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Ankawa LTD makes and sells a single product ‘Dee’. The following information is available for use in the budgeting process for the year 2025.
i) Sales targets have been proposed for four quarters in 2025 and the first quarter in 2026:
| Year | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Quarter 1 (2026) |
|---|---|---|---|---|---|
| Sales (GH¢) | 240,000 | 160,000 | 144,000 | 224,000 | 192,000 |
Selling price per unit of Dee is expected to be GH¢20.
ii) Inventory levels
At 31 December 2024: Finished units of Dee: 3,000 units
Raw materials: 7,000kg
Closing inventory of finished product Dee at the end of each quarter is budgeted as a percentage of sales units of the following quarter:
Closing inventory of raw materials is budgeted to fall by 600kg at the end of each quarter.
iii) Product Dee unit data:
iv) Other budgeted quarterly expenditure for 2025:
| Quarter | Fixed Overhead (GH¢) | Capital Expenditure (GH¢) |
|---|---|---|
| Quarter 1 | 10,000 | 10,000 |
| Quarter 2 | 18,000 | – |
| Quarter 3 | 27,000 | – |
| Quarter 4 | 30,000 | – |
v) Depreciation
vi) Inventory of product Dee is valued on a marginal cost basis for internal budget purposes.
Required:
Prepare the budgeted profit and loss account for the year ended 31 December 2025.
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Efforts to improve Public Financial Management (PFM) Systems in Ghana led to the Ghana Integrated Financial Management Information System (GIFMIS), which is an adaptation of the Integrated Financial Management Information System (IFMIS). The rationale of GIFMIS is to establish an integrated ICT-based PFM system in Ghana at national, regional, and district levels.
State FOUR benefits of GIFMIS to the government of Ghana.
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Working Capital Calculation
A company has annual sales revenues of GH¢45 million and the following working capital periods:
| Working Capital Item | Period (months) |
|---|---|
| Inventory conversion period | 2.5 |
| Accounts receivable collection period | 2.0 |
| Accounts payable payment period | 1.5 |
Production costs are 70% of sales revenue.
Required:
Calculate the total amount held in working capital excluding cash and cash equivalents.
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Cash Collected from Debtors and Payments to Creditors
The following balances have been extracted from the Statement of Financial Position of Zena LTD as at 31 December 2023:
| Account | Amount (GH¢) |
|---|---|
| Debtors | 55,000 |
| Creditors | 60,000 |
Additional information from the 2024 budget:
Required:
i) The cash to be collected from debtors during the year.
ii) The cash to be paid during the year.
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You are the management accountant of a large manufacturing company in Kaduna. A management retreat has been planned for next week to set the agenda for the preparation for next year’s budget.
Required:
a. Outline the key stages in the planning process that link long-term objectives and budgetary control. (8 Marks)
b. Explain the meaning of the terms ‘fixed budget’, ‘rolling budget’, and ‘zero-based budget’, and discuss the circumstances under which each budget might be used. (8 Marks)
c. Discuss whether time series analysis may be preferred to linear regression as a way of forecasting sales volume. (4 Marks)
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Adrac Community School was founded by Adrac Community Resident Association of
Garki, Abuja, Nigeria. The school is being supervised by a board of governors made up
of selected experienced members of the community. The school is not allowed to charge
the pupils any fee as it is a community project donated to assist members of the
community.
Adrac Community Residents Association pays the school ₦21,000 for each child
registered at the beginning of the school year, which is September 1, and ₦18,000 for
any child joining the school part-way through the year. The school does not have to
refund the money to the association if a child leaves the school part-way through the
year. The number of pupils registered at the school on September 1, 2019 is 720, which
is 10% lower than the previous year. Based on past experience, the probabilities for the
number of pupils starting the school part-way through the year is as follows:
The school‟s headmistress normally prepares annual budget for consideration of the
board of governors. Since she is not too comfortable with figures, she does not
understand how to use the probability distribution provided for her annual budget.
Therefore, she just used simple average for her calculation of number of pupils expected
to join late. The revenue budget for 2019/2020 submitted by the headmistress is as
follows:
The headmistress uses incremental budgeting to budget for her expenditure, taking
actual expenditure for the previous year as a starting point and simply adjusting it for
inflation, as shown below
Notes
i. N600,000 of the costs for the year ended 30 June 2019 related to standard
maintenance checks and repairs that have to be carried out by the school every
year in order to comply with the local government health and safety standards.
These are expected to increase by 3% in the coming year. In the year ended 30
June 2019, N280,000 was also spent on redecorating some of the classrooms. There will be no redecoration in the coming year.
ii. One teacher earning a salary of N520,000 left the school on 30 June 2019 and
there are no plans to replace her. However, a 2% pay rise will be given to all staff
with effect from 1 December 2019.
iii. The full N1,300,000 actual costs for the year ended 30 June 2019 related to
improvements made to the school building. This year, the canteen is going to be
substantially improved, although the extent of the improvements and level of
service to be offered to pupils is still under discussion. There is a 0·7 probability
that the cost will be N1,450,000 and a 0·3 probability that it will be N800,000.
These costs must be paid in full before the end of the year ending 30 June 2020.
The school‟s board of governors, who review the budget, are concerned that the budget
surplus has been calculated incorrectly. They believe that it should have been calculated
using expected income, based on the probabilities provided, and using expected expenditure, based on the information provided in notes i to iii. They believe that incremental budgeting is not a reliable tool for budget setting in the school since, for
the last three years, there have been shortfalls of cash despite a budget surplus being
predicted. Since the school has no other source of funding available to it, these
shortfalls have had serious consequences, such as the closure of the school kitchen for a considerable period in the last school year, meaning that no meals were available to pupils. This is thought to have been the cause of the 10% fall in the number of pupils registered at the school on 1 September 2019.
Required:
a. Redraft the school’s budget for the year ending June 30, 2020, per the board’s recommendations. (6 Marks)
b. Discuss the advantages and disadvantages of using incremental budgeting. (4 Marks)
c. Describe the three main steps in preparing a zero-based budget. (6 Marks)
d. Discuss the extent to which zero-based budgeting could improve the budgeting process for Adrac Community School. (4 Marks)
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PQR Plc is preparing its budgets for the upcoming year and has forecasted two demand scenarios for its product range:
You are to assume only one forecast (either Forecast 1 or Forecast 2) will be selected. The expected variable unit costs for each product are:
The general fixed costs are budgeted at ₦20,000 for the year, with no specific fixed costs expected per product. Additionally, all three products use the same direct material, with a limited supply of 22,020 kgs available for the budget year.
Required:
a. Recommend, with supporting calculations, whether forecast 1 or forecast 2 should be adopted for the budget period. (11 Marks)
b. Prepare a report, addressed to the managing director, to explain the budget preparation process, with particular reference to: i. The principal budget factor (3 Marks)
ii. The budget manual (3 Marks)
iii. The role of the budget committee (3 Marks)
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National Chart of Accounts (NCOA) shows the complete list of budget and accounting items for General Purpose Financial Reporting (GPFS) and budgeting.
a. State FOUR characteristics of the National Chart of Accounts. (4 Marks)
b. Discuss the SIX structures of the National Chart of Accounts for budgeting. (12 Marks)
c. Identify and briefly explain FOUR steps for budgeting with the National Chart of Accounts. (4 Marks)
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Ogbunigwe Nigeria Limited is a big and reputable publishing firm established in the early 1970’s. The company has recently been taken over by Wisdom International Publishing Company (WIPC) – a multinational company operating in several countries of the world.
Mr. Pampam, who is the Managing Director of WIPC, has been sent from the company’s headquarters to review, among other things, the budgeting and reporting system used by Ogbunigwe Nigeria Limited.
During his visit to all the departments, he discovered that monthly budgets are prepared for each department in the company. Upon request, the newly acquired company submitted the last budget statement for the notebook production department, which covered Quarter 3 of 2022, as shown below:
Budget statement for Quarter 3
Department: Notebook Production
| Particulars | Actual Results (N’000) | Budget (N’000) | Variances (N’000) |
|---|---|---|---|
| Direct materials | 1,512 | 1,440 | (72) |
| Direct labor | 738 | 720 | (18) |
| Variable production overhead | 474 | 432 | (42) |
| Fixed production overhead | 354 | 336 | (18) |
| Variable administrative overhead | 246 | 240 | (6) |
| Fixed administrative overhead | 300 | 288 | (12) |
| Total costs | 3,624 | 3,456 | (168) |
| Sales value of production | 4,650 | 4,464 | 186 |
| Profit | 1,026 | 1,008 | 18 |
The Head of Department of the notebook production department, Mr. Josiah Okoli, commented on the state of affairs of the department. He revealed that the budget statement presented was based on 72,000 units with a standard labor processing time of 2.85 hours per unit.
Mr. Pampam observed that Mr. Josiah Okoli was not enthusiastic about the budget system. He viewed it as a pressure system imposed by the company to portray some departmental managers in a bad light. He pointed out that the system was hurriedly introduced by Dynamic Financial Konsult about twelve months ago. The consultant did not provide sufficient explanation to assist users of the budget to understand the system. Mr. Josiah Okoli expressed doubt about the competence of the consultant and believed the system was not suitable for Ogbunigwe Nigeria Limited. He even stated that his department might have actually made a loss, as against the reported profit.
This situation cuts across many departments, making it imperative and urgent to resolve the issues with the budget system. Your advice to Mr. Pampam will assist tremendously in addressing these problems.
Required:
a. Redraft the budget statement in a more informative manner, showing the relevant variances. (12 Marks)
b. State the general behavioral problems associated with budgeting, and relate these issues to this situation. (4 Marks)
c. Recommend ways to make the budgeting system more useful and acceptable in the current situation. (4 Marks)
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Public expenditure is an important segment of the budgetary activities. It refers to the expenses incurred by the government in the course of its activities.
Required:
a. Discuss TWO effects of public expenditure on the economy. (5 Marks)
b. Identify and explain FIVE principles of public expenditure. (10 Marks)
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The ministry of finance of Ojaja Republic prepared the aggregate Medium-Term Expenditure-Framework (MTEF) budget for consideration by the National Assembly as contained in the country’s Constitution. The following are the MTEF actual budget estimates and the approved budget estimates by various sectors as thoroughly screened by the Budget Committees of the Senate and House of Representatives:
Ojaja Federal Republic Summary of total budgeted expenditure by sector for 2020
| Sector Code | Sector Name | Actual Estimates 2020 (N’m) | Approved Estimates 2020 (N’m) |
|---|---|---|---|
| 01 | Administrative Sector | ||
| Personnel Cost | 40,000 | 34,000 | |
| Overhead Cost | 25,000 | 21,250 | |
| Consolidated Revenue Charges | 18,600 | 15,810 | |
| Capital Expenditure | 62,400 | 53,040 | |
| Sub-Total | 146,000 | 124,100 | |
| 02 | Economic Sector | ||
| Personnel Cost | 22,500 | 20,250 | |
| Overhead Cost | 12,600 | 11,340 | |
| Consolidated Revenue Charges | 28,600 | 25,740 | |
| Capital Expenditure | 41,300 | 37,170 | |
| Sub-Total | 105,000 | 94,500 | |
| 03 | Law and Justice Sector | ||
| Personnel Cost | 15,800 | 15,800 | |
| Overhead Cost | 20,200 | 20,200 | |
| Consolidated Revenue Charges | 17,500 | 17,500 | |
| Capital Expenditure | 38,500 | 38,500 | |
| Sub-Total | 92,000 | 92,000 | |
| 04 | Regional Sector | ||
| Personnel Cost | 40,800 | 38,760 | |
| Overhead Cost | 22,200 | 21,090 | |
| Consolidated Revenue Charges | 16,700 | 15,865 | |
| Capital Expenditure | 32,300 | 30,685 | |
| Sub-Total | 112,000 | 106,400 |
Summary of total expenditure by sectors:
| Description | Actual Estimates 2020 (N’m) | Approved Estimates 2020 (N’m) |
|---|---|---|
| Personnel Cost | 119,100 | 108,810 |
| Overhead Cost | 80,000 | 73,880 |
| Consolidated Revenue Charges | 81,400 | 74,915 |
| Capital Expenditure | 174,500 | 159,395 |
| Total | 455,000 | 417,000 |
Additional Information:
(i) Administrative sector – all costs at an incremental basis of 15%, except for capital expenditure which will increase by 10%.
(ii) Economic sector – all costs at an incremental basis of 25%, except for overhead cost which will decrease by 5%.
(iii) Law and justice sector – all costs at a declining basis of 5%, except for personnel cost which will increase by 10%.
(iv) Regional sector – all costs at an incremental basis of 10%, except for consolidated revenue charges which will decrease by 15%.
Required:
a. Prepare proposed budget estimates for 2021, 2022, and 2023 based on the approved estimates for the year 2020. (20 Marks)
b. Explain the following in relation to National Chart of Accounts (NCOA) structure for budgeting:
i. Functional segment (2 Marks)
ii. Programme segment (2 Marks)
iii. Geographical segment (2 Marks)
c. Enumerate FOUR steps required for budgeting with the National Chart of Accounts. (4 Marks)
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The Atlantic Staff Housing Corporation is preparing its budget for 2015. You have been engaged as a Consultant to the Corporation to assist in the preparation of the budget. The following information has been made available:
| Date Purchased | Particulars | LPOs | Time to Pay | Amount (N’Million) |
|---|---|---|---|---|
| 15/08/2014 | Cement | 121 | February | 9.5 |
| 15/09/2014 | Iron-rod | 111 | March | 2.8 |
| 31/10/2014 | Gravels | 120 | 30/01/2015 | 1.5 |
| 01/11/2014 | Plumbing Materials | 122 | 20/02/2015 | 0.75 |
| 05/12/2014 | Sands | 119 | March | 1.2513 |
Required:
a. Prepare a cash flow projection for the first quarter of the year 2015.
(15 Marks)
b. Calculate the ratio of recurrent expenditure to total inflow for each month and make a brief comment on the ratio.
(5 Marks)
(Total 20 Marks)
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The Chairman of Okoko Local Government set up pond farming to fulfill a campaign promise. However, the Chairman is concerned about the project’s viability and its ability to finance itself due to increasing production costs. The expected cash-in-hand as of January 1, 2020, is N3,300,000.
The following information concerns the budgeted sales and purchases of the fish farm.
| Month | Sales (N’000) | Purchases (N’000) |
|---|---|---|
| November 2019 | 55,000 | 35,000 |
| December 2019 | 100,000 | 55,000 |
| January 2020 | 114,000 | 75,000 |
| February 2020 | 142,000 | 95,000 |
| March 2020 | 145,000 | 80,000 |
Analysis of records shows that debtors settle according to the following pattern:
All purchases are on credit. Past experience shows that 80% of the purchase costs are settled in the month of the transaction, and the balance is settled in the subsequent month. Overhead costs amounting to 65% of the purchases of the month are to be paid monthly. Additionally, the Local Government will receive a monthly allocation of N15,000,000.
Required:
Prepare for the Chairman of Okoko Local Government a monthly cash budget for the fish pond for the first quarter (January to March) of 2020. (10 Marks)
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Kikelomo Limited manufactures three products K, T, and F, using different quantities of the same resources. Budget information per unit is provided:
| K | T | F | |
|---|---|---|---|
| Market selling price | 1,800 | 2,520 | 3,000 |
| Direct labour (₦140/hour) | 280 | 560 | 700 |
| Material A (₦60/kg) | 300 | 240 | 420 |
| Material B (₦120/kg) | 480 | 720 | 600 |
| Variable overhead (₦80/hour) | 160 | 320 | 400 |
| Fixed overhead | 240 | 140 | 240 |
| Total cost | 1,460 | 1,980 | 2,360 |
| Profit | 340 | 540 | 640 |
| Total budgeted sales units | 500 | 800 | 1,600 |
The budgeted sales are for the month of June but do not include an order from a major customer to supply 400 units per month of each of the three products at a discount of ₦200 per unit. During June, management anticipates a shortage of material B, with only 17,500 kgs available. Kikelomo Ltd cannot hold inventory of raw materials, work-in-progress, or finished products.
Required:
a. State THREE factors that may cause input materials to be a budget constraint and identify steps to overcome this constraint. (6 Marks)
b. Prepare calculations to show production that will maximise Kikelomo Ltd’s profit for June. (9 Marks)
c. Kikelomo Ltd has realised that the contract with the major customer does not have to be fully met, but a financial penalty may apply. Calculate the lowest value of the financial penalty to ensure the order is met in full. (6 Marks)
d. Assume the material B shortage will continue and management has decided to outsource some production. Advise management on the advantages and disadvantages of outsourcing. (9 Marks)
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A spreadsheet is most suitable for which of the following tasks?
A. Posting of double-entry transactions in the general ledger
B. Preparing a budget
C. Preparing letters to sales agents
D. Maintaining an audit trail of transactions
E. Making presentations during a training programme
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ABC Limited is engaged in the production of AiBiCi product and the following data were extracted from the Budget Committee’s Report:
i. Sales is expected to be 20,000 units each in months 1 and 2, this will increase by 10% each in months 3 and 4, and 5% each in months 5 and 6.
ii. Unit selling price is currently estimated at N250, and due to increased awareness, the price will move up to N300 in the fourth month.
iii. To produce one unit of AiBiCi, the following materials are required:
iv. The company keeps 10% of estimated sales as closing inventory for the month. Assume no opening inventory for month 1.
You are required to compile, in tabular form, the following functional budgets for the next 6 months:
a. Sales in quantity and value. (6 Marks)
b. Production in quantity. (6 Marks)
c. Material purchase in quantity and the total cost. (8 Marks)
(Total 20 Marks)
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A company manufactures and sells a single product. During the month of November 2014, the budgeted total production cost was N210,000 including budgeted fixed production overheads of N55,000. Budgeted sales was 8,750 units at N30.
If the company applies marginal costing principles, what would be the budgeted contribution for the month?
A. N 52,500
B. N 77,500
C. N 97,500
D. N107,500
E. N117,500
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