TI Product A takes 4 hours to make and B requires 8 hours. In a month 27 effective days of 8 hours a day. 500 units of A and 300 units, of Y were produced. The company employ 25 workers in the production department. The budgeted hours are 60,000 for the year. Calculate capacity ratio, activity ratio and effective ratio. Standard hours for actual production: Product A: 500 x 4 = 2000 hours Product B: 300 x 8 = 2400 hours 4400 hours 60000 Budgeted hours for the month 12 5000 hours Actual hours worked = 25 x 27 x 8 = 5400 hours Actual hours worked (1) Capacity ratio = x 100 Budgeted hours 5400 5000 x 100 108% Standard hours for actual production (2) Activity ratio Budgeted hours x 100 4400 5000 x 100 91.66% Standard hours for actual production (3) Efficiency ratio = Actual hours worked x 100 +41 4400 5400 * 100 81.48% Sales budget is one of the important functional budgets. Sales estimate is the commencement of budgeting may be made in quantitative terms. Sales budget is primarily concerned with forecasting of what products will be sold in what quantities and at what prices during the budget period. Sales budget is prepared by the sales executives taking into account number of relevant and influencing factors such as: Analysis of past sales, key factors, market conditions, production capacity, government restrictions, competitor's strength and weakness, advertisement, publicity and sales promotion, pricing policy, consumer behaviour, nature of business, types of product, company objectives, salesmen's report, marketing research's reports, and product life cycle. Illustration 3. Ashish Engineering Co. Ltd. manufacturers two articles X and Y. Its sales department has three divisions: West, South and East. Preliminary sales budgets for the year ending 31" December 2003, based on the assessments of the divisional executives: Product X: West 40,000 units: South 1,00,000 units and East 20,000 units Product Y: West 60,000 units: South 8,00,000 units and East Nil Sales price X Rs. 2 and Y Rs. 3 in all areas. Arrangements are made for the extensive advertising of product X and Y and it is estimated that West division sales will increase by 20,000 units. Arrangements are also made to advertise and distribute product Y in the Eastern area in the second half of 2003 when sales are expected to be 1,00,000 units. Since the estimated sales of the South division represented an unsatisfactory target, it is agreed to increase both the estimates by 10%. Prepare a sales budget for the year to 31" December 2003