ASSESSMENT TASK QUESTION & ANSWER BOOKLET

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1 UNIT CODE: FNSACC503A UNIT NAME: Manage Budgets & Forecasts ASSESSMENT EVENT: 2 of 2 ASSESSMENT DUE: Flexible STUDENT NUMBER: STUDENT NAME: Performance measurement: * For this unit, results will be reported as either competent or not yet competent. * Students will be required to show competency in each element of the unit which means that questions addressing each of the core elements within the assessment have to be attempted and 6% or more has to be achieved for each. Assessment conditions / instructions to students: * Questions must be answered in the spaces provided. * All questions must be attempted. * You may use a calculator. * The use of pencil is allowed provided it is clearly legible. * Please make sure your writing is legible answers that cannot be read won t be marked. * Please SCAN and UPLOAD your completed assessment via the SAKAI site for marking. Question Number & Topic Marks Allocated Marks Achieved : Multiple choice 35 2: Cash budget 20 3: Budgeted financial statement 0 4: COGS budget 0 5: Performance report 0 6: Part A: Flexible budget 7 6: Part B: Variance analysis 8 Total 00 COMPETENT NOT YET COMPETENT Version NSI Meadowbank TAFE Page

2 Plagiarism declaration: I have read the Student Services Guide under Student Responsibilities to not engage in plagiarism, collusion or cheating in any assessment event or examination. Please note: Your assessment will not be marked until you have signed the declaration below. Student Signature: Version NSI Meadowbank TAFE Page 2

3 Question (35 marks) There are twenty eight (28) parts to this question. Some parts are worth one () mark and other parts are worth two (2) or three (3) marks. For each question, you must write the letter that correspondonds with your answer in the grid below. Answers that are not written in the grid below will not be marked. Question Answer Marks Question Answer Marks Question Answer Marks Version NSI Meadowbank TAFE Page 3

4 . A budget is broadly defined as: A formal written statement of management s plans for the future expressed in financial terms A statement of fact A substitute for sound management practices A financial statement used to report the cash inflows and cash outlows of an organisation 2. A budget that covers a range of activity within which an organisation may operate is called a: Static budget Rolling budget Flexible budget Master budget 3. If you were asked to prepare a budget where you had to set the initial figures for each activity across the organisation to zero and to receive funding you had to justify each activity in terms of the contribution it would make to the business, then the type of budget that you would be preparing would be a: Zero based budget Rolling budget Static budget Flexible budget 4. The qualitative method used to forecast revenue when experts opinions are sought by the use of questionnaires is called: Jury of executive opinion The Delphi technique Sales force composite Market research 5. Which one of the following best describes a benefit of budgeting: It provides the different business units across an organisation with a performance target It acts as a communication tool It can be used as a tool for motivating staff All of the above Version NSI Meadowbank TAFE Page 4

5 6. Which one of the following best describes a limitation of budgeting: A budget provides the different business units across an organisation with unrealistic performance targets A budget is used to demotivate staff Having a budget in place does not guarantee success because budgets are only estimates, they are not statements of fact All of the above 7. Which one of the following factors should be taken into account when forecasting revenue? Economic and industry trends The size of the Managing Director s pay packet The size of the firm s Christmas party Future tax rates 8. If the mark up on cost is 25% and the product costs $80, then the selling price must be: $45 $44 $225 $ An unfavourable variance for an expense means that the actual expense compared to budgeted expense must be: Higher Lower The same None of the above 0. Ted Smith is the manager of the sales department at Big Constructions, a commercial construction company located in the city. This year Ted has decided to submit a conservative estimate for sales revenue knowing that if his department s sales exceed the budget, he will appear in a favourable light to senior management. Ted believes that a realistic estimate for sales revenue for the year is $,000,000, but he submits $800,000 to the budget committee. Ted has built slack into the budget equal to: $0 $200,000 $800,000 $,000,000 Version NSI Meadowbank TAFE Page 5

6 . Which of the following statements is not correct: Budget targets that are perceived by staff as being too difficult to achieve will most likely result in feelings of resentment and stress Involving lower level management in the budgeting setting process will most likely result in a budget that is more accurate because it includes the input of those who are experts in there own area Budget targets that are perceived by staff as being to easy to achieve will most likely motivate staff to work even harder to achieve those targets All of the above statements are not correct 2. Fixed costs should not be budgeted for because in total, they remain constant in the short run within the relevant range of activity. This statement is: True False True, but only with respect to budgeting False, but only with respect to the relevant range of activity 3. Which of the following would be classified as a fixed cost? Rent The salesperson s salary Materials for production Excess water consumption 4. Which of the following would be classified as a variable cost? The accountant s salary Insurance on factory premises The factory manager s salary Metal used in car production Version NSI Meadowbank TAFE Page 6

7 5. Management by exception means that: All variances on a performance report will be investigated Only unfavourable variances on a performance report will be investigated None of the variances on a performance report will be investigated Only material variances on a performance report will be investigated 6. The total cost of a block of chocolate is $3.00 and each block contains 00 grams. What is the price per gram if the budget is to increase it by 8%? 24 cents 324 cents 3.24 cents cents 7. For a manufacturing organisation, total production cost includes: Direct materials and direct labour only Direct materials, direct labour and factory overhead Direct materials only Finished goods 8. Depreciation of factory equipment would be included in the: Indirect materials budget Indirect labour budget Factory overhead budget Direct labour budget 9. For cash budgeting purposes, bad debts: Should be omitted from the cash budget because they will not be collected Should be omitted from the cash budget only if the entity accounts for GST on an accrual basis Should be included in the cash budget only if the entity accounts for GST on a cash basis Should be included in the cash budget because it is included in the budgeted income statement Version NSI Meadowbank TAFE Page 7

8 20. The budgeted cash flow statement is prepared in accordance with AASB 07 entitled Cash Flow Statements and it states that a budgeted cash flow statement should disclose cash inflows and cash outflows from which three (3) main activities: Operating, Investing and Financing activities Operating, Investing and Funding activities Operating, Inventorising and Financing activities Opening, Investing and Financing activities 2. * THIS QUESTION IS WORTH TWO (2) MARKS * You are the Management Accountant of Tiny Teddies Inc. and you are in the process of preparing the budgeted balance sheet for the quarter ending 30 June. You have been provided with the following budgeted figures for the quarter: Accounts Receivable balance as at April = $80,000. April ($) May ($) June ($) Total ($) Credit sales 3,250 35,625 40, ,875 Cash collected from Accounts 9,845 26,290 30,80 376,945 Discount allowed bl 6,560 6,780 7,000 20,340 Bad debts 5,250 5,425 5,600 6,275 The closing Accounts Receivable balance that you will include on the budgeted balance sheet as at 30 June is: $46,545 $09,930 $86,685 $73,35 Version NSI Meadowbank TAFE Page 8

9 * THE FOLLOWING INFORMATION RELATES TO QUESTIONS 22, 23, 24 AND 25 * Bob Dyson works at Little People Inc. which is a manufacturing facility that makes toy boxes. For the purposes of preparing his budgets for the coming year, he has to classify some of the costs incurred by the business and he needs your help with this task. 22. Work related travel expenses incurred by the sales manager should be classified as: A factory overhead cost A product cost A period cost An indirect cost 23. A very small amount of glue is used in the manufacture of the toy boxes. As such, it would be most accurate to classify the cost of the glue as: A direct material cost An indirect material cost A period cost An indirect labour cost 24. Cardboard is mainly used in the manufacture of the toy boxes. As such, it would be most accurate to classify the cost of the cardboard as: A period cost A factory overhead cost An indirect material cost A direct material cost 25. Repairs to factory machinery should be classified as: A direct labour cost A period cost A direct material cost A product cost Version NSI Meadowbank TAFE Page 9

10 * THE FOLLOWING INFORMATION RELATES TO QUESTIONS 26, 27 & 28 * * EACH QUESTION IS WORTH THREE (3) MARKS * Fish O Ltd specialises in manufacturing fish tanks. You have been provided with the following budgetrelated data for the period October to 3 December: Estimated sales: Month No. of boxes October 750 November 820 December 730 January 600 Direct materials: Fish O Ltd uses.5 kilograms of heavy duty glass to make each fish tank. This heavy duty glass costs $5.00 per kilogram. Direct labour: Four (4) fish tanks can be made in one () hour and production staff are paid $5.00 per hour. Finished goods inventory: Management wants each month s beginning inventory of completed fish tanks (in units) to be equal to 40% of that month s sales. 26. According to the production budget, how many fish tanks do production staff need to make for the quarter ending 3 December? To answer this question, you need to prepare a production budget.,440,780 2,240 2,360 Version NSI Meadowbank TAFE Page 0

11 27. Based on the numbers of fish tanks that need to be made for the quarter ending 3 December, the direct materials usage budget shows that the total cost of the heavy duty glass required will be: $6,800 $7,700 $0,800 $3, Based on the numbers of fish tanks that need to be made for the quarter ending 3 December, the direct labour budget shows that the total labour cost will be: $5,400 $8,400 $6,675 $8,850 * * * END OF QUESTION MULTIPLE CHOICE * * * Version NSI Meadowbank TAFE Page

12 Question 2 (20 marks) The Finance Manager of Daisy Ltd provides you with the following information: Sales (incl. GST) $ Purchases (incl. GST) $ Actual Actual October 55,000 November 66,000 November 6,000 December 77,000 December 24,000 Budgeted Budgeted January 80,000 January 8,000 February 60,000 February 20,000 SALES INFORMATION: 20% of Daisy Ltd s sales are for cash. The rest are on credit. All sales include GST. On average, debtors pay to the following pattern: * 60% of credit sales are collected in the month of sale and these customers receive a 5% discount (i.e. M) * 35% of credit sales are collected in the month after sale and these customers don t receive any discount (i.e. M+) * 5% are estimated to be uncollectable and the company s policy is to write these debts off 2 months after the original transaction date. PURCHASES INFORMATION: All purchases are on credit. All purchases include GST. On average, all purchases are paid to the following pattern: * 40% of credit purchases are paid for in the current month for which a 2% discount is received (i.e. M) * 60% of credit purchases are paid for in the month after purchase (i.e. M+) OTHER ADDITIONAL INFORMATION: Operating expenses are GST inclusive and are paid for in the same month that they are incurred. They are budgeted at 0% of sales. Depreciation is included in operating expenses and is $,000 per month. Equipment will be paid for on 5 June for $30,000 (including GST). GST is accounted for on an accruals basis. The opening cash balance on January is $00,000. Version NSI Meadowbank TAFE Page 2

13 Required: Prepare a properly formatted cash budget by month for the months of January and February. Note: The following two (2) pages have been left blank intentionally for you to do any workings in relation to your cash budget if you want to. CASH BUDGET WORKINGS. Cash collections from customers Month cash collected Month of sale $ JANUARY ($) FEBRUARY ($) December January February Total Collection pattern: 2. Cash payments to suppliers Month cash paid Month of purchase $ JANUARY ($) FEBRUARY ($) December January February Total Payment pattern: Version NSI Meadowbank TAFE Page 3

14 CASH BUDGET WORKINGS (continued) 3. GST workings GST collected (payable) JANUARY ($) FEBRUARY ($) Total income subject to GST GST payable GST paid (refundable) JANUARY ($) FEBRUARY ($) Total expenses subject to GST GST refundable Net GST payable/(refundable) Version NSI Meadowbank TAFE Page 4

15 Daisy Ltd Cash budget for January and February Version NSI Meadowbank TAFE Page 5

16 Question 3 (0 marks) Jamie Oliver Ltd has provided you with the following information for the month of July: Sales are expected to be $90,000. Bad debts are expected to be 2.5% of sales. They are recognised in the month of sale for budgeting purposes. Inventory is $50,000 at the start of July. This figure is expected to increase by $25,000 by the end of the month. Goods are sold with a 40% mark up on cost. Expenses are expected to be: * Marketing $2,500, * Administration $24,000 Required: Prepare a properly formatted budgeted income statement for the month of July. * * * NOTE * * * For COGS, don t forget to disclose opening inventory, purchases & closing inventory. Version NSI Meadowbank TAFE Page 6

17 Jamie Oliver Ltd Budgeted income statement for the month of July Version NSI Meadowbank TAFE Page 7

18 Question 4 (0 marks) You are the Financial Accountant of Snooze Ltd which manufactures bed frames. You have been provided with the following information: INVENTORIES: Inventory type Actual balance as at May Desired balance as at 3 May Finished goods Direct materials 340 completed bed frames valued at $9, units of timber valued at $2, completed bed frames 80 units of timber COST OF PRODUCTION: * Two (2) units of timber are needed to make each bed frame at a cost of $0 per unit. *.5 hours of direct labour are needed to make each bed frame at a cost of $8 per hour. * Factory overhead is applied to production on the basis of machine hours. Each bed frame requires one () machine hour to complete. The application rate is $0.50 per machine hour. * Budgeted production for May is 5,080 bed frames. Required: Prepare a properly formatted cost of goods sold budget for the month of May. Version NSI Meadowbank TAFE Page 8

19 WORKINGS Snooze Ltd Cost of goods sold budget for the month of May Version NSI Meadowbank TAFE Page 9

20 Question 5 (0 marks) Marie Claire Ltd provides you with the following figures as at 30 June: BUDGET ($000 s) ACTUAL ($000 s) Current assets Non current assets Current liabilities Non current liabilities Owner s equity Required: Prepare a properly formatted balance sheet performance report as at 30 June. (round all variance percentages to decimal place) Version NSI Meadowbank TAFE Page 20

21 Marie Claire Ltd Balance sheet performance report as at 30 June BUDGET ($000 s) ACTUAL ($000 s) VARIANCE ($000 s) VARIANCE (%) F or U Version NSI Meadowbank TAFE Page 2

22 Question 6 (5 marks) PART A: (7 marks) Kookaburra Sky Tours is a small sightseeing tour company in Western Australia. The firm specialises in aerial tours of the region by helicopter. As the Management Accountant of the company, you have been provided with the following performance report which was prepared by the aircraft operations manager. Kookaburra Sky Tours Performance report for the month ended 30 September Activity level BUDGET ACTUAL VARIANCE F or U Air km 35,000 32,000 3,000 U Passenger revenue $22,500 $2,000 $0,500 U Less: Variable expenses $85,750 $78,500 $7,250 F Contribution margin $36,750 $33,500 $3,250 U Less: Fixed costs $23,800 $24,900 $,00 U Net profit $2,950 $8,600 $4,350 U Required: Based on this information, complete the following flexible budget which discloses the contribution margin and net profit at the following two (2) activity levels: 32,000 air kilometres and 38,000 air kilometres. (round all per km amounts to the nearest 2 decimal places) ACTIVITY LEVEL : 32,000 air kilometres ACTIVITY LEVEL 2: 38,000 air kilometres Total $ $ per km Total $ $ per km Passenger revenue Less: Variable costs Contribution margin Less: Fixed costs Net profit Version NSI Meadowbank TAFE Page 22

23 PART B: (8 marks) Required: Using both the information provided in PART A and the information that you calculated in PART A of this question, calculate the: i) static budget variance (based on NET PROFIT) ii) iii) activity volume variance (based on NET PROFIT) flexible budget variance (based on NET PROFIT) for the month of September. You also need to state whether each variance is a favourable variance or an unfavourable variance. WORKINGS: VARIANCES: Variance Variance ($) U / F i) static budget variance ii) activity volume variance iii) flexible budget variance Version NSI Meadowbank TAFE Page 23