A Company manufactures two Products A and B by making use of two types of materials,
viz., X and Y Product A requires 10 units of X and 3 units of Y Product B requires 5 units of
X and 2 units of Y. The price of X is ` 2 per unit and that of Y is ` 3 per unit. Standard hours
allowed per product are 4 and 3, respectively. Budgeted wages rate is ` 8 per hour.
Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week.
There are 150 workers.
The Sales Manager has estimated the sales of Product A to be 5,000 units and Product B
10,000 units. The target productivity ratio (or efficiency ratio) for the productive hours
worked by the direct worker in actually manufacturing the product is 80%, in addition, the
non - productive downtime is budgeted at 20% of the productive hours worked. There are
twelve 5 day weeks in the budget period and it is anticipated that sales and production will
occur evenly throughout the whole period.
It is anticipated that stock at the beginning of the period will be :
Product A 800 units ; Product B 1,680 units. The targeted closing stock expressed in terms
of anticipated activity during the budget period are Product A 12 days sales ; Product B 18
days sales. The opening and closing stock of raw materials of X and Y will be maintained
according to requirement of stock position for Product A and B.
You are required :
To prepare the following for the next period :
(i) Material usage and Material purchased budget in terms of quantities and values.
(ii) Production budget
(iii) Wages budget for the direct workers.
July 9, 2024
S.V. Ltd., manufactures a single product. The selling price of the product is Rs.95 per unit.
The following are the results obtained by the company during the last two quarters :
Quarter 1 Quarter 2
Sales units
Production units
5,100
5,500
4,800
4,500
` `
Direct materials A
B
Manufacturing wages
Factory overheads
Selling overheads
66,000
55,000
1,56,750
86,000
1,79,000
54,000
45,000
1,38,000
83,000
1,73,000
The company estimates its sales for the next quarter to range between 5,500 units and
6,500 units, the most likely volume being 6,000 units. The manufacturing programme
will match with the sales quantity such that no increase in inventory of finished goods is
contemplated in the next quarter :
• The price of direct material B will increase by 10%. There will be no change in the
price of direct material A.
• The wage rates will go up by 8%. If the production volume increase beyond 5,500
units, overtime premium of 50% is payable on the increased volume due to
overtime working to be done by the variable labour complement component.
• The fixed factory and selling expenses will increase by 20% and 25% respectively.
• A discount in the selling price of 2% is allowed on all sales made at 6,500 units level of
output. The selling price, however, will remain unaltered, if the volume of output is
below 6,500 units.
While operating at a volume of output of 6,500 units in the next quarter, the company
intends to quote for an additional volume of 2,000 units to be supplied to a
Government department for its captive consumption. The working capital requirement of this
order is estimated at 8% of the sales value of the Government order. The company desires
a return of 20% on the capital employed in respect of this order.
Required :
(i) Prepare a flexible budget for the next quarter at 5,500, 6,000 and 6,500 unit levels and
determine the profit at the respective volumes.
(ii) Calculate the lowest price per unit to be quoted in respect of the Government order for
2,000 units.
July 9, 2024