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Budgeting for 2019

Sudhanshu (Assistant Manager at Union Bank of India) (37 Points)

03 June 2020

The following information is available from the records of Alpha Ltd. For the year 2019:
You are required to prepare a master budget.

Rs.
Sales of product A 25.0 Lakhs
Sales of product B 75.0 Lakhs
Material cost 55% of sales
Direct wages 50,000 per month per worker

Factory Overheads:
Indirect Labor:
Works Manager 10,000.0 per month
Foreman 5,000.0 per month
Stores and spares 5.0% of sales
Depreciation of machinery 150,000.0
Light and power 100,000.0
Repairs and maintenance 150,000.0
Other expenses 15% of direct wages
Administration expenses 200,000.0 per annum

You are required to prepare a master budget.

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2 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 03 June 2020

You must already be aware, that master budget is a consolidation of all functional budgets like raw material, cash, production and sales budgets. There are other budgets as well and all of them have a common or separate principal budget factors like, importantly ‘sales’ whose value influences all functional budgets. Other key factors also include material labor, plant and management (capital rationing).

So, prepare a master budget in the formats of income statement and balance sheet because it includes all other budgets including capex budgets.

Next, use of cash budget and production budgets does not accept depreciation and amortisation, so account for it in the master budget. Simply, it is a projected income and balance sheet.

Finally, I like presentation. So, I will make a master budget income statement look like below:

Sales Product A Product B Total

Variable costs

Semi Variable costs

Fixed costs

Profits

The data should be put into two columns for both products while preparing a master budget. This budget includes both fixed and variable costs because, financial statements are prepared on an absorption costing basis.

Note: the above question needs to address how many workers are there who are drawing 50,000 in direct wages. Only then you will get real profit figure.

(Master budgets are also called as Fixed budgets)

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