Cost & Management Accounting Lecture-39

Question Data relating to the months of February to June is available. Prepare the cash budget for the month of April to June. Months Sales Purchases Wages February 18,000 12,480 1,200 March 19,200 14,400 1,400 April 10,800 24,300 1,100 May 17,400 24,600 1,000 June 12,500 26,800 1,500 First All columns will appear Than months one by one Than Sales with one by one value Than purchases with one by one value Than wages with one by one value

Question a). 40% cash sales. b). 50% of credit sales is realized in the month following the sales and the remaining 50% in the second month following. c). Creditors are paid in the month following the moth of purchase. d). Cash at bank on the 1st April is Rs. 2,500.

Solution Months Particulars April May June Opening Balance Add Receipts Sales 2,500 15,480 2,480 15,960 13,460 Total (1) 17,980 18,440 Less Payments Purchases Wages 14,400 1,100 24,300 1,000 24,600 1,500 Total (2) (15,500) (25,300) (26,100) Closing Balance (1-2) (6,680) (12,640) Bank O/D 6,860 12,640 First Months one by one will appear Second Opening stock will appear without amounts Third 2500 Fourth Receipts with out amount Fifth Sales by one by one amount Than total 1 with amounts one by one Than payment will appear with one by one Than total 2 by value by value Than closing balance Than bank OD Than Total bank od Total Bank O/D = 6,860 + 12,640 = 19,500

Working Months Sales April May June Feb 18,000 5,400 --- Mar 19,200 5,760 Apr 10,800 4,320 3,240 17,400 6,960 5,220 12,500 5,000 Total 15,480 15,960 13,460 First month column Than sales column Third 4320 Fourth 6960 Fifth 5000 Sixth 3240 seventh 3240 Eighth 5220 Than last total

Capacity Levels Theoretical capacity Normal or Estimated capacity Actual capacity

Flexible or Flex Budget 1. Prepare original budget based on estimated / normal capacity level. 2. Estimate flex budget at actual capacity level. 3. Compare the actual cost with flexible budgets and report variances to the management.

Normal capacity level 2,000 units Original budget Fixed cost 10,000 Variable cost 40,000 50,000 Actual capacity attained 1,500 units Flexed budget Variable cost 30,000 40,000 Cost actually incurred Fixed cost 11,000 Variable cost 33,000 44,000

Comparing actual with original budget Actual Budget Variance Fixed cost 11,000 10,000 (1,000) UF Variable cost 33,000 40,000 7,000 F 44,000 50,000 6,000 F Comparing actual with flexed budget Flexed Actual Variance Fixed cost 10,000 11,000 (1,000) UF Variable cost 30,000 33,000 (3,000) F 40,000 44,000 4,000 UF First Row and column Than 11000 33000 10000 40000 1000 7000 Total First 10000 30000 11000 3000

Practice Question Production cost at normal capacity: Direct cost Direct material Rs. 30,000 Direct labor 20,000 Indirect cost Indirect material (Variable) 800 Other variable production OH cost 4,200 Deprecation (Fixed) 10,000 Other fixed OH cost 5,000 Total budgeted cost 70,000

Practice Question Normal capacity at 20,000 units Direct material Rs. 26,900 Direct labor 19,540 Indirect material (Variable) 1,000 Other variable production OH cost 3,660 Deprecation (Fixed) 10,000 Other fixed OH cost 5,400 Total budgeted cost 66,500 Capacity attained 17,600 units Prepare Flex budget at 16,000, 20,000 and 24,000 units