S Ltd. has prepared budget for the coming year for its two products A and B. Product A (₹) Product B (₹) Production & Sales unit 6,000 units…

CA Intermediate · Cost and Management Accounting · MTP · September 2025
S Ltd. has prepared budget for the coming year for its two products A and B. Product A (₹) Product B (₹) Production & Sales unit 6,000 units 9,000 units Raw material cost per unit 60.00 42.00 Direct labour cost per unit 30.00 18.00 Variable overhead per unit 12.00 6.00 Fixed overhead per unit 8.00 4.00 Selling price per unit 120.00 78.00 After some marketing efforts, the sales quantity of the Product A & B can be increased by 1,500 units and 500 units respectively but for this purpose the variable overhead and fixed overhead will be increased by 10% and 5% respectively for the both products. You are required to PREPARE flexible budget for both the products: (i) Before marketing efforts (ii) After marketing efforts.

Suggested Answer and Working Notes:

(i) Flexible Budget before marketing efforts Product A (₹) Product B (₹) 6,000 units 9,000 units Per unit Total Per unit Total Sales 120.00 7,20,000 78.00 7,02,000 Raw material cost 60.00 3,60,000 42.00 3,78,000 Direct labour cost per unit 30.00 1,80,000 18.00 1,62,000 Variable overhead per unit 12.00 72,000 6.00 54,000 Fixed overhead per unit 8.00 48,000 4.00 36,000 Total cost 110.00 6,60,000 70.00 6,30,000 Profit 10.00 60,000 8.00 72,000 (ii) Flexible Budget after marketing efforts Product A (₹) Product B (₹) 7,500 units 9,500 units Per unit Total Per unit Total Sales 120.00 9,00,000 78.00 7,41,000 Raw material cost 60.00 4,50,000 42.00 3,99,000 Direct labour cost per unit 30.00 2,25,000 18.00 1,71,000 Variable overhead per unit 13.20 99,000 6.60 62,700 Fixed overhead per unit 6.72 50,400 3.98 37,800 Total cost 109.92 8,24,400 70.58 6,70,500 Profit 10.08 75,600 7.42 70,500

Topics: Budgets and Budgetary Control

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