1. The spreadsheet shows a trading company partially completed for its first year of operation.

A B C D E F

1 Quarter 1 Quarter 2 Quarter Quarter Quarter 5

3 4

2 $ $ $ $ $

3 Sales 100,000 120,000 95,000 80,000 395,000

5 Cash receipt

6 Receipt from customer 80,000

8 Cash payment

9 Purchase 67,200

10 Wages 15,000 15,000 15,000 15,000

11 overhead 12,000

12

13

14 Opening cash balance 20,000

15 Net cash flow

16 Closing cash balance

17

The following information is available:

1. All sales are on credit, 80% of customer pay in the quarter of sales, 20% pay in the following
quarter.
2. Purchase, wages and overhead are all paid in cash in the quarter incurred.
3. Due to the increase in the energy cost from quarter 2 onwards overhead costs are budgeted at
$19,000 per quarter which included $6,000 of depreciation.
Task 1:

1. What is the budgeted closing cash balance for quarter 1? $...................

2. What are the budgeted cash receipts for quarter 2? $..................
3. What is the budgeted cash overhead payment for quarter 2? $.................
4. What formula would be appropriate for cell F14? $......................

Task 2:

The company carries inventory equal to 10% of the next quarter’s sales and has a gross margin of 40%.

What is the budgeted inventory figure at the end of the quarter 3?

$...................

Task 3:

What would be the usual order of budget preparation for a company whose principle budget factor is
sales.

a. Cash budget, sales budget, purchase budget

b. Sales budget, cash budget, purchase budget
c. Sales budget, purchase budget, cash budget
d. Purchase budget, sales budget, cash budget
2. A company is preparing its budget for the forthcoming period.

The following information is available

1. Budgeted sales are 2,000 units per month, budgeted production is 2,050 units per month.
2. Finished goods inventory at the start of the year will be 1,000 units.
3. There are no direct materials or work-in-progress in inventories.
4. All sales are on credit, 20% are paid in the month of sale and the remainders are paid in the
month after that. No irrecoverable debts are expected.
5. The standard cost card of the company’s only product are as follows:
$ per unit

Selling price 12

Direct materials 4

Direct labor 2

Fixed production overhead 1

Gross profit 5

Selling overhead 3

Operating profit 2

6. The standard direct material cost is $80 per kg.

7. The standard direct labor rate is $20 per hour.

Task 1:

Direct material purchase for the year kg

Direct labor hours for the year hours

Account receivable at the end of the year $.............

The value of the fini8shed inventory at the end of the year. (using absorption costing) $.............
3. The following spreadsheet shows a company’s fixed budgets at two different activity levels’ flexed
budgets and actual results for the most recent period.

A B C D E F G

1 Statement of profit or
loss

2 Most recent period Fixed Fixed Flexed Actual variances

budget budget budget budget

3 Notes

4 Sales and production 6,000 8,000 11,000 11,000

units

5 $ $ $ $ $

6 Sales 150,000 200,000 275,000 280,000 5,000

7 Direct material Variable 48,000 64,000 88,000 90,000 -2,000

cost

8 Direct labor Semi- 37,000 47,000 62,000 65,000 -3,000

variable

9 Production overhead Fixed cost 8,000 8,000 8,000 7,500 500

10 Distribution overhead Semi- 14,000 18,000 24,000 27,000 -3000

variable

11 Profit 43,000 63,000 93,000 90,500 -2,500

Task 1: (2 marks)

What should be the fixed direct material cost of an activity level of 12,000 units?

$.....................

Task 2: (2 marks)

Select the correct formula to calculate the budgeted variable labor cost/unit.

1. =(D8-C8)/(D4-C4)*F4
2. =(D8-C8)/(D4-C4)
3. =(D8+C8)/(D4+C4)
4. =E8/E4
Task 3: (2 marks)

Select the correct formula to calculate the fixed element of distribution overhead cost.

1. =C10-{(D10-C10)/(D4-C4)*D4}
2. =C10{(D10-C10)/(D4-C4)*C4}
3. =C10(D10-C10)
4. C10-{D10-C10)/(D4-C4)}
4. A company is preparing its cash budget for the last three months of years. An incomplete revision of
the spreadsheet it is using is given below:

A B C D

1 Cash budget Oct. Nov. Dec.

2 Sales unit 5,000 5,500 5,800

3 Selling price per unit $25 $25 $25

5 Cash receipts

6 From cash sales ???

7 From credit sales (one month previous)

8 From credit sales (two month previous) ???

9 Total cash receipt

10 Cash payment

11 To suppliers of goods ???

12 Overhead ???

13 Total cash payment

14 Net surplus (defict)

15 Opening cash balance

16 Closing cash balance

Notes on the cash budget:

1. 20% of sales are on cash and are paid in the month of sales
2. 60% of credit sales are paid in the month following the month of sales, the remainder are
settled in the following month
3. No inventory debts are expected
4. No inventory is carried and suppliers are paid in the month following delivery. The company has
a gross margin of 40%
5. Overheads are $5,000/month and include depreciation of $1,500/month. Overheads are paid in
cash
Task 1: (8 marks)

Calculate value (Do not put minus sign)

1. B6 $..................
2. D8 $..................
3. C11 $..................
4. B12 $..................

Task 2: (2 marks)

The company also need to produce a budget statement of financial position for the year ending in Dec.

1. What figure should be budgeted for trade receivable at the end of December?
a. 160,000
b. 182,000
c. 116,000
d. 171,000
2. Which of the following is not a master budget?
a. Budgeted statement of profit or loss
b. Sales budget
c. Cash budget
d. Budgeted statement of financial position
5. CalcTek Co. has produced monthly budget covering a range of production levels:

Production level 6,000 7,000 8,000

$ $ $

Sales 150,000 175,000 200,000

Direct expenses 96,000 112,000 128,000

Production overhead 27,600 30,200 32,800

Administration expenses 15,000 15,000 15,000

Budgeted profit 11,400 17,800 24,200

Actual results for the 1st three months of the financial year were:

Month Jan. Feb. Mar.

Production level 6,600 7,000 7,200

$ $ $

Sales 168,530 174,700 210,740

Direct expenses 104,570 112,750 125,670

Production overhead 30,450 29,500 33,500

Administration expenses 15,400 15,300 14,700

Actual profit 18,110 17,150 36,870

Company carries no inventories.

Task 1:
Calculate the flexed budget for Jan.
$

Sales

Direct expenses

Production overhead

Administration expenses

Profit
Task 2:

For Feb. calculate the following variances:

Actual Flexed Variance

Sales

Direct expenses

Production overhead

Administration expenses

Profit
6. A trading company is preparing budgets covering the next three month product. All sales of its
single product are on one month’s credit at $28 per unit and spread evenly over each month.
Budgeted sales for each month are:

Sales units Sales value ($)

Month 1 4,200 117,600

Month 2 6,700 187,600

Month 3 5,300 148,400

Trade receivables at the beginning of each month are budgeted as follows:

Month 1 76,860

Month 2 8,400

Month 3 114,980

At the end of month 3 (during which there are 30 days), trade receivables are budgeted at 18 days sales.

The product is purchased at $20 per unit, and on one month’s credit. Inventory at the beginning of
month 1 is expected to be 1,860 units. Purchases of the product in each of months 1, 2 and 3 are to be
budgeted so as to increase the value of inventory at the end of each month by 50 units, compared with
the month before.

Task 1: (8.5 marks)

1. In month 1, what are the budgeted purchases of the product in units?

…………………. Units
2. In month 2, what is the budgeted cash flow from sales?
$..................
3. In month 3, what are the budgeted payments if the budgeted purchases in months 2 and 3
respectively are $135,000 and $107,000?
$...................
4. At the end of month 3, what is the budgeted inventory in units of product?
………………… units
Task 2: (1.5 marks)

The completed cash flow budget, including the assumptions in the previous question part, indicates a
positive cash balance throughout the three month period.

What effect, if any, will each of the following INDEPENDENT changes in assumptions have on the
budgeted cash balance at the end of the three month period?

Increase Decrease No effect

Trade receivables increased to 20 days sales

Sales in month 3 of 5,500 units

Increase of $1,200 in each month-end inventory,

compared with the month before
6. A company is preparing budgets for product A for months 1 and 2. The standard cost card for
product A is given below.

$ per unit

Selling price 200

Material Z: 5 kg @$ 12 per kg 60

Skilled labor: 2 hours @ $15 per hour 30

Unskilled labor: 3 hours @ 11 per hour 33

Variable overhead: 5 hours @ 14 per hour 70

Contribution 7

Task 1: (4 marks)

In month 1 the company plans to produce 50,000 units of product A. There is no inventory of material Z
at the beginning of month 1 but the company plans to carry a closing inventory of 20,000 kg.

Complete the labor, material and overhead budgets for month 1.

Direct labor budget

Hours Total cost ($)

Skilled labor …………………………? ………………….?

Unskilled labor 150,000 1,650,000

Material budget

Kg Total cost ($)

Direct material Z usage 250,000 3,000,000

Direct material Z purchases ………………………? …………………….?

Overhead budget

Variable overhead ………………………? …………………….?

Task 2: (4 marks)

In month 2 only 50,000 hours of skilled labor will be available. Unskilled labor and material Z will be in
free supply.

The following levels of closing finished goods inventory of product A will be carried.

Units

Month 1 5,000

Month 2 4,000

Complete the following labor budget and sales budget for month 2.

Labor budget month 2

Hours Total cost ($)

Skilled labor 50,000 750,000

Unskilled labor ………………….? …………………..?

Sales budget month 2

Units Total revenue ($)

Sales …………………. ? ……………………. ?

Task 3: (2 marks)

Demand for product A in month 2 is expected to be 45,000 units. Due to limited skilled labor supply,
only 25,000 units of product A will be produced.

Which of the following actions should be used to increase sales in month 2?

1. Increase purchases of material Z

2. Subcontract some of product A’s production to another manufacture
3. Increase closing inventory of product A
4. Increase advertising expenditure