.00 ₹ 6,000.00
₹ 10,800.00 ₹ 12,000.00
₹ 107,100.00 ₹ 115,000.00

ost difference helping us determine the variable rate per hour.

ving us a rate of (60300−40200)/(9000−6000)=7.9 per hour.
llowing information is obtained to be used during the coming budget year :
 CVP ANALYSIS

Q1 Calculate P/V ratio in each of the following independent situations.

1) Variable cost 60, Contribution 40
2) Sales20, variable cost 15
3) Ratio of variable cost to sales 84%
4) Profit 5,000; Sales 25,000; Fixed Cost 8,000
5) YEAR 1 SALES 50,000, Total cost 40,000.
YEAR 2 SALES 60,000, Total cost 45,000

ANS
1) PV RATIO = CONTRIBUTION/SALES = CONTRIBUTION/VARIABLE COST + CONTRIBUTION = 40/60+
2) PV RATIO = CONTRIBUTION/SALES = SALES-VARIABLE COST/SALES = 20-15/20 = 5/20 = 25%
3) PV RATIO = 100-VARIABLE COST TO SALES RATIO = 100-84% = 16%
4) PV RATIO = CONTRIBUTION/SALES = FIXED COST+PROFIT/SALES = 5000+8000/250000 = 13000/2
5) PV RATIO = CHANGE IN PROFIT/CHANGE IN SALES = 15000-10000/60000-50000 = 5000/10000 =

Q2
a) A company has fixed expenses of 90,000 with sales at 3,00,000 and a profit of 60,000. Calculate the Profit/Volume
b) What is the margin of safety for a profit of 60,000 in (a) above?

ANS
a) CONTRIBUTION = FIXED COST + PROFIT = 90000+60000 = 150000
PV RATIO = CONTRIBUTION/SALES = 150000/300000 = 50%
IN THE NEXT PERIOD CONTRIBUTION = FIXED COST - LOSS = 90000-30000 = 60000
PV RATIO = 60000/SALES = 50%
SALES = 60000/50% = 120000
b) MARGIN OF SAFETY = FIXED COST + PROFIT / PV RATIO = 90000+60000/50% = 150000/50% = 300
CONTRIBUTION = 40/60+40 = 40/100 = 40%
15/20 = 5/20 = 25%

8000/250000 = 13000/25000 = 13/25

0-50000 = 5000/10000 = 50%

. Calculate the Profit/Volume ratio. If in the next period the company suffered a loss of 30,000, calculate the sales volume

50% = 150000/50% = 300000

he sales volume
 DECISION MAKING

Q1 A manufacturer of plastic buckets makes an average profit of 2.50 per piece on a selling price of 14.50 by producin
per piece
Direct materials 4
Direct wages 1
Factory overhead (variable) 3
Selling overhead (variable) 0.25
Total fixed cost is 2,25,000
During the current year, he intends to produce the same number of units, but anticipates that (a) fixed cost will g
Under these circumstances, he obtains an offer for a further 20% of his capacity. What minimum you would recom
ANS
BUDGETED STATEMENT FOR THE CURRENT YEAR PRIOR TO ACCEPTANCE OF 20% CAPACITY ORDER
per piece total
SALES 60000 pieces 14.5 ₹ 870,000.00
DIRECT MATERIAL (RS4 + 5%) 4.2 ₹ 252,000.00
DIRECT LABOUR (RS1 + 5%) 1.05 ₹ 63,000.00
VARIABLE FACTORY OVERHEAD 3 ₹ 180,000.00
VARIABLE SELLING OVERHEAD 0.25 ₹ 15,000.00
VARIABLE COST 8.5 ₹ 510,000.00
CONTRIBUTION (SALES - VARIABLE COST) 6 ₹ 360,000.00

FIXED COST = 225000 + 10% =247500

PROFIT = CONTRIBUTION - FIXED COST = 360000-247500 = 112500
PLANNED PROFIT = 160000
INCREASE IN PROFIT REQUIRED = 160000-112500 = 47500
VARIABLE COST OF ADDITIONAL 20000 PIECES = 20000*8.5 = 170000
TOTAL SALES VALUE = 170000 + 47500 = 217500
SELLING PRICE PER UNIT = 217500/20000 = RS10.875
THUS, MINIMUM PRICE OF SALE OF ADDITIONAL 20000 UNITS IS 10.875 SO AS TO ENSURE AN OVERALL PROFIT O

Q2 Indo-British company has a capacity to produce 5000 articles but actually produces only 2000 articles for home m
Materials 40000
Wages 36000
Factory overheads fixed 12000
Factory overheads variable 20000
Admin overhead fixed 18000
Selling and distribution expenses fixed 10000
Selling and distribution expenses variable 16000
TOTAL COST 152000
The home market can consume only 2,000 articles at a selling price of 80 per article. An additional order for the su
Should this order be accepted or not, if execution of this order entails an additional packing cost of Rs 3000

ANS
STATEMENT OF MARGINAL COST AND CONTRIBUTION OF 3000 ARTICLES FOR EXPORT

MATERIALS @ RS20 PER ARTICLE ₹ 60,000.00

WAGES @RS18 PER ARTICLE ₹ 54,000.00
VARIABLE OVERHEAD FACTORY @RS10 PER ARTICLE ₹ 30,000.00
VARIABLE OVERHEAD SELLING AND DISTRIBUTION @RS8 PER ARTICLE ₹ 24,000.00
MARGINAL COST OF SALES ₹ 168,000.00
SALES 3000 ARTICLES @RS65 ₹ 195,000.00
CONTRIBUTION ₹ 27,000.00
less: ADDITIONAL PACKING COST ₹ 3,000.00
ADDITIONAL PROFIT ₹ 24,000.00

ACCEPTANCE OF THIS EXPORT RESULTS IN ADDITIONAL PROFIT OF RS24000 AND THUS THE ORDER SHOULD BE AC
lling price of 14.50 by producing and selling 60,000 pieces at 60% of potential capacity. His cost of sales is:

pates that (a) fixed cost will go up by 10%, and (b) material and labour costs will go up by 5% each.
hat minimum you would recommend for acceptance to ensure an overall profit of 1,60,000.

APACITY ORDER

NSURE AN OVERALL PROFIT OF RS 160000

only 2000 articles for home market at the following costs

. An additional order for the supply of 3,000 articles is received from a foreign country at 65 article.
packing cost of Rs 3000
HUS THE ORDER SHOULD BE ACCEPTED