Wahid Industries

Master Budget

– Budgeted Procedure:

The procedure followed while designing and operating a budgetary control system depends upon the nature of the business.

The procedure as follows:

– Determination of key factor:

Key factor is that factor the extent of whose influence must first be assessed in order to ensure that functioned budgets are reasonably capable of fulfillment.

Ex: Sales, production, purchases, cash etc.

Key factor must be identified & diagnosed. Budget are meaning & unless key factor identified.

– Making of forecasts:

– Forecast is nothing but estimation of probabilities for a given period. Forecasts are made regarding sales, production cost and financial req.

– Preparation of budgets:

After finalization of forecasts the budgets will be prepared.

Master BudgetMaster Budget

Operating Budget

Sales Budget

Production Budget

Direct Material Budget

Direct Labor Budget

FOH Budget

Selling & Admin Budget

Collections Budget

Financial Budget

Schedule of Cash Receipts

Cash Budget

Master Budget

Operating Budget

Sales Budget

Production Budget

Direct Material Budget

Direct Labour Budget FOH Budget Sellin & Admin

Budget

Collections Budgt

Financial Budget

Budgeted Income Statement Schedule of Cash Receipts

Cash Budget

Operating Budget– . It contains estimates of the total value of resources required for the

performance of the operation including reimbursable work or services for others.

– There are following types of operating budget:

– Sales Budget

– Production Budget

– Direct Material Budget

– Direct Labour Budget

– Factory Overhead Budget

– Selling & Administrative Budget

Sales Budget

Sales budget is the first and basic component of master budget and it shows the expected number of sales units of a period and the expected price per unit. It also shows total sales which are simply the product of expected sales units and expected price per unit.

Sales BudgetPak Fan(Ceiling Fan)

Description Quarter 1 Quarter 2 Quarter 3

Quarter 4

Total

Sales Units 729 1,062 310 270 2371

Price Per Unit

2,700 2,700 2,700 2,700 2,700

Total sale 1,968,300 2,867,400 837,000 729,000 6,401,700

Production BudgetThis budget shows the number of units of each good

expected to be produced.

Production budget is a schedule showing planned production in units which must be made by a manufacturer during a specific period to meet the expected demand for sales and the planned finished goods inventory

Production Budget of Deluxe Ceiling Fan

Production BudgetDescription Q1 Q2 Q3 Q4 TotalBudgeted Sales 729 1062 310 270 2371

Ending 318 93 81 218 218Available for Production

1047 1155 391 488 2589

Less Opening 190 318 93 81 190Units To be Produced

857 837 298 407 2399

Direct Materials Budget Direct material purchases budget shows budgeted beginning and ending

direct material inventory, the quantity of direct material that will be used in production, the amount of direct material that must be purchased and its cost during a specific period

The direct material includes

1 Rod

1 Motor

3 Blades

Misc.

We assume these 4 items as 1 unit.

Description Q1 Q2 Q3 Q4 TotalFans 839 962 210 320 2331Direct Material per Fan

1 1 1 1 1

Total Units Material Required

839 962 210 320 2331

Production BudgetColumn1 Q1 Q2 Q3 Q4 Total

Total Material Required

857 837 298 407 2399

Add Ending 288 89 122 257 150Material Available 1145 926 420 664 2549

Less Opening 255 288 89 122 255Direct Material

Used890 638 331 542 2294

Material Cost Per Unit

1535 1535 1535 1535 1535

Total Cost Of Material

1366150 979330 508085 831970 3521290

Direct Labor BudgetDirect labor budget shows the total direct labor cost and

number of direct labor hours needed for production. It helps the management to plan its labor force requirements. Direct labor budget is a component of master budget. It is prepared after the preparation of production budget because the budgeted production in units figure provided by the production budget serves as starting point in direct labor budget.

The company pays wages to its employees on the bases of number of units produced, The total wages from all departments is Rs.130 per unit.

Direct Labor Budget

Labor

Description Q1 Q2 Q3 Q4 Total

Units Produced 857 837 298 407 2399

Wages Per Unit 130 130 130 130 130

Total Direct Labor Cost

111410 108810 38740 52910 311870

Manufacturing Overhead Budget

The factory overhead budget shows all the planned manufacturing costs which are needed to produce the budgeted production level of a period, other than direct costs which are already covered under direct material budget and direct labor budget. The overhead budget is an operational budget contained in the master budget of a business. It has two sections, one for variable overhead costs and other for fixed overhead costs.

Manufacturing Overheads Budget

Manufacturing Overhead BudgetDescription Q1 Q2 Q3 Q4 Total

No. Units 839 962 210 320 2331

Variable Rate x40 x40 x40 x40 x40

Total Variable 33560 38480 8400 12800 93240

Fixed FOH +96040 +96040 +96040 +96040 +372960

Total FOH 129600 134520 104440 108840 466200

Selling & Admin. Budget

Selling and administrative expense budget is a schedule of planned operating expenses other than manufacturing costs. It is a component of master budget and it is prepared by all types of businesses (i.e. manufacturers, retailers and service providers) before the preparation of budgeted income statement.

Selling & Admin. BudgetSelling And Admin

Description Q1 Q2 Q3 Q4 Total

Budgeted Sales 729 1062 310 270 2371

Variable Rate 25 25 25 25 25

Variable Selling And Admin

18225 26550 7750 6750 59275

Fixed Selling & Admin

59275 59275 59275 59275 237100

Total 77500 85825 67025 66025 296375

Financial budget

Definition: Financial budgets are financial plans that are structured to detail projections on incomes and expenses on both a long-term and a short-term basis. Budgets of this type normally incorporate aspects of other types of budgeting strategies, including the preparation of a detailed budgeted balance sheet, a section that functions as a cash flow budget and addresses the receipt of income and the flow of expenses on an annual, semi-annual, and a monthly basis. It typically covers a period of at least one year, although it is not unusual for some organizations to prepare this kind of budget to cover anywhere from two to five years at a time.

Schedule of Expected Cash Collections

Schedule of expected cash collections from customers shows the budgeted cash collections on sales during a period. It is a component of master budget and it is prepared after the preparation of sales budget and before the preparation of cash budget.

Schedule of Expected Cash ReceiptsDescription Q1 Q2 Q3 Q4 Total

Sales 729 1062 310 270 2371

Total Receivables 1968300 2867400 837000 729000 6401700

Cash Payment 984150 1433700 418500 364500 3200850

25% of previous Quarter - 492075 716850 209250 1418175

25% of preceding 2nd - - 492075 716850 1208925

Total Receipts of Quarter 2952450 4793175 2464425 2019600 12229650

Cash Budget

Cash budget is a financial budget prepared to calculate the budgeted cash inflows and outflows during a period and the budgeted cash balance at the end of the period. Cash budget helps the managers to determine any excessive idle cash or cash shortage that is expected during the period.

Cash BudgetCash Budget

Description Q1 Q2 Q3 Q4 TotalOpening Balance 3000000 3665340 7403940 1886510 5000000

Cash Receipts 2952450 4793175 2464425 2019600 12229650

Total Cash Available

5952450 8458515 9868365 3906110 17229650

Less Payments 2287110 1054575 367615 784415 4493715

Exess or Shortage 3665340 7403940 9500750 3121695 12735935

Financing - - - - -

Repayment - - - - -

Excess 3665340 7403940 1886510 3358615 12735935

Budgeted Income StatementThe budgeted or pro forma income statement is

prepared after the operating budgets have been completed. The cost of goods sold on the income statement is calculated using the per unit cost of Rs.1795.857 , which consists of Rs.1535 per unit for direct materials, Rs.130.00 per unit for direct labor, and a manufacturing overhead rate of Rs.40.00 . Fixed factory overheads were Rs.96040 per quarter.

Budgeted Income StatementBudgeted Income Statement

Description RSSales 2371x2700 6401700Less CGS -4186140Gross Profit 2215560

Sellin and Admin -296375

Net Profit 1919185