Gross profit Less: Management & administration (includes R depreciation) Net profit

Transcription

1 QUESTION 1 MULTIPLE CHOICE QUESTIONS SOUCE: EXAM (2007) 1. Participative budgeting offers which of the following advantages? A. It helps to motivate employees, which may lead to higher levels of employee performance. B. It involves individuals whose knowledge of local conditions may enhance the budgeting process. C. It communicates a sense of employee responsibility. D. All of the above are advantages of participative budgeting. SOUCE: EXAM (2009) THE FOLLOWING DATA IS APPLICABLE TO QUESTIONS 2-7 BELOW. A company is to commence operations producing a single product. Budgeted operating data at the break-even capacity ( %* of available capacity) as well as 100% capacity for the first year of business is as follows: 1 CAPACITY Break-even* 100% evenue Less: Cost of sales (3 750) (6 830) aw materials Labour Fixed production overheads (includes depreciation) Packaging Gross profit Less: Management & administration (includes depreciation) Net profit Operations have been budgeted to occur evenly throughout the year and each month s capacity is regarded to be equal. The expectation is that all sales will be on credit and that debtors will settle their accounts by paying 60% following the month of sale and their balance in the month thereafter. 80% of raw material purchases are on credit and paid in the month following the date of purchase. You may assume all other transactions will occur on a cash basis. 2. The company s budgeted total variable cost at 100% capacity amounts to: A B C D E

2 3. The company s budgeted total fixed costs amount to: A B C D E If the company operates at 80% capacity the budgeted debtors at year end will be: A B C D E If the company operates at 100% capacity the budgeted creditors at year end will be: A B C D E. None of the above 6. If the company operates at 100% capacity the budgeted net cash inflow from operations at year end will be: A B C D E If a company producing a single product (which requires 0.75 kg raw materials per unit) has opening inventory of kg of raw material and completed units and plans to have kg of the raw material as well as completed units inventory at the end of the year, the quantity of raw material to purchase to meet the planned production of units is: A kg B kg C kg D kg E kg 2

3 DAZZLING DIAMONDS (PTY) LTD SOUCE: CLASS TEST 5 (2010) Mr Diamond is a jeweller in South Africa whose claim to fame is his world-class tennis bracelets (diamond bracelets). He decided to use his new found fame to start his own company (Dazzling Diamonds (Pty) Ltd) which opened its doors on 1 January Dazzling Diamonds has attracted a regular client base over the last 11 months but is now experiencing severe cash flow difficulties due to the lack of planning. In an attempt to solve this problem before the festive season, Mr Diamond did some research on the Internet and came across a lecture on cash budgets in which he also found the basic structure of a cash budget. The following is Mr Diamond s attempt (on 30 November 2010) at completing the cash budget for December 2010 as well as all the information he was able to obtain: CASH BUDGET FO DECEMBE 2010: Note OPENING BALANCE INFLOW? Sales (December 2010) 1.? Debtors 1.? Accrued income OUTFLOW? Direct raw material 3.? Direct labour? Total production overheads? Bad debts written off Net capital expenditure (replacement of security door and sale of? existing door) CLOSING BALANCE? Notes: 1. Mr Diamond is unsure what their sales demand will be over the festive season and he has thus decided to base his expected demand on the budgeted information of a similar company (at alternative demand levels) applicable to December 2010: Demand Level 1 Demand Level 2 Standard deviation 24 units 28 units Coefficient of variation Tennis bracelets are sold for each. Dazzling Diamonds sells on both credit and cash. It is estimated that 20% of all sales are made on credit. The credit terms are as follows: 50 % deposit on purchase; 30% in the first calendar month following the month of the purchase; and 20 % in the second calendar month following the month of the purchase. 3

4 Credit sales in respect of the 3 months before December 2010 were as follows: September October November According to Mr Diamond, he plans to write off bad debts to the value of during December The bad debts relate to a credit sale made in February Mr. Diamond has entered into a contract (effective from 1 December 2010) with a designer friend to sell some of his old equipment for He will however, per the agreement, only receive the proceeds in January Given the expected increase in demand he is planning to make the following cash purchases at the start of December 2010: Cost Price Gold Diamonds Mr. Diamond received a consignment of diamonds in November 2010 which were of an inferior quality and he thus expects to receive an 18.75% trade discount in respect of diamonds purchased during December EQUIED: Complete or correct (where necessary) the line items of Mr Diamond s cash budget by answering the following multiple choice questions: PLEASE NOTE: Questions 8 18 are INDEPENDENT of one another. 8. Which of the following items were COECTLY included in the budget? A. Opening balance B. Accrued income C. Bad debts written off D. All of the above E. None of the above 9. In what order would the budgets have been prepared to determine the raw material purchase requirements for December 2010? A. Sales Budget, Purchases Budget, Production Budget B. Purchases Budget, Production Budget, Capital Budget C. Sales Budget, Production Budget, Purchases Budget D. Production Budget, Purchases Budget, Sales Budget E. The order in which the budgets are prepared is irrelevant 10. If Mr Diamond is a risk-seeker, expected cash sales will amount to: A B C D E

5 11. The debtors balance at the end of November 2010 will amount to: A B C D E Assuming that Dazzling Diamonds (Pty) Ltd will sell 80 bracelets in December 2010, the amount to be included in the cash budget in respect of debtors (ignoring any possible bad debts) will be: A B C D E Calculate the amount of direct raw material purchases during December A B C D E Mr. Diamond is unsure as to how to budget the amount for total production overheads. He managed to find the following data amongst his accounting records: Month Units produced Units sold Total cash overheads August * September October November *At 31 August 2010, the landlord decreased the monthly rent with a significant amount for months to come, as agreed in the original lease. Mr. Diamond expects a fixed overhead under-recovery of during December Overheads will be allocated at per unit. He has approved the production of 70 bracelets to ensure sufficient stock will be available for the expected demand of 80 bracelets. 14. Determine the variable cash overhead cost per unit that applied in the previous months using the high-low method. A B C D E Calculate the amount for the line item total production overheads in the cash budget. You may assume all budgeted overheads are cash. A B C D E. None of the above 5

6 16. If regression analysis (least squares method) was used to split the past variable and fixed elements of total production overheads, the equation of the total production overheads line would be: A. Y = 2 027x B. Y = 3 800x C. Y = 5 000x D. Y = 5 000x E. Y = 5 522x Assume the company s variable cost per unit is and the total fixed cost amounts to If the company were to only produce items ordered, how many units need to be produced/ sold to limit the total cost to ? A. 175 units B. 155 units C. 20 units D. 15 units E. None of the above There has been a sharp increase in robberies in the mall from which Dazzling Diamond (Pty) Ltd is trading. Mr. Diamond has subsequently decided to install a new top of the range security door in December 2010 for cash. This door not only entraps the culprit but also blinds him with pepper spray. The current door will be sold for cash during December It originally cost and from its sale Mr. Diamond will realise an accounting profit of 2 000, due to its pristine condition. Depreciation of in respect of the current door has been accounted for to date. 18. Calculate the net amount of the capital expenditure to be included in the cash budget for December A. ( 5 000) B. ( 2 000) C. ( 7 000) D. ( 3 000) E. ( 4 000) SOUCE: CLASS TEST 5 (2010) 19. Which of the following statements are TUE? A. Variable (flexed) budgeting adjusts the budget to reflect actual volumes. B. Zero-based budgeting draws up the budget from scratch. C. Incremental budgeting commences with historical actual costs which is then adjusted by an estimated increase e.g. expected inflation %. D. All of the above. E. None of the above. 20. Identify which of the following is FALSE in respect of budgeting? A. Experienced personnel prepare the budgets and thus errors in budgets are impossible. B. Managers of the different divisions have to coordinate operations to maximise profit objectives. C. Budgeting enables proper planning and evaluation in the organization. D. The cost of budgeting may outweigh the benefit the budget provides. E. All of the above. 6

7 SOUCE: CLASS TEST 5 (2011) The following information should be used to answer questions 21 to 29 only. U-DgetB (Pty) Limited is about to commence production of two products, namely product F and product G. The company plans to carry inventory on hand (valued on an absorption basis) of units of product F and units of product G by the end of month 2 onwards, to be achieved as follows: Product F Product G Units in addition to sales demand to be produced in month Units in addition to sales demand to be produced in month The unit data has been reliably budgeted as follows: Product F Product G aw material 1 (purchased for 60 per kg) kg kg aw material 2 (purchased for 75 per kg) kg kg Direct labour cost Overhead cost (recovered on annual production hours) Selling price Constant sales per month units units All transactions, unless otherwise stated or implied, occur on a cash basis except for the following: 80% of sales will be on credit 60% of debtors will settle within 30 days of their statement (issued at end of month in which transaction is incurred) and the balance in 60 days Creditors for raw material purchases (all purchased on credit) will be settled within 30 days of statement date (issued at end of month in which transaction occurs) in order to qualify for 2.5% settlement discount. The machine required for the production will be depreciated on the straight-line basis of 5 years at 18 million per annum. 21. The company s sales budget for month 2 (per the income statement) will amount to: A B C D E If the company plans to have 500 kg of raw material 2 on hand at the end of month 1, the budgeted purchases (in kilograms) for the month will be: A B C D E. None of the above. 7

8 23. The raw material creditor s balance at the end of month 2 will be represented by: % of month 1 purchases % of month 2 purchases A. 0% and 100% B. 0% and 97.5% C. 97.5% and 100% D. 100% and 97.5% E. 100% and 100% 24. The labour budget for month 2 (to the nearest rand) will amount to: A B C D E. None of the above. 25. The acquisition of the machine will be financed with a 12% loan (interest compounded monthly in arrears) with a residual value of after 5 years. The company will have to budget for a monthly repayment of (to the nearest and): A B C D E If the budgeted gross profit (after settlement discount) for the 2nd month is , the budgeted net profit (before tax) for the month will amount to (to the nearest and): A B C D E. None of the above. 27. The debtors balance at the end of month 3 will amount to: A B C D E If 20% of the overhead cost per unit is variable to production, the fixed overhead costs (incurred evenly during the year) to be paid per month will amount to: A B C D E

9 29. Which of the following is not a function of budgeting? A. Decision-making B. Planning C. Control D. All of the above are functions of budgeting. E. None of the above is a function of budgeting. 9

10 QUESTION 2 SOUCE: CLASS TEST 5 (2007) BUDGET (PTY) LIMITED The following information is available for Budget (Pty) Limited: ACTUAL BUDGET Sales: Cash Credit Purchases Salaries and wages Other expenses FEB MA AP MAY JUN ADDITIONAL INFOMATION: 1. Credit sales are collected as follows: 50% within 30 days (i.e. in month following transaction); 30% within 60 days; 15% within 90 days; 5% uncollectable (bad debt). 2. The following discounts are given on sales: 10% on all cash sales (not yet incorporated above); and 5% on credit sales if paid within 30 days. 3. All salaries, wages and other expenses are paid in cash. 4. Other expenses include depreciation of per month. 5. Sixty percent (60%) of all purchases are on credit and are paid for in the following month. The balance represents cash purchases. 6. A dividend of was declared on 30 June. 7. Cash in the bank on 30 April amounted to EQUIED Prepare Budget Limited's cash budget for the months of May and June. 10

11 QUESTION 3 SUPPOTE LIMITED SOUCE: CLASS TEST 5 (2009) Supporter Limited (Supporter) a company with several branches countrywide produces and sells only Vuvuzelas and South African Flags. You have been approached to assist with completion of the company s financial statements as well as budgets for the next year, given the soccer world cup tournament taking place in INFOMATION FO THE 2009 FINANCIAL YEA (BUDGETED & ACTUAL) Extract from the Statement of Comprehensive Income: year ended 30 September Sales units VUVUZELAS FLAGS TOTAL Sales Cost of sales ( ) ( ) ( ) - Opening inventory Production costs Closing inventory ( ) ( ) ( ) Gross profit Over/ (Under) ecovery? Other expenses (fixed) ( ) Net Profit You determined that the opening inventory comprises raw materials only and that the closing inventory comprises of only completed units. There was no work-in-progress and all inventories are valued on the first-in-first-out (FIFO) basis. To supplement the above the following information has been obtained for the year ended 30 September 2009:? Production volumes (units) - Vuvuzelas - Flags Direct raw materials per unit - Vuvuzelas - Flags Budget Total Production Overheads Packaging costs (Labour intensive) aw material orders Quality control Actual BUDGETED ACTIVITY DATA 2009 VUVUZELAS FLAGS - Labour hours hours hours - Order forms forms forms - Inspections 6 batches 10 batches 11

12 The actual fixed production overheads for the current financial year amounted to Supporter applies an Activity Based Costing Approach to assign fixed overhead production costs to their respective products. Further to the above you obtained the following raw material composition in respect of the finished goods, per product: DETAILS VUVUZELA FLAGS Plastic 2.00 per m³ 0 Material per m² Dye 1.90 per l 0.03 per ml INFOMATION FO THE 2010 FINANCIAL YEA (BUDGETED) DETAILS VUVUZELAS FLAGS Sales units units Closing balances - Plastic Material Dye Finished goods units units The following budgeted data, based on the 2009 actual data, has been presented: Increase in the sales price per unit 10% Increase in the variable costs per unit 8% Increase in the total fixed costs 6% Budgeted depreciation for 2010 in total amounts to EQUIED For the year ended 30 September 2009: a) Calculate the budgeted unit production overheads recovered, per product; b) Calculate the actual labour cost per unit for both products; and c) Calculate the fixed production overheads over- or under recovered balance; and For the year ended 30 September 2010: d) Calculate the budgeted increase / (decrease) in the bank account given the information provided above. You may assume that no transactions will occur on credit. OUND OFF ALL CALCULATIONS/ANSWES TO THE NEAEST 3 DECIMALS. 12

13 QUESTION 4 SOUCE: CLASS TEST 5 (2008) TEGDUB (PTY) LIMITED TEGDUB (PTY) LIMITED makes two types of electrical packs for the chemical industry, the AC and the DC. Both electrical packs use the same type of material and labour but in different amounts. An extract of the company s most recent statements of financial position included the following: 30 September October 2008 Current assets Debtors Inventory raw materials Inventory finished goods Cash in bank Current liabilities Trade creditor for raw material SAS Overdraft You are the management accountant and you are responsible for preparing the production and resource budgets for both products. The company operates a five-day week for both production and sales and prepares production and resource budgets every twenty working days. You are given the following information relating to period 9, the twenty working days ending 30 November Forecast sales volumes AC DC Period 9: 20 days to 30 November units units Period 10: percentage increase from period 9 volumes 20% 30% Selling price per unit (since March 2008) You may also assume that sales occur evenly during each month. You also ascertained that sales occur as follows: 30% of all sales are on a cash basis and 70% on a credit basis All credit sales are received as follows: 70% in the month following the sale and the balance in the next month. You established that August sales amounted to units of AC and units of DC Finished Stocks At the beginning of period 9, there will be ACs and DCs in finished stock. The finished stock of ACs at the end of period 9 must be equal to 10 working days sales of ACs in period 10. The finished stock of DCs at the end of period 9 must be equal to 8 working days sales of DCs in period

14 Materials Each AC requires 5 square metres and each DC requires 7 square metres of materials. This is after accounting for any losses or wastage. The cost of material is 2.00 per square metre. 2% of material issued to production is lost through wastage. At the beginning of period 9, the opening material stock will be square metres. At the end of period 9 the plan is to have closing material stock of square metres. All raw materials are purchased on credit and paid 2 months after the month in which they were purchased. The total credit purchases for September 2008 amounted to Labour Tegdub produces 6 ACs per labour hour and 4 DCs per labour hour. The company employs 22 production employees who work a 35-hour, five-day week. The labour rate per hour is 8.00 and any overtime is at a premium of 50% per hour. Any overtime premium is charged to the production overhead account and not directly to production. All labour (wages) is paid on the 30 th of each month. Production overheads Overheads are charged to production at predetermined budgeted rate of per labour hour and the budgeted overheads, payable in the month they are incurred, for period 9 (November 2008) are as follows: Factory rental Indirect production salaries Consumables Depreciation production machinery Total Other The SAS account will be paid on 25 November You also ascertained that production costs have varied greatly during recent months. EQUIED Assume today s date is 31 October 2008 Prepare the following information for period 9, the 20 working days ending 30 November 2008: (a) Production budgets in units for the AC and the DC; (b) Material purchase budget in square metres; (c) The labour budget (in ands); and (d) The cash budget. 14