Kantur Ltd. is a medium-sized manufacturer of precision components used in the automobile aftermarket. The factory runs a single production line…

CA Intermediate · Cost and Management Accounting · MTP · September 2026
Kantur Ltd. is a medium-sized manufacturer of precision components used in the automobile aftermarket. The factory runs a single production line where two product variants (Product A and Product B) are made from the same raw material and by the same grade of direct labour. Management is preparing the master budget for the next period and wants the material purchases and direct wages budgets prepared so that procurement and staffing decisions can be finalised. Below is an extract from the company's budget working papers (all figures are for the whole budget period unless stated otherwise): Production & material data Particulars Product A Product B Budgeted sales (units) 2,100 2,700 Budgeted material consumption per product (kg) 6.00 2.50 Budgeted material cost ₹14 per kg (for both products) Standard hours allowed per product 6.0 5.0 Budgeted basic wage rate ₹9 per hour (for all direct workers) Labour / working-time assumptions Overtime premium is 60% of the basic wage rate and is payable for any hours worked over 40 hours in a 5-day week. There are 48 direct workers available in the budget period. The target productivity (efficiency) ratio for productive hours actually used in manufacturing is 85%. In addition, non-productive downtime (set-up, maintenance, unavoidable delays) is budgeted at 15% of the productive hours worked. The budget period contains thirteen 5-day weeks and production and it is anticipated that sales and production will occur evenly throughout the whole period. Opening and desired closing stocks Expected opening stocks at the start of the budget period: Product A 600 units; Product B 1,000 units; Raw material 2,800 kg. Target closing stocks (expressed in terms of anticipated activity during the budget period): Product A - 18 days' sales Product B - 22 days' sales Raw material - 12 days' consumption Other assumptions Production is planned to meet budgeted sales and to build up / run down stocks to the closing targets stated above. Sales and production occur evenly over the budget period (i.e., the daily demand pattern is smooth). Required PREPARE the following budgets for the next period showing quantities and values: 1. Material purchases budget. 2. Wages budget for direct workers

Suggested Answer and Working Notes:

5(a) (i) Material Purchase Budget (in quantities and value) Working Notes: 1. Computation of Closing Stock Balance of Products A and B Budgeted Period of Sales (In days) = 13 weeks × 5 days = 65 days Closing stock of Product A (Units) (18 days' sales) = (2,100 / 65) × 18 = 582 units Closing stock of Product B (Units) (22 days' sales) = (2,700 / 65) × 22 = 914 units 2. Production Budget (Units) Particulars Product A Product B Sales in units (65 days) 2,100 2,700 Add: Closing Stock (W.N. 1) 582 914 Total 2,682 3,614 Less: Anticipated Opening Balance 600 1,000 Total Number of Units to be produced 2,082 2,614 3. Closing Balance of Material (Kg.) Total material consumption for production = 12,492 kg (A) + 6,535 kg (B) = 19,027 kg Daily consumption = 19,027 / 65 = 292.72 kg/day Closing stock of material (12 days consumption) = 292.72 × 12 = 3,513 kg (rounded up) 4. Standard Hours for Budgeted Production at targeted 85% efficiency ratio Total standard hours for production = (2,082 × 6) + (2,614 × 5) = 25,562 hrs Productive hours required = Standard hours ÷ Efficiency = 25,562 / 0.85 = 30,072.94 hrs Non-productive downtime = 15% of productive hours = 0.15 × 30,072.94 = 4,510.94 hrs Total labour hours required = 30,072.94 + 4,510.94 = 34,583.88 hrs Material Purchase Budget Particulars Total Material Consumption (Kg.) A (2,082 units × 6 kg = 12,492) 12,492 B (2,614 units × 2.5 kg = 6,535) 6,535 Total 19,027 Add: Closing Balance of Material (Kg.) (W.N. 3) 3,513 Less: Anticipated Opening Balance of Material (Kg.) 2,800 Total Quantity of Material (Kg.) to be purchased 19,740 Total Value of Material to be purchased (19,740 kg × ₹14) 2,76,360 (ii) Direct Workers Wages Budget (Showing hours required and wages paid) Particulars Total Standard Hours for Budgeted Production A (2,082 units × 6 hrs = 12,492) 12,492 B (2,614 units × 5 hrs = 13,070) 13,070 Total Standard Hours for Budgeted Production 25,562 Standard Hours for Budgeted Production at Targeted Efficiency Ratio (W.N. 4) 30,072.94 Add: Non-Productive Downtime (15% × 30,072.94 hours) 4,510.94 Total Labour Hours Required 34,583.88 Less: Normal Labour Hours (48 workers × 13 weeks × 5 days × 8 hours) 24,960 Difference (Overtime hours) 9,624 Wages for normal hours (24,960 hours × ₹9) 2,24,640.00 Overtime Wages (9,624 hrs × ₹14.40) 1,38,585.60 Total Wages 3,63,225.60

Topics: Budgets and Budgetary Control

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