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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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The budgetary system that requires each budgeting unit to justify all costs in each year rather than year-to-year cost change is called:
A. Incremental budget
B. Rolling budget
C. Flexible budget
D. Zero-based budget
E. Program planning budgetary system
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In measuring budget performance, an item of cost is said to have favourable variance when
A. Actual costs of operation are higher than budgeted costs
B. Budgeted costs of operation are less than actual costs
C. Actual costs of operation are less than budgeted costs
D. Budgeted costs of operation are equal to actual costs
E. Budgeted costs of operation are not available
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The Income Statement of AJ Ltd for the year ended December 2022 was as follows:
Projections for 2023:
Sales: The current sales represent 15% of market share. Management plans to increase this to 20%. Meanwhile, industry experts are projecting a 12% growth in the sector.
Cost of Sales: Improvement in material quality will reduce cost of sales by 5% from the current level.
Other Expenses:
i) Administrative costs will increase by 20% over the 2022 actual figure.
ii) Selling and distribution costs will increase by 18% over the 2022 actual figure.
iii) Finance costs will remain at the same percentage of sales revenue as in 2022.
Required:
Prepare the budgeted income statement for the year 2023.
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Slay Mama Plc (SMP) has been using line-item budgeting since its establishment. The Chief Executive Officer (CEO) recently attended a seminar on “Achieving the best out of your budget”. During the seminar, the facilitator highlighted the benefits of programme-based budgeting since it is a performance-based budgeting approach.
Required:
i) Explain Programme-Based Budgeting. (2 marks)
ii) Outline THREE (3) disadvantages of line-item budgeting. (3 marks)
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Ghanaman Senior High School (SHS), which has an enrollment of 2,500 students (residential), is one of the schools that depend on the government for the supply of food items. The bursar has proposed that a 50-kilogram bag of rice can feed 200 students per meal, while the same 50-kilogram bag of beans can be used for 350 students. Per the menu plan, rice will be served three times and beans twice a week. The SHS will run two semesters of 16 weeks each for the year 2023.
Other information:
i) Opening inventory:
ii) Inventory policy (Closing inventory):
Required:
Prepare the budget for the supply of both rice and beans needed to feed students for the two semesters of the year 2023.
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b) It is argued that the extent of budget performance is influenced largely by the extent of involvement of all persons connected with the budgeting process.
Required: Outline THREE (3) advantages and TWO (2) disadvantages of employee participation in budgeting. (5 marks)
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Mercury Company’s management wants to prepare budgets for one of its products, TomaCan, for October 2019.
The firm sells the product for GH¢75 per unit and has the following expected sales (in units) for these months in 2019:
| July | August | September | October | November | December |
|---|---|---|---|---|---|
| 6,000 | 7,000 | 8,000 | 9,000 | 10,000 | 11,000 |
The production process requires 5 kilos of Atadwe and 3 kilos of Ginger. The firm’s policy is to maintain an ending finished goods inventory each month equal to 15% of the following month’s budgeted sales, but in no case less than 1,300 units. All materials inventories are to be maintained at 10% of the production needs for the next month, but not to exceed 3,000 kilos. The firm expects all inventories at the end of September to be within the guidelines. The purchase department expects the materials to cost GH¢1.75 per kilo for Ginger and GH¢5.00 per kilo for Atadwe respectively.
The production process requires direct labor at two Skill Levels (SL). The rate for labor at SL1 is GH¢45 per hour, and for SL2 is GH¢25 per hour. SL1 can process one batch of TomaCan per hour, while SL2 uses double the time of SL1 for the same output. Each batch consists of 10 units.
Variable manufacturing overhead is GH¢100 per batch plus GH¢75 per direct labor-hour. Fixed production overhead is GH¢51,240. It is the plan of Mercury Company to spend a third of variable and fixed production overhead costs on selling and administration expenses. The company is in the 25% tax bracket but enjoys a rebate of 50% because of its location. The company uses an actual cost system. The unit cost of production in October is the same as that of September.
Required: On the basis of the preceding data and projections, prepare the following budgets:
i) Production budget for October (in units).
ii) Direct materials purchases budget for October (in kilos).
iii) Direct materials purchases budget for October (in Cedis).
iv) Direct manufacturing labor budget for October (in Cedis).
v) Income statement for the month of October 2019.
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Uswa Ltd is engaged in manufacturing and sale of footwear. The company maintains one central factory and warehouse and sells its products through company-operated retail outlets as well as through distributors. Management is in the process of preparing the budget for the year 2018 on the basis of the following information:
| Category | No. of Units | Retail Price Range (GH¢) |
|---|---|---|
| Men | 1,200,000 | 100 – 400 |
| Women | 500,000 | 85 – 250 |
Required:
i) Prepare a budgeted profit and loss account for the year 2018 for Uswa Ltd. (13 marks)
ii) Explain the term “budget manual.” (2 marks)
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