Additional Assessment Paper - Angelfirebrr777.angelfire.com/BudgetSelfTest.pdf1 Additional...

1

Additional Assessment Paper

Multiple choice questions

Select the most appropriate answer for each of the following questions.

1 The main purpose of a firm’s master budget is to:

a set limits on spending

b establish a standard against which to measure employee performance

c coordinate and formalise (in money terms) the firm’s goals and objectives

d eliminate uncertainty of future events

e all of the above

2 The control function of budgeting is achieved by:

a preparing only foolproof budgets

b allowing some flexibility in budgeted amounts

c comparing budgeted amounts with actual amounts

d basing budgeted amounts on the actual results of the last period

3 A budget that is updated regularly by adding a new incremental time period such as a

month, and dropping the period just completed, is a:

a rolling or continuous budget

b short-range budget

c long-range budget

d capital expenditure budget

4 A master budget is:

a a set of statements providing broad direction for the firm

b a budget prepared after the fact, showing what costs should have been

2

c an integrated plan of action for the firm as a whole, quantifying details of

operations and resources

d an operating budget for a specific future period of time

5 Which of the following statements about a flexible budget is false?

a It is the same as a static budget.

b It covers a range of activity within which a firm may operate.

c It assists companies in controlling overhead costs.

d It provides the correct basis for comparison between actual and expected costs.

6 An inaccurate sales forecast will:

a not affect the accuracy of the other schedules comprising the master budget

b have an impact on the other schedules comprising the master budget

c influence only the sales figure on the income statement budget

d have no effect on any of the schedules comprising the master budget because

other differences will counterbalance the error

7 Which of the following is NOT a benefit of a budgeting system?

a It coordinates activities.

b It aids performance evaluation.

c It provides direction to the business.

d It automatically ensures profits will be achieved.

8 The income statement budget, balance sheet budget and cash budget:

a are the first step of the master budget

b are prepared after the sales forecast and before the remainder of the operational

budgets

c show the actual financial results of the organisation’s operations

3

d are the final portions of the master budget

9 In preparing any budget, it is important that managers keep in mind the:

a budgeted net profit

b assumptions and predictions upon which the budget is based

c cash balance

d past year’s results

10 Which of the following is NOT true with regard to cash budgets?

a They forecast periods of cash shortage.

b They summarise the expected cash flows in and out of an organisation.

c They mirror the income statement for an operating period.

d They forecast cash surpluses and assist investment plans.

4

Theory questions

1 Give some examples how general economic trends and international events may affect

sales forecasting in the tourism industry.

2 Who is likely to be responsible for the labour efficiency variance? Identify three

possible causes for this variance.

3 Is any budget ‘bullet proof’? What factors should be taken into account in framing a

budget?

4 What is a budget? How does the process of budgeting assist management?

5 Give some examples how general economic trends and actions of competitors may

affect sales forecasting in the motor vehicle manufacturing industry.

6 If an analysis discovers an unfavourable material price variance, what could be some of

the possible explanations? Is this necessarily something to be worried about?

7 Write short answers to the following questions:

a Define budgeting.

b Explain briefly the four main purposes of budgeting i.e. the areas in which

budgets can assist management.

c What is a rolling budget?

d List five factors which would normally be taken into consideration when

forecasting sales for a retail firm.

5

Practical questions

Practical question 1

California Club Ltd produces spirits which it sells in two markets, wholesale and export.

Forecast sales for the first three months of 2006 are:

January 2000 bottles

February 2400 bottles

March 3000 bottles

Thirty percent of sales are to wholesalers, with the rest exported.

Anticipated selling prices to wholesalers are $20 in January, rising to $25 in February and

March. Export prices are always 10% lower.

Prepare a detailed sales budget for the three months showing details of revenue expected from

each of the two markets.


Smellsweet manufactures and sells perfume. The production manager supplies you with the

following information:

Estimated sales are July 2800 bottles, August 3000 bottles, September 2500 bottles and

October 3000 bottles. Each bottle sells for $70.

The company sets its production rate to ensure that it makes sufficient to hold stocks at

the end of each month equal to 50% of the next month’s expected sales.

Each bottle requires 2 kg of flower petals costing $15 per kg.

It is the company’s policy to hold stocks of raw materials on hand at the end of each

month equal to 50% of the material needed for the following month’s production.

Stocks at the end of September are budgeted at 2500 kg.

6

Prepare the following budget schedules for the three months ending 30 September:

a Production budget

b Raw materials budget showing details of usage and purchases


Eastern Silk produces silk scarves and sells them to retailers in packs of five for $300 a pack.

The costs to produce each pack are:

Direct materials – 1.5 sq m fabric @ $60 sq m

Direct labour – 3 hrs @ $30 per hour

Variable overhead – $15

Fixed overheads average $1 080 000 per annum, and are allocated on the basis of direct

labour hours. Annual direct labour hours are estimated to be 120 000.

Other costs include fixed selling and administration costs of $40 000 per month, and variable

selling and administration costs of $5 per pack.

Opening stock of finished goods is 500 packs, and it is expected that closing inventory will be

700 packs. Estimated sales are 3000 packs.

Prepare the following for the quarter ended 31 March:

a Cost of production budget showing total costs and cost per pack

b Income statement budget


The preparation of master budget information for Gastronomics Inc for January 2006 is

almost complete. Extracts of budget and actual information are provided below:

7

Balances as at 31 December 2005 $

Cash at bank 73 000

Accounts receivable 50 000

Inventory – Finished goods 45 000

Inventory – Raw materials 25 000

Plant and equipment 310 000

Accumulated depreciation of plant and equipment 100 000

Accounts payable (materials) 19 000

GST payable to ATO 4 000

Capital, I. M. Aguts ?

The income statement budget for January 2006 is:

$ $

Sales 150 000

Less Cost of goods sold

Opening inventory finished goods 45 000

Add Cost of production 100 000

Less Closing inventory 60 000 85 000

Gross profit 65 000

Less Operating expenses 40 000

Net operating profit 25 000

Add Non-operating income

Profit on sale of plant and equipment 5 000

Net profit 30 000

8

Additional information:

All sales are made on credit, with 80% collected in the month of sale and the remainder

in the next month. There are no bad debts.

Cost of production comprises: raw material usage at $65 000, direct labour at $20 000,

and overheads of $15 000 (including depreciation of $5 000 – the rest of the overheads

are cash expenses paid in the same month).

Purchases of raw materials are paid for 75% in the month of purchase and 25% in the

following month. Anticipated stocks of raw materials at the end of January are $30 000.

Equipment with an original cost of $20 000 will be sold for $10 000 cash (plus GST)

during January.

Operating expenses (which include wages of $9000) are generally paid as incurred,

except that $1000 of office expenses will be accrued at the end of January.

Drawings of $10 000 per month are budgeted for.

GST is accounted for on a cash basis, and is remitted monthly. All figures given in the

question are GST exclusive.

Prepare the following budgets for the month of January 2006:

a Cash budget

b Balance sheet budget

9


Angie’s Delicacies Ltd has the following overhead account balances for October:

Budget Actual

$ $

Depreciation of equipment 7 000 7 000

Electricity 9 500 9 000

Indirect labour 13 500 14 200

Repairs and maintenance 3 500 4 000

Insurance 2 000 1 800

a Prepare a simple variance report showing overhead expenses for the month. Show

variances as dollar amounts and percentages.

b What action should generally be taken once the performance report is prepared?


Dylan’s Delights Inc provides the following information related to its activities for February:

Budgeted total sales for February (1000 units @ $20) $20 000

Actual total sales revenue (900 units @ $21) $18 900

Production cost budget for the month of February showed:

$

Direct materials 5

000

Direct labour 2

500

Supervisors’ salary 1

10

600

Workers’ compensation 123

Repairs and maintenance 1

250

Depreciation of equipment 500

Factory rent 1

300

Direct materials, direct labour and repairs and maintenance vary directly according to

production level. Workers’ compensation is 3% of total salary payments to staff.

Actual expenses are as follows:

$

Direct materials 4

700

Direct Labour 2

200

Supervisors’ salary 1

600

Workers’ compensation 114

Repairs and maintenance 1

400

Depreciation of equipment 500

Factory rent 1

450

11

a Prepare an income statement performance report for the month of February calculated

on flexible budgeting principles. Indicate clearly both the flexible budget/spending and

volume/activity variances.

b Comment on the results.


Bush’s Weapons Ltd manufactures chemicals using the following budgeted cost per 100 litre

drum:

Direct materials 50 kg of A at $1 per kg

10 kg of B at $6 per kg

Direct labour 2 hours per drum at $15 per

hour

Variable overhead $10 per drum

Fixed overhead $4000 per month

The budgeted monthly production is 400 drums and the actual production was 500 drums.

Actual costs for the month were:

Direct materials 24 000 kg of A at a total cost of $26

400

4800 kg of B at a total cost of $29

280

Direct labour 980 hours at a total cost of $15 680

Variable overhead $5000

Fixed overhead $4650

Prepare a report analysing the variances.

12


Paula Bennett of Sadi Ltd is pleased when she sees the results for her department for January.

The departmental profit is higher than she budgeted for.

The budget details for the month were:

$

Sales 40

000

Cost of sales 24

000

Selling expenses (all variable) 7

500

Administration expenses (half variable, half fixed) 4

000

Financial expenses (all fixed) 1

000

Profit 3

500

The profit details reported by the accountant were:

$

Sales 48

000

Cost of sales 30

000

Selling expenses (all variable) 9

000

13

Administration expenses (half variable, half fixed) 4

200

Financial expenses (all fixed) 1

100

Profit 3

700

Prepare a report for Paula, explaining whether the actual profit was as good as it appears to be

on the surface.


Happy Washing Days Ltd produces clotheslines which it sells in two states, South Australia

and Victoria. Forecast unit sales for the first three months of 2005 are:

January 870

units

February 920

units

March 990

units

Forty percent of sales are made in South Australia and the rest in Victoria.

Anticipated selling prices in South Australia are $190 in January rising to $200 in February

and March. Prices in Victoria are always $10 higher.

14

Prepare a detailed sales budget for the three months showing details of revenue expected from

each of the two states.


Ice Confections manufactures and sells frozen ice blocks in packs of 10. The production

manager supplies you with the following information:

Estimated sales are for July 12 000 packs, August 15 000 packs and September 12 500

packs. Each pack sells for $3.

The company plans to produce sufficient packs to have 50% of the next month’s sales

in stock at the end of the previous month. Opening stocks for July will be 6000 packs

and closing stocks at the end of September are expected to be 7000 packs.

Each pack requires 2 kg of raw materials costing $0.40 per kg.

It is the supply manager’s policy to hold stocks of raw materials on hand at the end of

each month equal to 25% of the materials needed for the following month’s production.

Assume that stock on hand at start of July is 6500 kg of raw material with 7500 kg to

be on hand at 30 September.

Prepare the following budget schedules for the three months ending 30 September:

Production budget

Raw materials budget showing details of usage and purchases


Andy’s Software produces computer games under licence and sells them to retailers for $145

each. The costs to produce each game are:

Direct materials – $12

Direct labour – 2 hours @ $25 per hour

Variable overhead – $5

15

Fixed overheads are $900 000 per annum and are averaged across estimated annual

production of 90 000 units

Other costs include fixed selling and administration costs of $10 000 per quarter and variable

selling and administration costs of $6 per game.

Production expected for the quarter ended 31 March is 25 000 games with expected sales of

24 000. Andy has 2000 games on hand at the start of the quarter ($77 each).

Prepare the following for the quarter ended 31 March:

Cost of production budget showing total and unit costs

Income statement budget


Actual and budgeted information for Speedicars Ltd is provided below:

Balances as at 30 June 2005 $

Cash at bank 130

000

Accounts receivable 100

000

Inventory – Finished goods 70

000

Inventory – Raw materials 50

000

Plant and equipment 620

000

16

Accumulated depreciation of plant and equipment 240

000

Accounts payable (materials) 40

000

GST payable to ATO 10

000

Retained profits 290

000

Share capital 390

000

The income statement budget for the month of July 2005 was:

$ $

Sales 105 000


Opening inventory finished goods 70 000

Add Cost of production 70 000

Less Closing inventory 80 000 60 000

Gross profit 45 000

Less Expenses

Loss on sale of equipment 1 000

Operating expenses 32 500 33 500

Net profit 11 500

Additional information:

All sales are made on credit with 70% collected in the month of sale and the remainder

in the next month. There are no bad debts.

17

Cost of production comprises: raw material usage at $40 000, direct labour at $20 000

and overheads of $10 000 (including depreciation of $2500 – the rest of the overheads

are cash expenses paid in the same month).

Purchases of raw materials are expected to be $65 000. Purchases are paid for 60% in

the month of purchase and 40% in the following month.

Equipment with a historic cost of $10 000 will be sold for $3000 cash on 31 July.

Operating expenses are generally paid as incurred except that $500 of advertising

expense will still be unpaid at the end of July. Included in the operating expenses are

wages and salaries of $12 500.

A cash dividend of $15 000 is due to be declared and paid in July.

All figures provided are GST exclusive. GST is calculated on a cash basis and remitted

monthly.

Prepare the following for the month of July 2005:

Cash budget

Balance sheet budget


Kage Ltd has the following account balances for February:

Budget Actual

$ $

Sales 50 000 60

000

Cost of goods sold 20 000 25

000

Selling expenses 3 500 4 000

Administration 10 000 11

18

expenses 000

Financial expenses 2 000 1 800

Prepare a simple variance report showing financial performance for the month. Show

variances as dollar amounts and percentages.

If the firm concentrates on variances greater than 10%, which variances need

explaining? Is there any logical explanation for any of these variances?


Italia Pasta Products provides the following information related to its sales:

$

Budgeted total sales revenue for September 100

000

Actual total sales revenue 95 000

Selling expenses budgeted for the month of September are:

$

Wages 3

000

Commission 1

000

Payroll tax 160

Vehicle maintenance 200

Depreciation of vehicles 500

Advertising 1

500

19

Commission, advertising and vehicle maintenance vary directly according to sales. Payroll tax

is 4% of total salary payments to staff.

Actual expenses are as follows:

$

Wages 3

200

Commission 950

Payroll tax 166

Vehicle maintenance 150

Depreciation of vehicles 500

Advertising 1

400

Prepare a selling expenses performance report for the month of September calculated

on flexible budgeting principles. Indicate clearly both the flexible budget/spending and

volume/activity variances.

Explain why such a breakdown of variances is normally performed.


F Company manufactures ammunition using the following budgeted cost per case of product:

Direct materials: 5 kg of X at $125 per kg

20 kg of Y at $40 per kg

Direct labour: 12 hours per case at $15 per

hour

20

The budgeted monthly production is 200 cases and the actual production and sales were 200

cases. Actual costs were:

Direct materials: 1050 kg of X at a total cost of $135

000

3980 kg of Y at $41 per kg

Direct labour: 2500 hours at a total cost of $40 000

Prepare a report analysing the variances.


Andrew Carey, manager of the Football Division of Sporting Prowess Co, is puzzled that the

accountant’s report shows a smaller profit for his division than what he thinks it should be.

The budgeted profit for the month was:

Number of footballs to be produced 200

$

Total selling price 10 000

Costs: Material 5 500

Labour 2 000

Overhead (all fixed) 1 000

Profit 1 500

21

The number of footballs actually made and sold for the month was 250 so Carey expected a

profit of $1875 ($7.50 per football) but the profit shown was:

$

Total selling price 12 500

Costs: Material 7 500

Labour 2 400

Overhead (all fixed) 1 150

Profit 1 450

Prepare a report for Mr Carey explaining why the actual profit was lower than expected.


Le Marais Ltd sells imported French cheeses to restaurants in Melbourne. The estimated

monthly sales for the total market, for the quarter ending September 2005, are as follows:

Camembert Brie

kg kg

July 15 000 6 000

August 12 000 5 000

September 15 000 5 000

Le Marais expects its market share to be 30%. Selling prices are currently $15 per kg for

Camembert and $18 per kg for Brie. Due to currency fluctuations, it is expected that the price

for Camembert will have to be increased by 10% and Brie by 5% at the beginning of August.

Prepare a sales budget, by month and by product, for the quarter ending 30 September 2005

and for the quarter as a whole.

22


Mitch’s Marine is a retailer of fishing rods. The firm sells two models, Basic and Superior, for

$40 and $75 respectively. Their major markets are in Brisbane and Sydney.

Sales last year were as follows:

Basic Superior

Brisbane April 150 200

May 100 160

June 90 125

Sydney April 200 300

May 170 225

June 130 180

A major marketing campaign is planned for May and June, which is expected to boost sales of

Basic by 10% and Superior by 20%. In addition, the price of Superior will be decreased to

$70 on 1 May. The price of the Basic model will not change.

Prepare a sales budget, by product, area and month, for the three months ending 30 June.


Paris Underground Ltd is a wholesaler of CD records.

As at 1 October 2005, the following information applies to the company:

The business has an overdraft of $12 500.

25% of its sales are for cash with the rest being on credit.

23

The company allows its credit customers a 2% discount if they pay by the end of the

month following the month of sale. 70% of debtors take up this offer with the rest

paying during the following month.

Actual and forecast sales (net of GST) are as follows:

August $250 000

September $270 000

October $300 000

November $412 000

December $490 000

The company buys all its stock on credit, paying for it in the month following purchase.

Actual and forecast purchases are as follows:

September $190 000

October $220 000

November $360 000

December $185 000

Regular monthly operating expenses are a combination of fixed $20 000 (including

depreciation $5500) and variable 10% of sales. These expenses are paid in the month

they are incurred.

New furniture is budgeted to be purchased for $50 000 cash in November.

A dividend to shareholders is due for payment in October $8000.

All payments except wages and dividends are subject to GST of 10%.

Prepare a cash budget on a month-by-month basis for the three months ending 31 December

2005. Show any supporting workings. Determine whether the firm will be able to eliminate its

overdraft. If not, suggest three actions the directors could take.

Note: You must show the effects of GST of 10% where applicable. The company uses the

cash system of accounting for GST and submits a BAS quarterly.

24


Joe’s Organic Farm Products, a retail fruit and vegetable shop, had the following budgeted

figures for revenue and expense for the financial year ending 30 June:

$

Sales 180

000

Cost of produce 80 000

Salaries 35 000

Rent 10 000

Interest on loans 2 000

Advertising 3 500

Electricity 4 500

Depreciation of equipment 1 000

At the end of the year, the accounts showed the following actual figures:

$

Sales 206

000

Cost of produce 98 000

Salaries 36 500

Rent 10 000

Interest on loans 2 000

Advertising 4 000

Electricity 4 200

Depreciation of equipment 1 000

Prepare an income statement performance report and comment on the year’s performance.

25


The Martindale Medical Centre provides a 24-hour medical service to the local community.

Following are some details for the coming quarter:

a The number of patients expected to be treated is 1900 in January, 2200 in February and

2450 in March.

b On average, 80% are standard consultations and 20% are long consultations.

c 70% of patients are bulk-billed, so the centre receives $25.05 Medicare rebate in cash

for each standard consultation and $47.60 for each long consultation.

d The other 30% who are privately billed are charged $35 for a standard consultation and

$60 for a long one. However, these fees are planned to be increased by 10% on 1

March.

Prepare a revenue budget for each month of the coming quarter, showing the breakdown of

earnings for each category of patient. Calculate amounts to the nearest dollar.

Note: There are no GST effects in this assessment.


Doohan Brothers’ Hardware store has a need to prepare a cash budget to assess its likely cash

position.

The following items appear in the balance sheet of at 31 December:

$

Accounts receivable 25 000

Accounts payable 27 000

GST owing 18 000

Cash at bank 70 800

26

The shop sells for cash to the public but also supplies the building trade on credit on the basis

of net 30 days. Generally, 80% of credit sales are paid for in the month of sale, with the

balance in the following month. All sales are subject to GST.

All of Doohan’s purchases are on credit, and suppliers offer a 4% discount for payment

within 21 days. Due to different billing dates, only 80% of accounts are paid for in the month

of purchase, with the balance paid in the following month – but the discount is claimed on all

of them.

Actual and budgeted income and expenses are as follows:

December January February

(actual) (estimated) (estimated)

$ $ $

Cash sales 180 000 186 000 196 000

Credit sales 125 000 130 000 150 000

Purchases 135 000 125 000 180 000

Wages 20 000 30 000 15 000

Other

expenses

84 000 85 000 95 000

The figures above for ‘Other expenses’ include a monthly amount of $5000 depreciation.

Expenses are paid in the month they occur.

All payments are subject to GST except wages.

New shop fittings of $65 000 (plus GST) are to be bought for cash in January, and the

Doohan brothers take drawings of $10 000 each month.

Prepare a cash budget for the months of January and February.

27

Note: In this question, you must show the effects of GST where applicable. The business uses

the cash system of accounting for GST and submits a BAS quarterly.


Scott’s Gardening Service had the following budgeted details for the financial year ended 30

June:

Expected income – 32 hours work per week for 50 weeks @ $40 per hour

Cost of gardening supplies $12 500

Hire of equipment to average $100 per week

Depreciation of own equipment $3400 per annum

Advertising 3% of forecast income

Motor vehicle expenses $6500 per annum

Interest on bank loan $2000 per annum

At the end of the year, the accounts showed the following actual figures:

Worked 1200 hours @ $40 per hour and 600 hours @ $35 per hour

Gardening supplies cost $13 000

Hire of equipment totalled $4800

Depreciation was $3400

Spent $1800 on advertising

Motor vehicle expenses totalled $7100

Interest on loan was $2000

Prepare an income statement performance report and comment on the year’s performance.

28

Answers to Additional Assessment Paper

Multiple choice questions

1 c

2 c

3 a

4 c

5 a

6 b

7 d

8 d

9 b

10 c

29

Theory questions

1 Points could include:

whether the economy is growing or in recession will affect spending power of

consumers

taxing policies of the government could affect affordability of holidays

labour laws could make employment of staff more expensive, with consequent

passing on of costs to travellers

overseas or local events such as war, terrorism, epidemics, airline accidents, etc

could affect confidence of travellers.

2 The labour efficiency variance would primarily be the responsibility of the staff in

charge of personnel and the manufacturing process within the factory e.g. under the

leadership of the production manager. Possible causes for the variance would include:

using inappropriately skilled personnel

changes in the production process which may increase or decrease the labour

component

changes in the level of productivity

faulty equipment or material, material shortages, or machine breakdowns which

halt work.

3 Discussion required around the fact that all budgets are based on assumptions which

may or may not eventuate. As a budget looks into the future, events cannot be

accurately predicted, especially influences which are outside the firm’s control. Factors

to be considered in framing a budget include:

possible over-reliance on past activity and results as a basis for preparation of the

budget

the appropriateness of basing a price increase on previous years’ increases

30

complacency about past and current levels of performance (e.g. could they

improve on the response rate of six days?)

how much communication and negotiation has there been with other departments

(e.g. has there been discussion about common goals and objectives for the

firm?).

4 A budget is a written forecast of activity for an organisation for a coming period,

expressed in dollars. It is the quantitative representation of policies, objectives and

plans for the future, providing specific detail of expected income, expenses, cash flows,

etc. The budgeting process assists management in four main ways – planning,

coordination, motivation, and control. Answers should briefly explain these or similar

points.

5 Points could include:

whether the economy is growing or in recession will affect spending power and

confidence of buyers

if the price of petrol is increasing, this could affect buyers’ willingness to

commit to an expensive new car

changes to taxing policies could make new cars less attractive

competitors could begin an aggressive marketing campaign to increase market

share

competitors could introduce new models which capture the public’s imagination

(e.g. a more efficient electric car).

6 An unfavourable material price variance could be due to:

unanticipated price increases on the part of suppliers

changes in exchange rates if materials sourced from overseas

poor negotiation about supply terms and conditions

31

need for rush purchase orders, extra quantities in small lots due to unexpectedly

high production demands, etc.

How seriously such a variance is viewed will depend on the size of the variance and the

cause for it. The first step is to decide whether it is worth investigating. If so, the

approach should be to find the reason, not to attach blame. In many cases, it may be

outside the control of the responsible person, or it may be the result of inappropriate

assumptions being made at the budgeting stage. If the latter is the case, the forthcoming

budgets should be revised.

7 a Budgeting is the process of developing a series of written plans which

summarise in quantitative terms, the firm’s planned activities for a coming

period.

b The four main purposes of budgeting are:

planning

organising

leading/motivating

controlling.

A brief explanation of each would be required.

c A rolling budget is one which is always showing a specified time frame ahead

e.g. if it is a six month expense budget, once the first month is finished, the

details are dropped from the budget, and another month’s details added at the

end.

32

d Factors to consider when forecasting sales:

past patterns of sales for the firm and the industry

general economic conditions

market share

product prices

planned advertising

actions of competitors.

33

Practical questions


California Club Ltd sales budget for the quarter ending 31 March

January February March Quarter

Total quantity 2 000 2 400 3 000 7 400

Wholesale

Quantity (bottles) 600 720 900 2 220

Price ($) 20.00 25.00 25.00

Total sales ($) 12 000 18 000 22 500 52 500

Export

Quantity (bottles) 1 400 1 680 2 100 5 180

Price ($) 18.00 22.50 22.50

Total sales ($) 25 200 37 800 47 250 110 250

Combined total sales ($) 37 200 55 800 69 750 162 750


Smellsweet production budget for the quarter ending 30 September

July August September Quarter

Estimated sales 2 800 3 000 2 500 8 300

Add Closing inventory 1 500 1 250 1 500 1 500

Total needs 4 300 4 250 4 000 9 800

Less Opening inventory 1 400 1 500 1 250 1 400

Production (bottles) 2 900 2 750 2 750 8 400

34

Smellsweet raw materials budget for the quarter ending 30 September


Production (bottles) 2 900 2 750 2 750 8 400

Raw materials per bottle (kg) 2 2 2 2

Total material (kg) 5 800 5 500 5 500 16 800

Add Closing inventory (kg) 2 750 2 750 2 500 2 500

Total needs (kg) 8 550 8 250 8 000 19 300

Less Opening inventory (kg) 2 900 2 750 2 750 2 900

Material purchases (kg) 5 650 5 500 5 250 16 400

Material price per kg ($) 15 15 15 15

Material purchase cost ($) 84 750 82 500 78 750 246 000


Eastern Silk cost of production budget for the quarter ending 31 March

Unit cost Total cost

$ $

Direct materials 90 288 000

Direct labour (3 hours) 90 288 000

Variable overhead 15 48 000

Fixed overhead ($9 per hour) 27 86 400

Total cost of production 222 710 400

35

Eastern Silk income statement budget for the quarter ending 31 March

$ $

Sales (3000 @ $300) 900 000


Opening inventory (500 @ $222) 111 000

Cost of production 710 400

Goods available for sale 754 800

Less Closing inventory (700 @ $222) 155 400 666 000

Gross profit 234 000

Less Expenses

Fixed selling and administration expenses 120 000

Variable selling and administration expenses 15 000 135 000

Net profit 99 000


Gastronomics Inc cash budget for January 2006

$ $ $

Opening cash balance 73 000

Add Estimated receipts

Collections from accounts receivable:

December 50 000

January (80% sales) 120 000 170 000

Sale of equipment 10 000

180 000

GST collected 10% 18 000 198 000

Total cash available 271 000

36

Less Estimated payments

Payments subject to GST

Purchases of materials:

Accounts payable December 19 000

January (75% purchases) 52 500 71 500

Overheads 10 000

Operating expenses 30 000

111 500

GST payable 10% 11 150 122 650

Payments not subject to GST

GST paid to ATO 4 000

Direct labour 20 000

Operating expenses (wages) 9 000

Drawings 10 000 43 000

Total cash payments 165 650

Closing cash balance 105 350

Gastronomics Inc balance sheet budget as at 31 January 2006

$ $

Current assets

Cash at bank 105 350

Accounts receivable (20% sales) 30 000


Inventory – Raw materials 30 000 225 350

Non-current assets


Less Accumulated depreciation 90 000 200 000

37

Total assets 425 350

Current liabilities

Accounts payable: raw material purchases 17 500

Office expenses 1 000

GST payable to ATO 6 850

Total liabilities 25 350

Net assets 400 000

Owners’ equity

Capital, I. M. Aguts 380 000

Add Net profit 30 000

Less Drawings 10 000

Total owners’ equity 400 000


a Angie’s Delicacies Ltd overhead performance report for October

Budget Actual Variance Variance

$ $ $ %

Depreciation 7 000 7 000

Electricity 9 500 9 000 500 F 5.3 F

Indirect labour 13 500 14 200 700 U 5.2 U

Repairs and maintenance 3 500 4 000 500 U 14.3 U

Insurance 2 000 1 800 200 F 10.0 F

Total overheads 35 500 36 000 500 U 1.4 U

b Policies should be in place, under the concept of management by exception, which

provide guidance about which variances should be investigated e.g. those which are

38

over 5% above or below budget. Discovery of the causes will then guide the action

which follows. If the variance was controllable, corrective action should be taken to

prevent it happening again. If it is not controllable, or if the variance is the result of

poor estimation, budgets may need to be revised. Alternately, if the reason for the

difference is acceptable in the circumstances, no action may be required.


a Dylan’s Delights Inc performance report for February

Static

budget

1000 units

Activity/

volume

variance

Flexible

budget

900 units

Spending

variance

Actual

900 units

$ $ $ $ $

Sales 20 000 2 000 U 18 000 900 F 18 900

Direct material 5 000 500 F 4 500 200 U 4 700

Direct labour 2 500 250 F 2 250 50 F 2 200

Supervisors salary 1 600 1 600 1 600

Workers’ compensation 123 12 F 111 3 U 114

Repairs and maintenance 1 250 125 F 1 125 275 U 1 400

Depreciation of equipment 500 500 500

Factory rent 1 300 0 1 300 150 U 1 450

Total costs 12 273 887 F 11 391 578 U 11 964

Gross profit 7 727 1 113 U 6 614 322 F 6 936

b Even though the number of units produced and sold was lower than budget, the

increased selling price per unit resulted in a $900 better sales figure than if the original

selling price per unit had been attained. The gross profit showed a $791 unfavourable

variance compared to the original budget, but a more meaningful comparison with the

39

flexible budget, based on the actual number of units sold, reveals the firm performed

$322 better than expected. The largest individual variance related to overspending on

repairs and maintenance which would be worthy of investigation.


Bush’s Weapons Ltd

Direct material variances

Material A

Direct material usage variance = (25 000 – 24 000) x $1 $1 000 F

Direct material price variance = $26 400 – (24 000 x $1) $2 400 U

Material B

Direct material usage variance = (5 000 – 4 800) x $6 $1 200 F

Direct material price variance = $29 280 – (4 800 x $6) $480 U

Total direct material variance $680 U

Direct labour variances

Direct labour efficiency variance = (1 000 – 980) x $15 $300 F

Direct labour rate variance = $15 680 – (980 x $15) $980 U

Total direct labour variance $680 U

Factory overhead variances

Variable overhead spending variance = $5000 – (500 x $10) Nil

Variable overhead capacity variance = (500 – 400) x $10 $1 000 F

Fixed overhead spending variance = $4 650 – $4 000 $650 U

Total factory overhead variance $350 F

40


Sadi Ltd financial performance report for January

Static

budget

Activity/

volume

variance

Flexible

budget

Spending

variance

Actual

$ $ $ $ $

Sales 40 000 8 000 F 48 000 48 000

Cost of goods sold 24 000 4 800 U 28 800 1 200 U 30 000

Selling expenses 7 500 1 500 U 9 000 9 000

Administration expenses –

variable

2 000 400 U 2 400 300 F 2 100

Administration expenses –

fixed

2 000 2 000 100 U 2 100

Financial expenses 1 000 1 000 100 U 1 100

Total costs 36 500 6 700 U 43 200 1 100 U 44 300

Profit 3 500 1 300 F 4 800 1 100 U 3 700

Although Paula’s profit is $200 higher than budgeted, it could have been $1300 higher,

potentially, given the level of sales attained. If variable costs had retained their relationship to

sales, and fixed costs remained the same, profit would have been $4800. The major reason

this was not achieved was an increase of 5% in the cost of sales.

41


Happy Washing Days Ltd sales budget for the quarter ending 31 March

January February March Quarter

Total quantity 870 920 990 2 780

South Australia

Quantity 348 368 396 1 112

Price ($) 190 200 $200

Total sales ($) 66 120 73 600 79 200 218 920

Victoria

Quantity 522 552 594 1 668

Price ($) 200 210 210

Total sales ($) 104 400 115 920 124 740 345 060

Combined total sales ($) 170 520 189 520 203 940 563 980


Ice Confections production budget for the quarter ending 30 September


Estimated sales 12 000 15 000 12 500 39 500

Add Closing inventory 7 500 6 250 7 000 7 000

Total needs 19 500 21 250 19 500 46 500

Less Opening inventory 6 000 7 500 6 250 6 000

Production (packs) 13 500 13 750 13 250 40 500

42

Ice Confections raw materials budget for the quarter ending 30 September


Production (packs) 13 500 13 750 13 250 40 500

Raw materials per pack (kg) 2 2 2 2

Total material (kg) 27 000 27 500 26 500 81 000

Add Closing inventory (kg) 6 875 6 625 7 500 7 500

Total needs (kg) 33 875 34 125 34 000 88 500

Less Opening inventory (kg) 6 500 6 875 6 625 6 500

Material purchases (kg) 27 375 27 250 27 375 82 000

Material price per kg ($) 0.40 0.40 0.40 0.40

Material purchase cost ($) 10 950 10 900 10 950 32 800


Andy’s Software cost of production budget for the quarter ending 31 March

Unit cost Total cost

$ $

Direct materials 12 300 000

Direct labour (2 hours) 50 1 250 000

Variable overhead 5 125 000

Fixed overhead 10 250 000

Total cost of production 77 1 925 000

Andy’s Software income statement budget for the quarter ending 31 March

$ $

Sales (24 000 @ $145) 3 480 000


Opening inventory (2000 @ $77) 154 000

43

Cost of production 1 925 000

Goods available for sale 2 079 000

Less Closing inventory (3000 @ $77) 231 000 1 848 000

Gross profit 1 632 000

Less Expenses

Fixed selling and administration expenses 10 000

Variable selling and administration expenses 144 000 154 000

Net profit 1 478 000


Speedicars Ltd cash budget for July 2005

$ $ $

Opening cash balance 130 000


Collections from accounts receivable:

June 100 000

July (70% sales) 73 500 173 500

Sale of equipment 3 000

176 500

Add GST collected 10% 17 650 194 150

324 150

Less Estimated payments


Purchases of materials:

Accounts payable June 40 000

July (60% purchases) 39 000 79 000

44

Overheads 7 500

Operating expenses 19 500

Subtotal 106 000

Add GST paid 10% 10 600

Total 116 600


Direct labour 20 000

Operating expenses (wages & salaries) 12 500

GST payment to ATO 10 000

Cash dividend 15 000

Total 57 500

174 100

Closing cash balance 150 050

Speedicars Ltd balance sheet budget as at 31 July 2005

$ $ $

Current assets

Cash at bank 150 050

Accounts receivable (30% sales) 31 500


Inventory – Raw materials 75 000 336 550

Non-current assets


Less Accumulated depreciation 236 500 373 500

Total assets 710 050

Current liabilities

45

Accounts payable: Raw material purchases 26 000

Advertising 500

GST payable to ATO 7 050 33 550

Net assets 676 500

Owners’ equity

Share capital 390 000

Add Retained profits:

Opening balance 290 000

Add Net profit 11 500

301 500

Less Dividend paid 15 000 286 500

Total owners’ equity 676 500


Kage Ltd financial performance report for February

Budget Actual Variance Variance

$ $ $ %

Sales 50 000 60 000 10 000 F 20.0 F

Less Cost of goods sold 20 000 25 000 5 000 U 25.0 U

Gross profit 30 000 35 000 5 000 F 16.7 F

Less Expenses

Selling expenses 3 500 4 000 500 U 14.3 U

Administration expenses 10 000 11 000 1 000 U 10.0 U

Financial expenses 2 000 1 800 200 F 10.0 F

Total expenses 15 500 16 800 1 300 U 8.4 U

Net profit 14 500 18 200 3 700 F 25.5 F

46

The major variances are for sales, cost of goods sold and selling expenses. The other expenses

are on, or below, the limit of reporting by exception. As sales were considerably higher than

budgeted, one would expect cost of sales to also be higher, although it is by a greater degree.

Nevertheless, there is still a positive effect on gross profit.

The increase in selling expenses is not necessarily bad, as it is likely that increased effort in

this area is what has led to the favourable increase in sales. As administration and financial

expenses would be partly fixed costs, it is reasonable to see these increase by a lower

percentage than the accompanying increase in sales level.


Italia Pasta Products selling expenses performance report for September

Static

budget

Activity/

volume

variance

Flexible

budget

Spending

variance

Actual

costs

$ $ $ $ $

Wages 3 000 3 000 200 U 3 200

Commission 1 000 50 F 950 950

Payroll tax 160 2 F 158 8 U 166

Vehicle maintenance 200 10 F 190 40 F 150

Depreciation vehicles 500 500 500

Advertising 1 500 75 F 1 425 25 F 1 400

Total selling expenses 6 360 137 F 6 223 143 U 6 366

It is more meaningful to identify the size and direction of individual variances on the basis of

activity and spending, rather than to simply compare the original (static) budget figures with

actual spending.

47

In this case, the difference in the total was only $6, but the analysis shows that with many of

them being variable, the total should have been lower than budget. The fact that it was not is

reflected in the spending variances, especially for wages, although this is partly balanced by

savings in maintenance and advertising.


F Company

Direct material variances – Material X

Direct material usage variance = (1050 – 1000) x $125 $6 250 U

Direct material price variance = $135 000 – (1050 x $125) $3 750 U

Direct material variances – Material Y

Direct material usage variance = (3980 – 4000) x $40 $800 F

Direct material price variance = ($41 – $40) x 3980 $3 980 U

Total direct material variance $13 180 U

Direct labour variances

Direct labour efficiency variance = (2500 – 2400) x $15 $1 500 U

Direct labour rate variance = $40 000 – (2500 x $15) $2 500 U

Total direct labour variance $4 000 U

48


Sporting Prowess Co financial performance report for the month of…

Static

budget

(200 units)

Activity/

volume

variance

Flexible

budget

(250 units)

Spending

variance

Actual costs

(250 units)

$ $ $ $ $

Sales $10 000 2 500 F $12 500 $12 500

Less Production costs

Direct materials 5 500 1 375 U 6 875 625 U 7 500

Direct labour 2 000 500 U 2 500 100 F 2 400

Overhead 1 000 1 000 150 U 1 150

Total costs 8 500 1 875 U 10 375 675 U 11 050

Profit 1 500 625 F 2 125 675 U 1 450

Because the level of production and sales was higher, income was $2500 higher than the

original budget. At a higher volume, the variable costs i.e. materials and labour, would have

been expected to be higher – this is reflected in the column ‘Flexible budget’. As overheads

were fixed, these should not have changed. However, there was overspending on material

costs and overheads, which reduced the potential profit from $2125 to $1450.


Le Marais Ltd sales budget for the quarter ending 30 September 2005


Camembert

Quantity (kg) 4 500 3 600 4 500 12 600

Price per kg ($) 15.00 16.50 16.50

49

Sales value ($) 67 500 59 400 74 250 201 150

Brie

Quantity (kg) 1 800 1 500 1 500 4 800

Price per kg ($) 18.00 18.90 18.90

Sales value ($) 32 400 28 350 28 350 89 100

Total sales ($) 99 900 87 750 102 600 290 250


Mitch’s Marine sales budget for the quarter ending 30 June

Quantity Price Total

$ $

April

Brisbane

Basic 150 40 6 000

Superior 200 75 15 000

Total 350 21 000

Sydney

Basic 200 40 8 000

Superior 300 75 22 500

Total 500 30 500

Combined total 850 51 500

May

Brisbane

Basic 110 40 4 400

Superior 192 70 13 440

Total 302 17 840

50

Sydney

Basic 187 40 7 480

Superior 270 70 18 900

Total 457 26 380


June

Brisbane

Basic 99 40 3 960

Superior 150 70 10 500

Total 249 14 460

Sydney

Basic 143 40 5 720

Superior 216 70 15 120

Total 359 20 840


Quarter

Brisbane

Basic 359 14 360

Superior 542 38 940

Total 901 53 300

Sydney

Basic 530 21 200

Superior 786 56 520

Total 1 316 77 720

Combined total 2 217 131 020

51


Paris Underground Ltd schedule of collections from accounts receivable for the quarter

ending 31 December 2005

Credit sales August September October November December

$ $ $ $ $ $

Sales 250 000 270 000 300 000 412 000 490 000

August 187 500 128 625 56 250

September 202 500 138 915 60 750

October 225 000 154 350 67 500

November 309 000 211 974

December 367 500

Total collected 195 165 215 100 279 474

Paris Underground Ltd cash budget for the quarter ending 31 December 2005

October November December GST totals

$ $ $ $

Opening cash balance (12 500) 18 732 15 372


Cash sales 75 000 103 000 122 500

Collections from accounts receivable 195 165 215 100 279 474

Total receipts 270 165 318 100 401 974

Add GST received 27 017 31 810 40 197 99 024

Total cash available 284 682 368 642 457 543


Purchases (accounts payable) 190 000 220 000 360 000

Fixed operating expenses 14 500 14 500 14 500

Variable operating expenses 30 000 41 200 49 000

52

Purchase of furniture 50 000

GST paid 23 450 27 570 42 350 93 370

GST owing to ATO 5 654


Dividend to shareholders 8 000

Total payments 265 950 353 270 465 850

Closing cash balance 18 732 15 372 (8 307)

The firm will still have an overdraft of almost $9000 at the end of the year. They also have a

GST debt that will need to be paid in January of $5654.

In order to assist, the directors could:

defer the purchase of the furniture

arrange for payment of the furniture in instalments over a few months

speed up its collection from debtors by offering a larger discount for cash.


Joe’s Organic Farm Products income statement performance report for the year ended

30 June

Budget Actual Variance

$ $ $

Sales 180 000 206 000 26 000 F

Less Cost of produce 80 000 98 000 18 000 U

Gross profit 100 000 108 000 8 000 F

Less Expenses

Salaries 35 000 36 500 1 500 U

Rent 10 000 10 000

53

Interest on loans 2 000 2 000

Advertising 3 500 4 000 500 U

Electricity 4 500 4 200 300 F


Total expenses 56 000 57 700 1 700 U

Net profit 44 000 50 300 6 300 F

Either the volume of sales has been higher than forecast, or the unit prices for the produce

were higher, resulting in greater sales and also a better gross profit figure. The increase in cost

of produce would be a flow-through from the increased sales. In addition, salaries increased

as did advertising (which may have resulted in the increased sales) but there was a small

saving in electricity costs.

Even though the increased costs partly offset the favourable gross profit variance, the end

result was a net profit which was $6300 better than budget.


Martindale Medical Centre income budget for the quarter ending 31 March

Number Amount $

January

Bulk

Short consultation 1 064 25.05 26 653

Long consultation 266 47.60 12 662

Total 1 330 39 315

Private

Short consultation 456 35.00 15 960


54

Total 570 22 800

Total 1 900 62 115

February

Bulk



Total 1 540 45 523

Private



Total 660 26 400

Total 2 200 71 923

March

Bulk



Total 1 715 50 696

Private



Total 735 32 340

Total 2 450 83 036

Quarter

Bulk

Short consultation 3 668 91 884

Long consultation 917 43 650

55

Total 4 585 135 534

Private

Short consultation 1 572 57 078

Long consultation 393 24 462

Total 1 965 81 540

Total 6 550 217 074


Doohan Brothers’ Hardware cash budget for January and February

January February

$ $

Receipts

Collections from accounts receivable

December sales 25 000

January sales 104 000 26 000

February sales 120 000

Total receipts from accounts receivable 129 000 146 000

Cash sales 186 000 196 000

GST collected 31 500 34 200

Total receipts 346 500 376 200


Payments to accounts payable

December purchases 25 920

January purchases 96 000 24 000

February purchases 138 240

Total payments for purchases 121 920 162 240

Other expenses 80 000 90 000

56

Shop fittings 65 000

GST paid 26 692 25 224


Wages 30 000 15 000

GST payment for December quarter 18 000

Drawings 10 000 10 000

Total payments 351 612 302 464

Increase/decrease in cash for the month (5 112) 73 736

Opening cash balance 70 800 65 688

Closing cash balance 65 688 139 424


Scott’s Gardening Service income statement performance report for the year ended 30

June

Budget Actual Variance

$ $ $

Fees income 64 000 69 000 5 000 F

Less Operating expenses

Gardening supplies 12 500 13 000 500 U

Hire of equipment 5 000 4 800 200 F


Advertising 1 920 1 800 120 F

Motor vehicle expenses 6 500 7 100 600 U

Interest on loan 2 000 2 000

Total expenses 31 320 32 100 780 U

Net profit 32 680 36 900 4 220 F

57

Scott had a better year than forecast, with profit exceeding budget by $4220. This was

achieved, however, by working an additional 200 hours and also reducing his hourly rate for

some of the work. Expenses were fairly well controlled, with gardening supplies and motor

vehicle expenses exceeding budget, but this would be explained by the increased level of

activity.

Date post:	16-Mar-2020
Category:	Documents
Upload:	others
View:	7 times
Download:	0 times

Additional Assessment Paper - Angelfirebrr777.angelfire.com/BudgetSelfTest.pdf1 Additional...

Documents