SIAM Ltd. manufactures two products using one type of material and one grade of labour. Shown below is an extract from the company's working papers…

CA Intermediate · Cost and Management Accounting · RTP · January 2026
SIAM Ltd. manufactures two products using one type of material and one grade of labour. Shown below is an extract from the company's working papers for the next period's budget. Particulars Product A Product B Budgeted Sales (Units) 1,800 2,400 Budgeted Material Consumption per Product (Kg.) 5 3 [Budgeted Material Cost 12 per Kg.] Standard Hours Allowed per product 5 4 [Budgeted Wage Rate 8 per hour] Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week. There are 45 direct workers. The target productivity ratio (or efficiency ratio) for the productive hours worked by the direct workers in actually manufacturing the products is 80%; in addition the non-productive downtime is budgeted at 20% of the productive hours worked. There are twelve 5-day weeks in the budget period and it is anticipated that sales and production will occur evenly throughout the whole period. It is anticipated that stock at the beginning of the period will be: Product A 510 units; Product B 1,200 units; Raw material 2,150 Kg. The target closing stock, expressed in terms of anticipated activity during budget period are Product A 15 days sales; Product B 20 days sales; Raw material 10 days consumption. Required: the material purchases budget, andthe wages budget for the direct workers, showing the quantities and values, for the next period.

Suggested Answer and Working Notes:

Material Purchase Budget (in quantities and value) Particulars Total Material Consumption (Kg.) A (1,740 units x 5 Kg. = 8,700) B (2,000 units x 3 Kg. = 6,000) 14,700 Add: Closing Balance of Material (Kg.) (W.N. 3) 2,450 Less: Anticipated Opening Balance of Material (Kg.) 2,150 Total Quantity of Material (kg.) to be purchased 15,000 Total Value of Material to be purchased (₹) (15,000 Kg. x 12) 1,80,000 Direct Workers Wages Budget (showing hours required and wages paid) Particulars Total Standard Hours for Budgeted Production 16,700 A (1,740 units x 5 hrs.= 8,700) B (2,000 units x 4 hrs.= 8,000) Standard Hours for Budgeted Production at Targeted Efficiency Ratio (W.N. 4) 20,875 Add: Non Productive Downtime (20% x 20,875 hours) 4,175 Total Labour Hours Required 25,050 Less: Normal Labour Hours (45 workers x 12 weeks x 5 days x 8 hours) 21,600 Difference (Overtime hours) 3,450 Wages for normal hours (21,600 hours x 8) 1,72,800 Overtime Wages (3,450 x 12) 41,400 Total Wages 2,14,200 Working Notes: 1. Computation of Closing Stock Balance of Products A and B Budgeted Period of Sales (In days) = 12 weeks x 5 days = 60 days Closing Stock of Product A (Units) (15 days sales) = (1,800 units ×15 days) / 60 days = 450 units Closing stock of Product B (units) (20 days sales) = (2,400 units × 20 days) / 60 days = 800 units 2. Production Budget (Units) Products A B Sales in units (60 days) 1,800 2,400 Add: Closing Stock (W.N. 1) 450 800 2,250 3,200 Less: Anticipated Opening Balance 510 1,200 Total Number of Units to be produced 1,740 2,000 3. Closing Balance of Material (Kg.) Closing Balance of Material (10 days consumption) = (14,700 kg x 10 days) / 60 days = 2,450 Kg. 4. Standard Hours for Budgeted Production at targeted 80% efficiency ratio = (16,700 Hrs. / 80) ×100 = 20,875 Hrs.

Topics: Budgets and Budgetary Control

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