M Ltd. is a public sector undertaking (PSU), produces a product A. The company is in process of preparing its revenue budget for the year 2024. The…

CA Intermediate · Cost and Management Accounting · RTP · May 2024
M Ltd. is a public sector undertaking (PSU), produces a product A. The company is in process of preparing its revenue budget for the year 2024. The company has the following information which can be useful in preparing the budget: (i) It has anticipated 12% growth in sales volume from the year 2023 of 4,20,000 tonnes. (ii) The sales price of 23,000 per tonne will be increased by 10% provided Wholesale Price Index (WPI) increases by 5%. (iii) To produce one tonne of product A, 2.3 tonnes of raw material are required. The raw material cost is 4,500 per tonne. The price of raw material will also increase by 10% if WPI increase by 5%. (iv) The projected increase in WPI for 2024 is 4% (v) A total of 6,000 employees works for the company. The company works 26 days in a month. (vi) 85% of employees of the company are permanent and getting salary as per 5-year wage agreement. The earnings per manshift (means an employee cost for a shift of 8 hours) is 3,000 (excluding terminal benefits). The new wage agreement will be implemented from 1st July 2024 and it is expected that a 15% increase in pay will be given. (vii) The casual employees are getting a daily wage of 850. The wages in linked to Consumer Price Index (CPI). The present CPI is 165.17 points and it is expected to be 173.59 points in year 2024. (viii) Power cost for the year 2023 is 42,00,000 for 7,00,000 units (1 unit = 1 Kwh). 60% of power is used for production purpose (directly related to production volume) and remaining are for employee quarters and administrative offices. (ix) During the year 2023, the company has paid - 60,00,000 for safety and maintenance works. The amount will increase in proportion to the volume of production. (x) During the year 2023, the company has paid - 1,20,000 for the purchase of diesel to be used in car hired for administrative purposes. The cost of diesel will increase by 15% in year 2024. (xi) During the year 2023, the company has paid - 6,00,000 for car hire charges (excluding fuel cost). In year 2024, the company has decided to reimburse the diesel cost to the car rental company. Doing this will attract 5% GST on Reverse Charge Mechanism (RCM) basis on which the company will not get GST input credit. (xii) Depreciation on fixed assets for the year 2023 is 80,40,00,000 and it will be 15% lower in 2024. You being an associate to the budget controller of the company, PREPARE Revenue (Flexible) budget for the year 2024 and also show the budgeted profit/ loss for the year.

Suggested Answer and Working Notes:

Revenue Budget (Flexible Budget) of M Ltd. for the Year 2024 Particulars PY 2023 CY 2024 A Sales Volume (Tonnes) 4,20,000 4,70,400 [112%×4,20,000] B Selling Price per tonne (₹) 23,000 23,000 (₹ in lakh) (₹ in lakh) C Sales value [A×B] 96,600 1,08,192 D Raw material Cost: (i) Qty. of Material [2.3 tonnes × A] (tonnes) 9,66,000 10,81,920 (ii) Price per tonne (₹) 4,500 4,500 (iii) Total raw material cost [(i)×(ii)] 43,470 48,686.40 E Wages & Salary Cost: (i) Wages to casual employees [900×26×12×₹ 850] (15%×6,000 = 900 employees) 2,386.80 2,508.47 [900×26×12×₹ 893.33] (ii) Salary to permanent employees [5100×26×12×3,000] (85%×6,000 = 5,100 employees) 47,736 51,316.20 [(5100×26×6×₹ 3,000) + (5100×26×6×₹ 3,450)] (iii) Total wages & salary [(i)+ (ii) + (iii)] 50,122.80 53,824.67 F Power cost: (i) For production (units) 4,20,000 4,70,400 [112%×4,20,000] (ii) For employees & offices (units) [40%×7,00,000] 2,80,000 2,80,000 (iii) Total Power consumption (units) [(i)+(ii)] 7,00,000 7,50,400 (iv) Power rate per unit (₹) [₹ 42,00,000÷7,00,000] 6.00 6.00 (v) Total power cost [ (iii) x (iv)] 42 45.024 G Safety and maintenance Cost 60 67.20 [112%×4,20,000] H Diesel cost 1.2 - I Car Hire charge: (i) Car hire charge 6 6 (ii) Fuel reimbursement cost - 1.38 [115%×1.2] (iii) GST@5% on RCM basis [5%×(i+ii)] - 0.369 (iv) Total Car hire charge cost [(i)+ (ii) + (iii)] 6 7.749 J Depreciation 8,040 6,834 [85%×8040] K Total Cost [Sum of D to J] 1,01,742 1,09,465.043 L Profit/ (Loss) [C-L] (5,142) (1273.043)

Topics: Budgets and Budgetary Control

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