Bud Sales 18,000

Add Cl Inv 11,400

Less OP Inv 15,000
14,400 90%
Normal Loss 1,600 10%
Bud Production 16,000 100% 14400/90%

Mat X Mat Y
Product PS - 6000 72,000 36,000
Product TG - 1000 12,000 8,000
Mat Usage - Kgs 84,000 44,000
Add Cl Inv of RM 6,000 1,000
Less Op Inv of RM 5,000 5,000

Mat Purchase -kgs 85,000 40,000

Price - $ 0.72 1.56
Mat Purchase -$ 61,200 62,400

EXAMPLE 4
NEWTON LTD Contract Cleaning Firm 2,520
Productive hrs needed 2520 2,800 280 2,520
Product BUDGET M1 M2 M3 M1 M2 M3 Unavoidable idle time 10% 8.50
1 2,700 2 3 6 5,400 8,100 16,200 Wage Rate - $8.50 per hour. 23,800
2 4,100 3 3 2 12,300 12,300 8,200

3 2,800 4 4 4 11,200 11,200 11,200 What is Budgeted Labour Cost ?

A 19,278
USAGE 28,900 31,600 35,600 B 23,562
C 21,420
Add Cls inv 2,200 1,300 2,000 D 23,800
Less Ope Inv 4,300 3,700 4,400
Purchase - Kgs 26,800 29,200 33,200
Price 1.21 3.30 2.75
Purchases -$$ 32,428 96,360 91,300
EXAMPLE 6
Labour Budget

Product BUDGET SK L SS L SK L SS L
1 2,700 3 4 8,100 10,800
2 4,100 1 4 4,100 16,400
3 2,800 3 2 8,400 5,600
Total Lab Hrs 20,600 32,800
Rate $ 9 6
Lab Cost budget-$ 185,400 196,800

Bud Production 4800 units

Lab hr per unit 5
Prod Hrs required 24000###
Idle Time 6000###
Hrs Required 30000###
Lab Bud Cost - $ 300000

Example 8
100% capacity = 5000

70% 80%### Activity TC VC FC

UNITS 3,500 4,000 ### 3,500 34,000 14,000 20,000
Direct Materials 7,000 8,000 ### 4,500 38,000
D Labour 28,000 32,000 ###
Production Overheads 34,000 36,000 ### 1,000 4,000
ADMin, Sell, etc 15,000 15,000 ### VC = 4

TOTAL COST 84,000 91,000 ###

Budgetary Control Report

Flexed Actual Variance Var %
Budget
a b a-b
units 2,500 2,500
50%
Direct Materials 5,000 4,500 500 10.0% =50X 100
Direct Labour 20,000 22,000 (2,000) -10.0% = 50 X 400
Prod Overheads 30,000 28,000 2,000 6.7% = 50 X 200 + 20000
Admin Overheads 15,000 16,500 (1,500) -10.0%
Total Cost 70,000 71,000 (1,000)

UNITS 70 - ###
Direct Materials 7,000 100 ### 100 VC $100 for 1%
D Labour 28,000 400 ### 400 VC $400 for 1%
Production Overheads 34,000 486 ### 422.222222 SVC- High low$200 for 1% Plus $20000
ADMin, Sell, etc 15,000 ### FC

TOTAL COST 84,000 ###

HIGH LOW TC VC FC
70 34000 14000###
90 38000

VC for 1% 4000 200

20

Fixed Budget Flexed budget Actual

a b c
$ $ $
40,000 42,000 38,000
a-b b-c
Volume Variance (2,000)
Expenditure Var 4,000 r54ee

Total Variance 2000

0.64
 Chapter 15
15.3 80% 90%
8,580 8,940
Per 1 % 107 99
% TC VC FC
80 8,580 2,880 5,700
90 8,940
VC/1% 360 36 per 1%
10
Flexed budget at 83%
Variable = 83 X36 2,988
Fixed 5,700
8,688 Ans D

15.8
March
Budgeted Sales March F3
Add closing Inv 10 % X April =10%XF4

Less Ope Inv 10% X March =10%XF3

Bud Prod 0.9 F3 + 0.1F4

15.9 a b c
Fixed Budget Flexed budget Actual
$ $ $
126,100 130,855 133,580

Volume Variance a-b (4,755) Fixed budget - Flexible budget

Expenditure Var b-c (2,725) Flexed budget - Actual

Total Variance (7,480) Fixed budget - Actual

CHAPTER 16
16.8
Budgeted sales 60,000
Add cl inv - FGs 3,000
Less Op inv - FGs 2,000
Production Budget 61,000

Mat usage budget 183,000 = 61000X3

Add Cl Inv - RM 7,000
Less Op inv- RM 15,000

Mat Purchase budget 175,000 ans B

16.10

Bud prod 200

Lab hr / unit 6
Productive time 1200
Idle time 20%
Yield % 80%
Bud lab hrs 1500
Rate - $7 $7

Bud labour cost- $ 10500 D

Cash Budget
16.15
September Receipts
60% August 60,000 98% 35,280
25% July 40,000 10,000
12% June 35,000 4,200

49,480 ans B

16.16 May Receipts Total Sales Cash - 40% Credit - 60%

March 60,000 24,000 36,000
April 70,000 28,000 42,000
May 55,000 22,000 33,000
June 65,000 26,000 39,000

MAY Receipts
CASH sales - MAY 22,000
Credit Sales
70% April 42,000 98% 28,812
27% March 36,000 9,720

60,532 Ans A

Purchases of Materials for month of MAY

16.17 Production - MAY 8,400 units

Materials usage 25,200 =8400X3 kgs
Add Cl inv 4,100 kgs
Less op Inv 4,200 kgs

Materials Purchase 25,100 kgs

Price $2
M Pur budget- MAY $50,200 ans C

16.18 18
CASH budget - MAY
April May

Production 7,800 8,400

Lab cost / unit 28 28 = 4 hrs @ $7

Labour cost budget 218,400 235,200

Payment - MAY 54,600 176,400 231,000 Ans B

25% 75%

19
16.19
Total sales Cash - 10% Credit - 90%
October 224,000 22,400 201,600
November 390,000 39,000 351,000
December 402,000 40,200 361,800

December Receipts
CASH sales - DEC 40,200
Credit Sales
30% November 351,000 99% 104,247
70% October 201,600 141,120

285,567

16.20
August September
Production 12,600 5,500
V cost/unit - $ 5 5
Total var costs 63,000 27,500

30% 70%
Payment in Sept 18,900 19,250 38,150

Fixed costs 9,440 7,000

Less Dep 2,280 2,280
Cash Fixed costs 7,160 4,720

Payment in Sept 7,160

45,310 Ans C

16.22
Payment in Sptember Payment - sept

25% Sept 280,000 95% 66,500

70% August 300,000 210,000
5% July 250,000 12,500
 289,000 Ans C

$
conv rate to Rs. 30
Conv Rate to GPS
Lecture notes - Page 94
Question 1 $ $
a For three months 225
Minimum rental 300

Hire costs 300

b loss in the value of the

machine if used 200

Relevant cost of Machine 500

Question 2 $
loss in the value of the
machine if used 500

Additional repairs
20 X 2 40

Relevant cost of machine 540

Payback of projects
P cumm CF Q
Cost -10000
Cash Inflow Y1 1000 1000
Y2 2000 3000
Y3 6000 9000
Y4 7000 16000
Y5 8000

Paybck period = 3 + 1000/7000

= 3 1/7 years 2 years
3
Decision Rule - The project with the shortest
payback will be accepted. Project Q

Discounting
n= S-$ PV at 8% P = Amt to be inv
Elder Son 2yrs 10000 0.857 8570

Younger Son 3yrs 10000 0.794 7940

Compound interest
Monthly 19.56%
Quarterly 19.25%
Half yearly 18.81%

NPV Method - Use Cash Flow and NOT Profit

Profit + Dep = Cash

Profit before Dep = Cash

10%
Year Cash in/Out D Factor $
PV table
0 (18,000) 1 (18,000)
1 10,000 0.909 9,090
2 8,000 0.826 6,608
3 6,000 0.751 4,506

NPV 2,204
Dec Rule - Positive NPV, therefore project will be
accepted.

Annuity - 6 years
12%
Year Cash in/Out D Factor $
PV table
0 (24,000) 1 (24,000)
1-6 5,000 4.111 20,555

NPV (3,445)

Annuity - 8 years
12%
Year Cash in/Out D Factor $
PV table
0 (24,000) 1 (24,000)
1-8 5,000 4.968 24,840

NPV 840

Discounted Payback

Year Cash in/Out cumm D Factor $ cumm

PV table
0 (18,000) 1 (18,000)
1 10,000 10,000 0.909 9,090 9,090
2 8,000 18,000 0.826 6,608 15,698
3 6,000 0.751 4,506 20,204
Non-discounted Payback Discounted Payback
2 years
2+ 2302 0.511
4506
2.51 years

Annuity - 5 years
10%
Year Cash in/Out D Factor $
PV table
0 (50,000) 1 (50,000)
1-5 12,000 3.791 45,492

NPV (4,508)

Annuity - 7 years
10%
Year Cash in/Out D Factor $
PV table
0 (50,000) 1 (50,000)
1-7 12,000 4.868 58,416

NPV 8,416

Annuity
10%
Year Cash in/Out D Factor $
PV table
0 (39,500) 1 (39,500)
1-3 10,000 2.487 24,870
4-6 8000 1.868 14,944 A year 6 - A year 3
NPV 314

Annuity - 5 years
10%
Year Cash in/Out D Factor $
PV table
0 (75,820) 1 (75,820)
1-5 20,000 3.791 75,820

NPV -

IRR
15% 20%
Year Cash in/Out D Factor $ D Factor $
PV table PV table
0 (20,000) 1 (20,000) 1 (20,000)
1 8,000 0.87 6,960 0.833 6,664
2 10,000 0.756 7,560 0.694 6,940
3 6,000 0.658 3,948 0.579 3,474
4 4000 0.572 2,288 0.482 1,928
NPV 756 (994)
 Lecture notes - page 103
1 Sales value now 1200
Cost of disposal 800

RC of machine
Loss in the MV of the mach 2000 Ans D

2 Ans C

3 Nominal Rate 6% p.a.

Monthly rate 0.50%

1000 X ( 1.005)6 - 1000 = 30.38

4 Nominal Rate 8% pa
Quarterly rate 2%
EAR
( 1+2%)4 - 1 8.243%

S = PV ( 1+r) n
PV = 12000
r = 8.243%
n = 3 years 15219 Ans C

5 Nominal Rate 4% p.a

 Quarterly rate 1%

( 1 + 1%) 4- 1 4.06%

6 9% + (( 22/ 22+4) X 1)% 9.85%

7 PV of an Annuity = Annual Sum X AF

86400 = 19260 X AF
AF = 4.4860 6 yrs

Rate of Int ( Annuity table) 9%

8 18% Ans D

9 DR PV NPV
10% 64600 4600
15% 58200 -1800
20% 52100 -7900

10%
10 Year 0 -90 Cum
1 27.3 27.3
2 24.8 52.1
3 22.5 74.6
4 20.5 95.1
 Discounted Payback 3- 4 years
Non Dis Payback 3 years
Non Dis Payback is shorter than Dis Payback

11 Ans c

12 PV of a perpetuity = $x/r ( starting in one year's time)

1500/8% 18750

PV of a perpetuity = ( starting now)

$ x /r + $x 1500/8% 18750
1500/8% + 1500 20250

13 Annual sum = 24000

R = 5%
PV of an annuity 480000
Ans C
Ans B
 Ans C

ear's time)