Prepared by @ CPA (T) Abdallah S. Mtanganaki.

(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

PERFOMANCE MANAGEMENT
BA IT -3 (NTA LEVEL 9)
TOPIC: BUDGETARY PLANNING & CONTROL
Budgeting

Is the process that involves creating a detailed plan that outlines how money will be earned or
received and how it will be spent or allocated over a specific period, usually monthly or annually

Budget

Is a quantitative statement, for a defined period of time, which may include planned revenues,
expenses, assets, liabilities and cash flows. A budget provides a focus for the organization, it aids
the coordination of activities and facilitates control.

Budgetary control system

Is a means of monitoring revenue and costs, and thereby exercising control in an entity by devising
budgets and comparing budgeted figures with the actual results, to find discrepancies, if any, and
to take corrective actions.

FUNCTIONS /OBJECTIVES OF BUDGET

A budget is prepared with multiple objectives, as mentioned below:

(i) Planning

A budget is a basis for planning. The budget motivates managers to prepare a plan. In a budget,
the targets are already decided. In order to meet the budget, it is necessary to decide the plan of
action that leads them to achieve the target.

(ii) Controlling

A budgetary control system identifies any variances, investigates the reasons for these variances
and accordingly leads to corrective action being taken. Any extravagant expenses are identified
and steps are taken to avoid their recurrence. Therefore, a budget acts as a tool for controlling.

(iii) Communication

In a budgetary control system, top management communicates its expectations to the lower level
management. Lower level management communicates its problems in fulfilling the set targets.

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

(iv) Co-ordination

A budget aims to co-ordinate the activities of an organisation. The organisation should try to
achieve goal congruence. The individual objectives and actions are combined to achieve the
organisational objectives.

(v) Motivation

Often, a reward system is connected to the success of the budget. In such cases, a budget motivates
managers to give their best work.

(vi) Performance evaluation

A budget provides a basis for evaluation of the performance of a division or a manager. Actual
results are compared with budgeted figures and any difference is analysed to correct in the future.

(vii)To increase profitability

In a budget, extravagant expenses are identified. These can then be avoided in the future by
decreasing costs, and thereby increasing profitability.

(viii) To ensure optimal utilisation of the resources

In a budget, limiting factors / constraints are identified, and are allocated in such a manner that
they can be utilised optimally.

In short, we can say that organisations prepare budgets for – PCMCPC

P Planning

C Coordinating

M Motivation

C Control

P Performance evaluation

C Communicating

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

APPROPRIATE BUDGETARY SYSTEMS FOR AN ORGANISATION

1. TOP-DOWN APPROACH

Under the top-down approach, budgets are prepared in line with the strategic objectives of an
organization. Top management specifies their expectations and objectives and, accordingly, the
overall organizational budget and the divisional budgets are prepared. This approach is most
appropriate to small organisations where superiors have overall knowledge of the working of the
organisation.
2. BOTTOM-UP APPROACH

The bottom-up approach is where all budget holders are given the opportunity to participate in
setting their own budgets. Once all divisional budgets have been collected, an overall budget for
the organization is prepared. This approach is generally adopted in large and established
organizations where the involvement of lower level of management is necessary because of the
complexity of the budget-setting process.
3. ROLLING BUDGETS

A rolling budget is a budget that needs to be continuously updated by deducting the earliest period
and taking into consideration the future period. This is most suitable form of budget for
organizations working in an uncertain environment, where future costs and/or activities cannot
be foreseen reliably

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

4. ZERO-BASE BUDGET (ZBB)

a zero-base budget involves an elaborate practice of having a manager justify activities from
scratch, as if they are being launched for the first time. ZBB is a cost-benefit approach to budgeting
in which each cost element should be evaluated to be included in the budget. Each year when the
budget is prepared, all the cost elements have to be evaluated as if the budget is being undertaken
for the first time and will be authorized only if these are justified. It is best suited to the service
industries and to not-for-profit organizations where, for each activity, alternative courses of action
are possible.
5. ACTIVITY-BASED BUDGET (ABB)

An activity-based budget is a method of budgeting based on an activity framework and utilizing

cost driver data in the budget-setting and variance feedback processes Activities such as machine
operation drive cost. To carry out this activity, resources in the form of power, fuel, labour etc. are
needed. In activity-based budgeting, the costs towards these resources would be authorized. ABBs
are suitable to only those organizations where the activity-based costing system is adopted. This
is because, in such organizations, activity centers are identified.

6. INCREMENTAL BUDGETS

An incremental budget is a budget prepared on the basis of the previous year‘s budget with some
additions and deletions for the forthcoming budget period. Incremental budgets are suitable for
all kinds of organizations. But they are criticized for not justifying the cost elements for inclusion
in the budgets. Nevertheless they are widely used by organizations since they are easy to prepare.
7. FEED FORWARD CONTROL

An organization may have two kinds of control mechanisms: feedback control that scans past
performances to detect and correct disturbances to the plan and feed forward control that
responds to immediate or forthcoming dangers by making adjustments to the system in advance
in order to cope with the problem. Feed forward control is most suited to those organizations
working in a highly volatile environment.

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

SOURCES OF INFORMATION USED IN BUDGETARY SYSTEM

1. Internal forms and records Basic information

This is available from various records maintained in an organisation and the forms filled in by the
various departments (i.e the cash book, the general ledger and the cash budget of the previous
year).

2. Market research and focus group

3. Newspapers and other news media

Newspapers, magazines, and electronic media also act as sources of useful information about the
various factors affecting the budget of an organization. In recent times, the internet has become
the most vital source of information.

4. Information from regulatory authorities;

5. Suppliers‟ price lists and brochures; these will provide important information about the pricing
strategy, product launching etc. of the suppliers.

6. Government reports and statistics;

TEST YOUR BRAIN 01

The following are the approximate sales and profits for the last few years of Better Ltd:

Better Ltd is planning to introduce a new product next year. Expected annual sales for the new
product are TZS300 million with variable costs 40% of sales and fixed costs of TZS4.5 million per
month. The new product may be introduced either at the beginning of the third month or at the
beginning of the eleventh month.

It is expected that variable cost may go up by 7.5% on account of an increase in the wage rate.

Required:
Identify the optimistic and pessimistic situations, and prepare the budget of Better Ltd for the next
year
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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

TEST YOUR BRAIN 02

a) What are activity-based budgets and rolling budgets? For which organizations are they
appropriate?

b) State any five techniques for dealing with uncertainty in the budget environment.

TEST YOUR BRAIN 03

(a) Discuss the key features of zero-base budgeting and explain how it may be applied to a not-
for-profit organization.
(b) Briefly discuss how activity-based budgeting might be introduced into a manufacturing
organization and the advantages that might arise from the use of activity-based budgeting in such
an organization.

TEST YOUR BRAIN 04

Avila Engineers Plc manufactures and sells components used by car manufacturers. The company
operates a budgetary control system.

The management accountant of the company expected that 5,300 kg of direct material will be
required in 20Y0.

However, contingency for a reduction of 5% has been estimated and approved due to an
improvement in the production process.

The price of the direct material was budgeted on the basis of previous year‘s material cost i.e.
TZS260,000 per kg. However, it is estimated that the price will be significantly affected by the
supply of the material in the market.

The following estimates have been made for 20Y0.

Additionally, inflation of 5% on direct material cost is forecasted for 20X9 and 20Y0

Required:

Calculate the budgeted amount of direct material cost for 20Y0

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

PREPARATION OF FUNCTIONAL BUDGETS, MASTER BUDGETS

1. Functional budgets

It is the budgets for all the functional activities

2. Master Budgets

A master budget is a projected financial plan. It displays a consolidation of the functional budgets
to present the overall impact of the projected operational activities on the profitability of the
organization as a whole.

1. SALES BUDGET

The sales budget is the sales target for a budget period. It is usually prepared by the
marketing/sales department. It shows the projected volume of sales and the estimated selling
prices of each of the products that the company plans to sell.

TEST YOUR BRAIN 05

The following is the information provided by the sales manager of Colourful Park Ltd for the month
of December 20X9:

Required:

Prepare the sales budget of the company.

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

2. PRODUCTION BUDGET

A production budget is a forecast of the production volume for the budget period. It is normally
devised based on the sales budget.

The production plan should be in line with the sales plan and at the same time inventory levels for
both raw materials inventory and finished goods inventory need to be taken into consideration.

TEST YOUR BRAIN 06

A production budget based on the information provided by the sales manager and the stores
manager of Colourful Park Ltd

Required:

Prepare the production budget for the year

3. DIRECT MATERIALS BUDGET

(a) Direct material usage budget

(b) Direct material purchase budget

(a) Direct material usage budget: The direct material usage budget is the estimate of the
required materials for production of the planned volume of output during the budget
period. Generally, the direct material usage budget is expressed in quantity. However, it
may also be expressed in quantitative as well as in monetary terms. The production
manager or the production supervisors usually prepare estimates of the materials which
are required to meet the production budget.

(b) Direct material purchase budget: The direct material purchase budget derives the
estimated quantity and value of the various materials needed to be purchased during the
budget period. This budget is expressed in both quantitative as well as in monetary terms.

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

TEST YOUR BRAIN 07

Continuing the previous example of Colourful Park Ltd

In addition, consider the following information given for the year ended 31 December 20X9

Required; Prepare the direct material usage budget

TEST YOUR BRAIN 08

Information provided by Colourful Park Ltd for the month of December 20X9 is as follows:

Required; Prepare the direct material purchase budget

4. DIRECT LABOUR BUDGET

The direct labour budget is an estimate of the direct labour requirement (for each grade) for
producing the planned volume of output according to the production budget. This budget should
be developed in terms of both direct labour hours and direct labour costs.

TEST YOUR BRAIN 09

Continuing the previous example of Colourful Park Ltd The following additional information is
also given:

Required;

Prepare the direct Labour budget

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

5. OVERHEAD BUDGETS

The overhead budget of an organisation includes:

(a) Production overhead budget

(b) Selling and distribution overhead budget

(c) Administrative overhead budget

(a) Production overhead budget

The production overhead budget is the estimate of indirect expenditure to be incurred while
producing the planned quantities of output during the budget period.

(i) Classify the separate production overhead costs based on their behaviour, into fixed,
variable and semivariable costs. This involves estimating the costs (variable) that will vary
with a change in production volume and the costs (fixed) that are not likely to vary with
any possible change in production volume.

(ii) Estimate the costs incurred at each cost centre (e.g. department) so that the costs can
be controlled at their points of origin.

TEST YOUR BRAIN 10

The following information is about production overhead costs to be incurred by Colourful Park
Ltd during the year 20X9

Required; Prepare the factory/production overhead budget.

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

(b) Selling and distribution overhead budget

We have already seen how the sales budget is prepared. Once the sales budget is ready, estimating
the appropriate selling and distribution expenses is a relatively straightforward task. In reality,
the selling and distribution budgets are prepared separately. However, for simplicity‘s sake, the
two overhead budgets have been presented together here. The sales manager is responsible for
devising the sales budget whereas the distribution manager is responsible for devising the
distribution budget.

A selling overhead budget includes:

The cost towards the sales personnel (such as salaries, commission, travelling expenses).

The cost of the sales office (such as office salaries, rental rates of office building, depreciation of
officebuilding, telephone and electricity expenses of office).

The cost of market promotion (such as cost of advertising, free samples, attractive secondary
packing and so on).

TEST YOUR BRAIN 11

The following information is about selling and distribution overhead costs to be incurred by
Colourful Park Ltd during the year 20X9. The sales revenue for the year ended is TZS1,600 million.

Required;

Prepare a selling and distribution expenses budget.

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

(c) Administrative overheads budget

The administration overhead budget is normally the responsibility of the head of the
administration department. The major inputs for estimating the administration overhead costs
for the budget period are the previous year‘s expenses for the same items. Most administrative
costs are fixed in nature. The current budgeted figures are usually a percentage increment on the
previous year‘s figures, taking the inflation into account.

Example; The administration overhead budget of Colourful Park Ltd during the year 20X9 is as
follows:
Colourful Park Ltd

Administrative expenses budget for the month December 31 20X9

MASTER BUDGET

A master budget normally contains all functional budgets, capital expenditure budget, budgeted
SOPL (statement of profit or loss) and budgeted SOFP (statement of financial position) of the
budget period. The preparation of the master budget is based on previous year‘s profit and loss
account, the balance sheet and other information obtained for the budget period. However, the
major difference between a functional budget and master budget is that the first one represents
sectional goals whereas the second one deals with the company‘s overall plan of action for the
budget period.

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

TEST YOUR BRAIN 12

Mark Trading Co sells two products A and B. The following estimates of sales volume are made for
the year 20X9.

The projected sales price for product A is TZS10,000 per unit, while that of product B is TZS20,000
per unit.

Required;

Prepare a sales budget for the year

TEST YOUR BRAIN 13

Beauty Ltd manufactures toiletries. The company‘s policy is to always maintain the closing
inventory of 10,000 units. According to the sales budget the company has estimated that in the
next year the company will achieve sales of 1,000,000 units.

Required;

Show the company‘s production budget.

TEST YOUR BRAIN 14

The sales executive of Cool-one Ltd expects to sell 60,000 units of air coolers in the year. The
production manager has estimated the requirements of the raw materials for producing each unit
of air-cooler as:

Raw material X – 4 units

Raw material Y – 6 units

The opening and closing balances of the finished goods and raw materials estimated are as follows:

Required; Prepare a purchase budget showing the total amount of raw material purchased.

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

COMPREHENSIVE QUESTION
Camron Plc manufactures and sells two products Bing and Xing. The company is planning its
budget for the forthcoming year ending on 31 December 20X9. The following are the expectations
for 20X9:

1. Statement of financial position (SOFP) for the year ended 31 December 20X8

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

2. Finished products

3. Production details

(i) Direct material

(ii) Direct labour

For the production of one unit of Bing and Xing, 2 and 3 direct labour hours are required
respectively. Labour is paid at TZS4,800 per hour.

(iii) Factory overheads

The estimated factory overheads are TZS103,100,000 including TZS20,000,000 for depreciation.
The factory overheads are absorbed on a direct labour hour basis.

(iv) The estimated selling and distribution overheads are TZS40,500,000 per annum.

(v) There is no opening and closing work-in-progress.

(vi) A capital expenditure on buildings estimated at TZS200,000,000 will be incurred in the third
quarter of the year.

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

(vii) Quarterly budgeted receipts and payments are as follows:

Required;

Prepare the following budgets for the year ended 31 December 20X9 for Camron Plc:

(i) Sales budget

(ii) Production budget (quantities only)

(iii) Direct material budget (usage and purchase)

(iv) Direct labour budget

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

EXAM TYPE QUESTIONS

QUESTION ONE

Colours Ltd deals in cotton shirts. It has received an order of three types of shirts, full sleeves (FS), half
sleeves (HS) and sleeveless (SL). The following information relates to that project: Total 50,000 shirts
need to be supplied within one month. The proportion of FS, HS and SL will be in the proportion of 2:2:1.
Selling price per shirt will be as follows:

Standard requirements of raw materials are as follows:

Opening inventory and expected closing inventory of raw materials is as follows:

Inventory of readymade shirts is as follows:

Standard requirements of labour hours are as follows: Standard labour wage per hour is TZS7,500
for skilled workers and TZS5,000 for semi-skilled workers. For each FS, 2 hours of skilled labourer
and 1.5 hours of semi-skilled labourers are required. For each HS, 1.5 hours of skilled labourer and
1.0 hours of semi-skilled labourers are required. For each SL, 1.5 hours of skilled labourer and 0.5
hours of semi-skilled labourers are required.

Required: Prepare functional budgets

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

QUESTION TWO: (Flexible Budget)

Mara guest house‘s most recent monthly expense analysis report revealed significant cost
overruns. The manager was asked to explain the deviations. Below is the budget Vs Actual expense
report for the month in question.

MARA GUEST HOUSE

Budget Vs Actual expense report for the month ending December 31, 2017

Actual Budget Variance

‗000 ‗000 ‗000

Utilities 81,800 72,000 (9,800)

Laundry 32,890 28,800 (4,090)

Food service 63,000 56,000 (7,000)

Rent/taxes 100,800 100,800 -

Staff wages 88,700 85,000 (3,700)

Management salaries 70,000 72,000 2,000

Water 24,024 16,000 (8,024)

Maintenance 28,090 24,000 (4,090)

489,304 454,600 (34,704)

The guest house has observed that utilities, water, food services and laundry costs all vary with
activity. The other costs are fixed. The budget reflected above was based upon an assumed 80%
occupancy rate. The new season will result to 92% occupancy rate during the month.

Required: Prepare a ―flexible budget based upon a 92% occupancy rate, and identify whether
the Inn is being efficiently or inefficiently run.

Comment on specific costs, and note why flexible budget can improve performance evaluations.

QUESTION THREE

Budgetary control is part of the wider measures and coordinate methods that management takes
in order to attain overall internal control.

REQUIRED: Under what circumstances will budgetary control be ineffective? (20 Marks)

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

QUESTION FOUR

ADI Nursery School has a total of 150 students in 5 different classes with 30 students per class.
The School plans for a picnic during the weekend to places such as the Dar Zoo, Kunduchi Wet ^
Wild, Bagamoyo Historical Sites, etc. a private transport operator has come forward to lease out
the bases for taking the students. Each bus will have a maximum capacity of 50 (excluding two
seats reserved for teachers accompanying the students). The school will employ two teaches for
each bus, paying them an allowance of Tshs. 5,000 per teacher. It will also lease out the required
number of buses. The following are the other cost estimates:

Variable costs Cost per student Tshs.

Breakfast 500

Lunch 1,000

Tea 300

Entrance fee at zoo 200

Fixed and semi – variable costs Tshs

Rental fee 65m000 per bus

Special permit fee 5,000 per bus

Block entrance fees at the site 25,000

Prizes to students for games 25,000

No other costs are incurred in respect of the accompanying teachers.

REQUIRED:

(a) Prepare a flexible budget estimating the total costs for 30, 60 and 150 students. Each item
of cost is to be indicated separately. (13.5 Marks)

(b) What will be your conclusion regarding the break-even level of students if the school
proposed to collect Tshs. 4,500 per student? (6.5 Marks)

(Total = 20 Marks)

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

QUESTION FIVE

Wawa limited which is base in Dar es Salaam, owns Mapenzi Island which is located off the coast
of Dar Es Salaam. On Mapenzi Island, Wawa Limited operates a circus and zoological gardens
(zoo) both of which are open for 365 days per annum. The circus, which is widely regarded as the
best in the world, can accommodate a maximum of 14,000 visitors per day. The zoological
gardens, which was opened on 1st June 2001, can accommodate a maximum of 20,000 visitors per
day. Visitors travel to and from Mapenzi Island using petrol-driven ferries owned by Wawa
Limited. There is no other mode of transport to and from Mapenzi Island.

The following information is available in respect of the year ended 30th April 2016 and the year
ending 30th April 2017.

1. The zoo and circus were open on each day of the year. The circus performed once per day
and always operated at maximum capacity.

2. Three types of ticket were sold as follows:

Ticket type Admission to:

Z Zoo

C Circus

ZC Zoo and circus

The total of admissions to the zoo was 6,570,000. The total of admissions to the circus was
5,110,000. These totals include 4,380,000 type ‘ZC’ tickets.

3. Admission fees per visitor were as follows:

Category Zoo only Circus only

TZS TZS (000)

Adults 40 40

Children and Senior citizens 20 20

Visitors who purchased ticket type ‘ZC’ received a discount of 25% on the cost of separately
purchasing a type ‘Z’ and a type ‘C’ ticket. Each ticket type was valid for one day only.

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

4. The visitors ‘mix’ for all ticket types was as follows: adults 40%; children and senior
citizens 60%.

5. In addition to any admission fees payable, visitors paid a transport fees for the return
journey to and from Mapenzi Island. The total transport fees received amounted to TZS.
25,550,000 of which TZS. 15,330,000 was attributable to the Zoo, the remainder being
attributable to the circus.

6. The management of Wawa Limited categorists all operating costs, including those relating
to the operation of its petrol-driven ferries, as fixed costs. These were as follows:

Zoo Circus

TZS 130 m TZS 100 m

Note: The petrol-driven ferries were fully depreciated as at 1st May 2016

7. Wawa Limited received an annual free of TZS. 10 million form an international media group
under a fixed-term contracts of three years duration. The contract commenced on 1st June
2007 and relates to the rights to televise programmes which were filmed in the zoo and
therefore the fee should be regarded as relating to the zoo.

8. Admission fees to the zoo and circus has been increased by 5% with effect from 1st May
2016. Transport fees has remained unchanged.

9. It is anticipated that all operating costs will increase by 4% per annum due to the impact
of inflation during the year ending 30th April 2017.

10. The management of Wawa Limited expects that the number of visitors, visitor mix and
ticket mix will remain unchanged during the year ending 30th April 2017.

11. Ignore taxation

Required:

(a) Prepare the budgeted statement of profit or loss for Wawa Limited for the year ending 30th
April 2017. (12 marks)

(b) Calculate the percentage of maximum capacity at which the zoo will break even during the
year ending 30th April 2017. You should assume that 50% of the revenue from sales of
ticket type ZC is attributable to the zoo. (8 marks)

(Total: 20 marks)

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

QUESTION SIX

(a) “at times, subordinates may try to play games and build in budgetary slack”: Horngren at al
(2009)

(i) What is “budgetary slack” and describe two ways in which subordinates may
attempt to create budgetary slack and state how senior managers may reduce the
budgetary slack. ( 4 Marks)

(ii) Describe the possible reasons why subordinates build in budgetary slacks when
budgeting. (4 Marks)

(b) “Firms with multinational operations face a variety of additional challenges in preparing their
budgets”. Hilton (1999). Describe briefly additional challenges in budgeting that are
encountered by firms with multinational operations and how does management accountant
address the challenges? (3 marks)

(c) “Sales forecasting is a critical step in budgeting process and it is very difficult to do accurately”;
Hilton (1999)

(i) Describe factors that may be considered when preparing sales forecasts (5 m.k)

(ii) Mention key problems that are faced in preparing the sales forecasts (4 Marks)

QUESTION SEVEN (NBAA NOVEMBER 2014)

(a) Mizigo, the Chief Executive Officer of Mitambo Limited (ML)had just attended a recent
Continued professional development (CPD) seminar in budgeting which was held in Mbeya. He
was so impressed by the presentation that presented different methods of budgetary control
such as flexible budgeting. The presentation however, went further into explaining some of the
budgeting techniques that can be used to incorporate uncertainty and risks in budgets and
hence, make the budgetary control more meaningful when faced with uncertainties. He has
therefore requested you to shed more light onto the following:-

(i) Rolling budgets

(ii) Three level budgets

REQUIRED:

Briefly explain to the CEO on the above two terms with emphasis on the most district features of
each. (6 marks)

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

(b) The CEO also presented to you with an illustrative question which could not be discussed
during the seminar due to time constraint, as detailed below:

KISANOLA is a company incorporated in Tanzania and its principal business is that of producing
and exporting Makonde carvings into Western Africa countries. The company’s products were
perceived as the best value in the ECOWAS region and many orders were expected for the quarter
beginning January 2015. However, the recent outbreak of epidemic disease – Ebola in the West
Africa-region threatens the achievement of the anticipated growth in sales.

The company foresees a possibility that the price and demand for KISANOLA’s carvings may be
negatively impacted by 25% and 10% respectively. These parameters may however, work to the
advantage of KISANOLA to the same tune if the efforts to contain the viral disease will be
successful.

Based on the recent marketing research the management foresees that there is a need to invest
Tshs. 15,000,000 into a new machine that will exclusively be used to decorate the carvings prior
to packaging into boxes ready for export. Consequently, the company has just signed an
employment contract with an expert who will be hired at a salary of Tshs. 1,500,000 per month
specifically to train the staff on the use of new machine. Termination of this employment contract
requires the company to give the employee a three months notice or three months salary in lieu
of notice.

The following preliminary additional date had been collected in relation to the next budget period.
This was prior to the outbreak of the ebola disease.

Data for the current quarter are as given below:

Carvings sold: 15,000

Variable costs (per unit) Tshs. 25,000

Variable costs (per unit) (low Tshs. 7,500);

(High Tshs. 8,000)

Fixed costs (Low Tshs. 150,000,000);

(High Tshs. 200,000,000)

REQUIRED: Using the data above, prepare the worst possible and best possible budget for the
company for the first quarter for the year 2015. (14 marks)

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 Prepared by @ CPA (T) Abdallah S. Mtanganaki.
(MSc. Finance and Banking, Certified Public Accountant, Bch.Finance and Banking)
IAA Library Building first floor, +255659687422, [email protected]

QUESTION EIGHT

The following is a summary of operating data on Ngim Manufacturers for the year 2013

TZS ‘000 TZS ‘000

Sales 7,000,000
Cost of goods manufactured and sold:
Direct materials 1,200,000
Direct labour 1,100,000
Variable manufacturing overheads 300,000
Fixed manufacturing overheads 800,000 (3,400,000)
Gross margin 3,600,000
Selling expenses:
variable 300,000
Fixed 400,000 (700,000)
2,900,000
General and administrative expenses:
Variable 100,000
Fixed 1,200,000 (1,300,000)
Net operating income 1,600,000
Sales volume for 2014 was budgeted at 90% of 2013 sales volume. Prices for both costs were
not expected to change in 2014. Actual operating data for 2014 were as follows:

TZS ‘000
Sales 5,800,000
Direct materials 1,300,000
Direct labour 1,100,000
Variable manufacturing overheads 300,000
Fixed manufacturing overheads 780,000
Variable selling expenses 270,000
Fixed selling expenses 290,000
Variable general an administrative expenses 110,000
Fixed general and administrative expenses 1,100,000

( a)Prepare a budgetary control report comparing the planned operating budget for 2014 with
the actual results for that year. (7 marks)

(b)Prepare a budgetary control report that would be useful in for responsibility for the different
unit section managers in 2014. (10 marks)
(c)Justify the strength of the report prepared in (b) over the one in (a) above.
(3 marks) (Total 20 marks)

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