Ques 4 - Company has prepared the following summary from its functional budgets for the year ended 30th September 2020. Particulars Amount (in Rs.) Amount (in Rs.) Sales(1,00,000 units) 15,00,000 Opening Inventory( Zero Units) Nil Production Costs (1,15,000 units) Direct materials 4,60,000 Direct labour 5,75,000 Variable overhead 1,15,000 Fixed overhead 2,30,000 1,380,000 Closing inventory (15,000 units) (1,80,000) Cost of Sales 1,200,000 Gross Profit 3,00,000 Other overhead fixed costs (2,00,000) Net Profit 1,00,000 The directors of the company have now met to review the above statement. They have decided to revise the budget as follows: Due to competition, reduce the selling price by Rs.5 per unit and despite the reduction in selling price the demand for the product will reduce to 90,000 units. Increase some of the unit production costs: direct labour by 10% and variable overhead by 5%. No change is expected to any other costs. Reduce production to 100,000 units. Required- Prepare a summary statement (in the same format as that shown above) which clearly shows the effect of all of the changes proposed by the directors of the company.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Ques 4 - Company has prepared the following summary from its functional budgets for the year ended 30th September 2020.
|
Particulars |
Amount (in Rs.) |
Amount (in Rs.) |
|
Sales(1,00,000 units) |
|
15,00,000 |
|
Opening Inventory( Zero Units) |
Nil |
|
|
Production Costs (1,15,000 units) |
|
|
|
Direct materials |
4,60,000 |
|
|
Direct labour |
5,75,000 |
|
|
Variable |
1,15,000 |
|
|
Fixed overhead |
2,30,000 |
|
|
|
1,380,000 |
|
|
Closing inventory (15,000 units) |
(1,80,000) |
|
|
Cost of Sales |
|
1,200,000 |
|
Gross Profit |
|
3,00,000 |
|
Other overhead fixed costs |
|
(2,00,000) |
|
Net Profit |
|
1,00,000 |
The directors of the company have now met to review the above statement. They have decided to revise the budget as follows:
- Due to competition, reduce the selling price by Rs.5 per unit and despite the reduction in selling price the demand for the product will reduce to 90,000 units.
- Increase some of the unit production costs: direct labour by 10% and variable overhead by 5%. No change is expected to any other costs.
- Reduce production to 100,000 units.
Required- Prepare a summary statement (in the same format as that shown above) which clearly shows the effect of all of the changes proposed by the directors of the company.
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