ANSWER THE FOLLOWING

1 A manufacturing company is planning its production activities for the next month. The following
information is available:

 Sales demand is forecast to be 3,700 units.

 Each completed unit requires 8 kg of raw materials.
 The opening inventory of raw materials is 2,800 kg and the closing inventory has been set
at 3,100 kg.
 The opening inventory of finished goods is 850 units and closing inventory has been set at
700 units.

What is the raw materials purchases budget in kg?

[28,700] kg

2. Mountain Co is preparing its labour budget for the next period. You have been provided with
the following information:

Sales demand 4,600 units

Opening inventory of finished goods 800 units
Closing inventory of finished goods 750 units
Direct labour time per unit 6 hours
Current labour efficiency level 80%
Labour rate per hour $12

Calculate the labour budget in $.

$[409,500]

3. ExCo is a manufacturing business.

You have been provided with the following budget and actual results for the month ending March
20X5.

Complete the table to show the flexed budget for March 20X5.

Budget Actual Flexed budget

Quantity 10,000 12,000

Sales revenue 48,000 60,000 [57,600]
Direct materials 12,000 16,800 [14,400]
Direct labour 8,000 8,750 [9,600]
Fixed overheads 10,000 11,000 [10,000]
1
Page

4. Smithy Co has produced a budget based on 20,000 units as shown below.

 Budget

Quantity 20,000
$

Sales revenue 180,000

Direct materials 15,000
Direct labour 85,000
Fixed overheads 25,000

What would be the operating profit in a flexible budget based on 23,000 units?

$[67,000]

5. VP Co is a newly formed company which is starting to trade on 1 January 20X4. Sales revenue for
the first three months has been budgeted as follows:

January February March

$13,000 $17,000 $10,000

5% of sales will be cash sales with the remainder being credit sales. A discount of 5% will be
offered on all cash sales.

The payment pattern for credit sales is expected to be as follows:

Invoices paid in the month after sale 75%

Invoice paid in the second month after sale 25%

What amount would appear in the cash budget as receipts from sales in March 20X4?

$[15,675]

6. Green Co had the following budgeted data for the month of August.

Production units 20,000

Direct materials 40,000 kg $300,000

During August, 19,000 units were produced using 37,000 kg at a total cost of $278,000. What was
the direct materials usage variance?

Variance Favourable (✓) Adverse (✓)

$[7,500] [✓]
2
Page

7. Lily Co uses marginal costing and has the following budgeted and actual labour data for the
month of January.
 Budget hrs Budget Actual hrs Actual

Production units 30,000 32,000

Direct labour 15,000 hours $75,000 15,900 hours $77,900

What was the labour efficiency variance for the month of January?

Variance Favourable (✓) Adverse (✓)

$[500] [✓]

8. You have been provided with the following information for the month of October:

Budgeted overheads $500,000

Budgeted output 25,000 units
Actual output 30,000 units
Actual overheads $620,000

What is the total fixed overhead production variance for the month of October?

Variance Favourable (✓) Adverse (✓)

$[20,000] [✓]

9. A company plans to produce 20,000 units using 15,000 direct labour hours. The actual
production is 18,000 units.

The standard cost of labour is $11 per hour.

What is the standard cost of labour for the actual level of production?

$148,500

10. You have been provided with the following information for the month of November:

Budgeted overheads $540,000

Budgeted output 6,000 units
Budgeted labour hours 90,000 hours
Actual output 7,000 units
Actual labour hours 114,000 hours
Actual overheads $600,000

What is the fixed overhead volume variance?

Variance Favourable (✓) Adverse (✓)

$[90,000] [✓]
3

11. You are preparing a trade receivables budget for the year quarter ending 31 March 2024. The
Page

balance on the trade receivables account at the end of December 2023 was $37,995.
 Credit sales are expected to be as follows:

January 2024 February 2024 March 2024

$183,400 $162,700 $172,000

Based on past events, trade receivables are expected to pay as follows:

 Paid in the month of sale 20%

 Paid within one month of sale 65%
 Paid within two months of sale 15%

Customers which pay in the month of sale receive a 5% discount. What amount will be received
from trade receivables in the month of March 2024?

$[165,945]

12. The sales budget for WB & Co is 12,000 units in January, 14,000 units in February and 11,000
units in March.

The company policy is for the month end inventory to equal to half of the following month’s sales
demand.

Complete the following table to show the inventory budget in units.

January February March

Sales units
Opening inventory
Closing inventory
Units to produce

January February March

Sales units 12,000 14,000 11,000

Opening inventory 6,000 [7,000] (0.5) [5,500] (0.5)
Closing inventory [7,000] [5,500] 6,200
Units to produce [13,000] (1) [12,500] (1) [11,700] (1)
4

13. You have been provided with the following information regarding two projects.
Page

Project A ($) Project B ($)

 Capital investment required 60,000 80,000

Annual cash flows generated by each project:

Year 1 15,000 15,000

Year 2 20,000 30,000
Year 3 25,000 40,000
Year 4 30,000 5,000
Year 5 40,000 5,000

Calculate the payback period for each project in years and months (rounded up to the nearest
whole month)

Project A [3] (1) Years [0] (1) Months

Project B [2] (1) Years [11] (1) Months

14. West Co is considering investing $100,000 in an asset which is expected to yield the following
cash flows over the next five years.

Year Cash flow ($)

1 40,000
2 50,000
3 60,000
4 30,000
5 10,000

At the end of its life, the asset is expected to be sold for $5,000.

The company uses a cost of capital of 15% for the purposes of net present value calculations. The
discount factors are shown below.

Year Discount factor

1 0.870
2 0.756
3 0.658
4 0.572
5 0.497

Calculate the net present value of the asset.

$[36,695]

15. HR Co is preparing its cash budget for the next quarter. Sales to credit customers are expected
5

to be as follows:
Page

$
 January 67,800
February 47,600
March 52,500

Customers are expected to pay in the following pattern:

 45% within one month of sale

 35% within two months of sale
 20% within three months of sale

Assuming there is no opening balance to take into account, what is the total amount of expected
receipts from credit customers to go into the cash budget for the quarter ending March?

$[75,660]

16. XXY Co is considering investing in a project and wishes to use the payback method of
investment appraisal. The following information regarding the project has been provided:

Capital investment required $65,000

Cash inflows:
Year 1 $32,000
Year 2 $28,000
Year 3 $15,000
Year 4 $10,000
Year 5 $,5000

What is the payback period in years and months for this project? Show your answer to the nearest
whole month.

[2] Years [4] Months

17. AB Co are considering investing in a new asset which is going to cost $119,000. The asset has
an expected life of 5 years, at the end of which it will be sold for $5,000.
The annual profits expected to be generated from the asset are as follows:

Year 1 $30,000
Year 2 $30,000
Year 3 $18,000
Year 4 $12,000
Year 5 $8,000

Using the average investment, what is the accounting rate of return? Show your answer to 1
decimal place.

[31.6] %
6
Page