Question Tag: Flexible Budget

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PM – May 2022 – L2 – SA – Q6 – Budgeting and Budgetary Control

Preparation of flexible budgets for varying production levels and analysis of variances.

Question

Ezenwa Nigeria Limited is a company which produces a single product on an assembly line. The budget personnel has been availed with the following information which represents the extremes of high and low volumes of production which the company will achieve over a three month period.

Costs	Production of 80,000 units	Production of 160,000 units
Direct materials	3,200,000	6,400,000
Indirect materials	480,000	800,000
Direct labour	2,000,000	4,000,000
Power	720,000	960,000
Repairs	800,000	1,200,000
Supervision	800,000	1,440,000
Rent, insurance and rates	360,000	360,000

Additional Information:
Supervision is a “step function”. To this end, one supervisor is employed for all production levels up to and including 100,000 units. For higher levels of production, an assistant supervisor whose remuneration is N640,000 will be added.

Required:
a. Prepare a set of flexible budgets for presentation to the Production Director to cover the following levels of production over a period of three months:
i. 80,000 Units
ii. 100,000 Units
iii. 120,000 Units
iv. 140,000 Units
v. 160,000 Units (9 Marks)

b. During the three months July to September 2021, 100,000 units were produced. Actual costs incurred during this period were as follows:

Costs	Amount (N)
Direct materials	4,150,000
Indirect materials	580,000
Direct labour	2,700,000
Power	760,000
Repairs	885,000
Supervision	850,000
Rent, insurance and rates	320,000

Required:
i. Prepare a budget report for presentation to the Production Director displaying all relevant variances. (3 Marks)
ii. For each variance, suggest any further investigations which might be required and the necessary actions required to be taken by the Director. (3 Marks)

Answer

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Tags: Flexible Budget, Production Costs, Variance Analysis
Level: Level 2

Topic: Budgeting and Budgetary Control
Series: MAY 2022

MI – May 2016 – L1 – SA – Q8 – Budgeting

Identify the budgeting system where all costs are justified annually.

Question

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

Answer

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Tags: Budgeting, Flexible Budget, Incremental Budget, Zero-Based Budget
Level: Level 1

Topic: Budgeting
Series: MAY 2016

MA – Nov 2019 – L2 – Q2b – Budgetary Control

Prepare a budgetary control statement for MZ Ltd for May 2019 using a flexible budget basis.

Question

b) The following monthly budgeted cost values have been taken from the budget working papers of MZ Ltd for the year ended 30 September 2019.

During May 2019, actual costs for the activity level of 82% were as follows:

Item GH¢
Direct Materials 10,500
Direct Labour 12,250
Direct Expenses 5,600
Production Overhead 6,250
Selling Overhead 15,150
Administration Overhead 14,200
Total 63,950
Required:
Prepare a budgetary control statement for MZ Ltd on a flexible budget basis for the month of May 2019.
(10 marks)

Answer

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Tags: Actual vs Budgeted Costs, Budgetary Control, Flexible Budget, Variances

Topic: Budgetary control
Series: NOV 2019

MA – May 2019 – L2 – Q2b – Budgetary control

Analyze the performance of a fast-food restaurant using flexible budgeting and discuss the usefulness of the original operating statement.

Question

Otuo has recently opened a fast-food restaurant in a small town. Fast-food restaurants are characterized by their quick food service. The fast-food restaurant market in the town is dominated by a small number of long-established restaurants. Otuo is seeking to grow its business and attract the town’s residents with its burger meals.

The performance report for the first month of business is to be presented at the restaurant’s monthly management meeting. A draft performance report for the first month of business is reproduced below:

	Budget	Actual	Variance
Sales (number of meals)	6,000	5,400	(600)
	GH¢	GH¢	GH¢
Revenue	180,000	167,400	12,600 A
Direct Material	48,000	49,140	1,140 A
Direct Labour	33,000	27,000	6,000 F
Variable Production Overhead	21,000	18,900	2,100 F
Fixed costs	36,000	40,000	4,000 A
Profit	42,000	32,360	9,640 A

Required:
i) Explain the term flexible budget. (2 marks)
ii) Using a flexible budgeting approach, redraft the operating statement to provide a more realistic indication of the variances. (7 marks)
(Note: You are not required to explain the causes of the variances)
iii) In TWO (2) ways, explain why the original operating statement was of little use to management. (2 marks)
iv) Identify FOUR (4) non-financial measures that Otuo could use to monitor the performance of the new fast-food restaurant. (4 marks)

Answer

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Tags: Flexible Budget, non-financial performance measures, restaurant management, Variance Analysis
Level: Level 2

Topic: Budgetary control
Series: MAY 2019

PSAF – May 2019 – L2 – Q3a – Public sector fiscal planning and budgeting

Prepare a flexible budget for 50% activity level and a variance analysis for the Ministry of Works and Housing.

Question

a) The Ministry of Works and Housing prepares its budget using activity volume as a base for control purposes. The Ministry’s normal level of activity is 70%. However, in 2018, the Ministry had a peculiar challenge to the extent that they operated at a 50% level of activity. Below is the budget for 2018.

Level of activity	60%	70%	80%
Income:	GH¢	GH¢	GH¢
IGF	337,500	345,300	353,100
Expenses:
Compensation of Employees	175,200	204,400	233,600
Goods and services	57,000	64,500	72,000
Interest	63,500	73,100	82,700
Assets	31,500	36,700	41,900
Other Expenditure	190,000	190,000	190,000
Surplus/Deficit	(179,700)	(223,400)	(267,100)

Actual Results for 2018:

Description	GH¢
IGF	350,920
Compensation of Employees	129,500
Goods and Services	73,400
Interest	92,000
Assets	31,100
Other Expenditure	172,300

Required:
i) Prepare a flexible budget for 50% level of activity.
(7 marks)

ii) Prepare a Variance Analysis Statement for the operational year 2018.
(3 marks)

Answer

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Tags: Budgeting, Flexible Budget, Ministry of Works and Housing, Variance Analysis
Level: Level 2

Topic: Public sector fiscal planning and budgeting
Series: MAY 2019

IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing

Explain types of budgeting and prepare a flexible budget for cost control, including variance analysis.

Question

a) Explain the following:
i) Incremental Budgeting (2 marks)
ii) Zero-Based Budgeting (2 marks)
iii) Activity-Based Budgeting (2 marks)

b) Cox Ltd is a manufacturing company that produces a body shaping drink for the African market. The company employs a marginal costing system as an integral part of its reporting systems. During the reporting period, there was no opening or closing inventory. The company produces its budgeted and actual results for December 31, 2022, as follows:

	Budget	Actual
Production/sales (units)	2,000	1,400
Sales (GH¢)	60,000	42,400
Variable Costs:
Direct material (GH¢)	(20,000)	(13,200)
Direct labour (GH¢)	(10,000)	(7,600)
Variable overhead (GH¢)	(6,000)	(4,400)
Contribution (GH¢)	24,000	17,200
Fixed cost (GH¢)	(20,000)	(20,800)
Net profit/loss (GH¢)	4,000	(3,600)

Required:
Prepare a budget that will be useful for management cost control purposes and briefly comment on the company’s performance in December 2022. (14 marks)

Answer

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Tags: Activity Based Budgeting, Cost Control, Flexible Budget, Incremental Budgeting, Zero-Based Budgeting
Level: Level 1

Topic: Budgeting, Marginal Costing and Absorption Costing
Series: JULY 2023

IMAC – DEC 2022 – L1 – Q2 – Budgeting

Preparation of a flexible budget and addressing negative cash balances in a cash budget.

Question

a) A cash budget is an estimation of the cash flows of a business over a specific period of time. This budget is used to assess whether an entity has sufficient cash to continue operating over a given time frame. The cash budget provides a company with insight into its cash needs (and any surplus) and helps to determine an efficient allocation of cash.

Required:
Identify THREE (3) ways a business can address negative monthly cash balances in a cash budget. (6 marks)

b) The following budget report was prepared for the second quarter of 2022.

	Budget	Actual	Variance
Production Level	6,000 units	7,200 units
Revenue and Cost:	GH¢	GH¢	GH¢
Sales	120,000	140,600	20,600 F
Direct Material	(30,000)	(39,600)	9,600 A
Direct Labour	(24,000)	(25,920)	1,920 A
Variable Overheads	(12,000)	(21,600)	9,600 A
Semi-Variable Overheads	(30,000)	(34,600)	4,600 A
Profit	24,000	18,880	5,120 A

The budgeted fixed overhead cost in the semi-variable overhead cost was GH¢12,000.

Required:
Prepare a budget report using the flexible budget for the second quarter of 2022. (14 marks)

Answer

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Tags: Cash Budget, Flexible Budget, Variance Analysis
Level: Level 1

Topic: Budgeting
Series: DEC 2022

IMAC – DEC 2022 – L1 – Q1 – Budgeting | Marginal Costing and Absorption Costing

Features of a service, calculation of overhead absorption rates and production cost, addressing negative cash balances, and preparation of a flexible budget.

Question

a) Services are the non-physical, intangible parts of the Ghanaian economy, as opposed to goods, which we can touch or handle. Services, such as banking, education, medical treatment, and transportation make up a significant percentage of the economy.

Required: State and explain THREE (3) features of a service. (6 marks)

b) Edwin Ltd manufactures aviation components and parts to order, and the following are budgeted overheads for the year based on normal activity levels:

Department	Budgeted overhead	Labour hours
Welding	GH¢12,000	3,000
Assembly	GH¢20,000	2,000

Selling and administration overheads are 25% of factory cost.

An order for 350 units of engine parts, Job X 01, incurred the following cost:

Material cost: GH¢24,000
Labour:
- Welding: 200 hours @ GH¢5 per hour
- Assembly: 400 hours @ GH¢2 per hour
GH¢1,000 was paid for the hiring of a special x-ray machine for testing the welds.

Required: i) Calculate the overhead absorption rate for each department. (2 marks)

ii) Calculate the production cost for Job X01. (10 marks)

iii) Calculate the total cost of Job X01. (2 marks)

Answer

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Tags: Flexible Budget, Negative Cash Balances, Overhead Absorption Rate, Production Cost, Service Features, Total Cost
Level: Level 1

Topic: Budgeting, Marginal Costing and Absorption Costing
Series: DEC 2022

PM – May 2022 – L2 – SA – Q6 – Budgeting and Budgetary Control

Preparation of flexible budgets for varying production levels and analysis of variances.

Question

Costs	Production of 80,000 units	Production of 160,000 units
Direct materials	3,200,000	6,400,000
Indirect materials	480,000	800,000
Direct labour	2,000,000	4,000,000
Power	720,000	960,000
Repairs	800,000	1,200,000
Supervision	800,000	1,440,000
Rent, insurance and rates	360,000	360,000

b. During the three months July to September 2021, 100,000 units were produced. Actual costs incurred during this period were as follows:

Costs	Amount (N)
Direct materials	4,150,000
Indirect materials	580,000
Direct labour	2,700,000
Power	760,000
Repairs	885,000
Supervision	850,000
Rent, insurance and rates	320,000

Answer

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Tags: Flexible Budget, Production Costs, Variance Analysis
Level: Level 2

Topic: Budgeting and Budgetary Control
Series: MAY 2022

MI – May 2016 – L1 – SA – Q8 – Budgeting

Identify the budgeting system where all costs are justified annually.

Question

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

Answer

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Tags: Budgeting, Flexible Budget, Incremental Budget, Zero-Based Budget
Level: Level 1

Topic: Budgeting
Series: MAY 2016

MA – Nov 2019 – L2 – Q2b – Budgetary Control

Prepare a budgetary control statement for MZ Ltd for May 2019 using a flexible budget basis.

Question

Answer

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Tags: Actual vs Budgeted Costs, Budgetary Control, Flexible Budget, Variances

Topic: Budgetary control
Series: NOV 2019

MA – May 2019 – L2 – Q2b – Budgetary control

Analyze the performance of a fast-food restaurant using flexible budgeting and discuss the usefulness of the original operating statement.

Question

	Budget	Actual	Variance
Sales (number of meals)	6,000	5,400	(600)
	GH¢	GH¢	GH¢
Revenue	180,000	167,400	12,600 A
Direct Material	48,000	49,140	1,140 A
Direct Labour	33,000	27,000	6,000 F
Variable Production Overhead	21,000	18,900	2,100 F
Fixed costs	36,000	40,000	4,000 A
Profit	42,000	32,360	9,640 A

Answer

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Tags: Flexible Budget, non-financial performance measures, restaurant management, Variance Analysis
Level: Level 2

Topic: Budgetary control
Series: MAY 2019

PSAF – May 2019 – L2 – Q3a – Public sector fiscal planning and budgeting

Prepare a flexible budget for 50% activity level and a variance analysis for the Ministry of Works and Housing.

Question

Level of activity	60%	70%	80%
Income:	GH¢	GH¢	GH¢
IGF	337,500	345,300	353,100
Expenses:
Compensation of Employees	175,200	204,400	233,600
Goods and services	57,000	64,500	72,000
Interest	63,500	73,100	82,700
Assets	31,500	36,700	41,900
Other Expenditure	190,000	190,000	190,000
Surplus/Deficit	(179,700)	(223,400)	(267,100)

Actual Results for 2018:

Description	GH¢
IGF	350,920
Compensation of Employees	129,500
Goods and Services	73,400
Interest	92,000
Assets	31,100
Other Expenditure	172,300

Required:
i) Prepare a flexible budget for 50% level of activity.
(7 marks)

ii) Prepare a Variance Analysis Statement for the operational year 2018.
(3 marks)

Answer

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Tags: Budgeting, Flexible Budget, Ministry of Works and Housing, Variance Analysis
Level: Level 2

Topic: Public sector fiscal planning and budgeting
Series: MAY 2019

IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing

Explain types of budgeting and prepare a flexible budget for cost control, including variance analysis.

Question

a) Explain the following:
i) Incremental Budgeting (2 marks)
ii) Zero-Based Budgeting (2 marks)
iii) Activity-Based Budgeting (2 marks)

	Budget	Actual
Production/sales (units)	2,000	1,400
Sales (GH¢)	60,000	42,400
Variable Costs:
Direct material (GH¢)	(20,000)	(13,200)
Direct labour (GH¢)	(10,000)	(7,600)
Variable overhead (GH¢)	(6,000)	(4,400)
Contribution (GH¢)	24,000	17,200
Fixed cost (GH¢)	(20,000)	(20,800)
Net profit/loss (GH¢)	4,000	(3,600)

Required:
Prepare a budget that will be useful for management cost control purposes and briefly comment on the company’s performance in December 2022. (14 marks)

Answer

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Tags: Activity Based Budgeting, Cost Control, Flexible Budget, Incremental Budgeting, Zero-Based Budgeting
Level: Level 1

Topic: Budgeting, Marginal Costing and Absorption Costing
Series: JULY 2023

IMAC – DEC 2022 – L1 – Q2 – Budgeting

Preparation of a flexible budget and addressing negative cash balances in a cash budget.

Question

Required:
Identify THREE (3) ways a business can address negative monthly cash balances in a cash budget. (6 marks)

b) The following budget report was prepared for the second quarter of 2022.

	Budget	Actual	Variance
Production Level	6,000 units	7,200 units
Revenue and Cost:	GH¢	GH¢	GH¢
Sales	120,000	140,600	20,600 F
Direct Material	(30,000)	(39,600)	9,600 A
Direct Labour	(24,000)	(25,920)	1,920 A
Variable Overheads	(12,000)	(21,600)	9,600 A
Semi-Variable Overheads	(30,000)	(34,600)	4,600 A
Profit	24,000	18,880	5,120 A

The budgeted fixed overhead cost in the semi-variable overhead cost was GH¢12,000.

Required:
Prepare a budget report using the flexible budget for the second quarter of 2022. (14 marks)

Answer

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Tags: Cash Budget, Flexible Budget, Variance Analysis
Level: Level 1

Topic: Budgeting
Series: DEC 2022

IMAC – DEC 2022 – L1 – Q1 – Budgeting | Marginal Costing and Absorption Costing

Features of a service, calculation of overhead absorption rates and production cost, addressing negative cash balances, and preparation of a flexible budget.

Question

Required: State and explain THREE (3) features of a service. (6 marks)

b) Edwin Ltd manufactures aviation components and parts to order, and the following are budgeted overheads for the year based on normal activity levels:

Department	Budgeted overhead	Labour hours
Welding	GH¢12,000	3,000
Assembly	GH¢20,000	2,000

Selling and administration overheads are 25% of factory cost.

An order for 350 units of engine parts, Job X 01, incurred the following cost:

Material cost: GH¢24,000
Labour:
- Welding: 200 hours @ GH¢5 per hour
- Assembly: 400 hours @ GH¢2 per hour
GH¢1,000 was paid for the hiring of a special x-ray machine for testing the welds.

Required: i) Calculate the overhead absorption rate for each department. (2 marks)

ii) Calculate the production cost for Job X01. (10 marks)

iii) Calculate the total cost of Job X01. (2 marks)

Answer

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Tags: Flexible Budget, Negative Cash Balances, Overhead Absorption Rate, Production Cost, Service Features, Total Cost
Level: Level 1

Topic: Budgeting, Marginal Costing and Absorption Costing
Series: DEC 2022

Question Tag: Flexible Budget

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PM – May 2022 – L2 – SA – Q6 – Budgeting and Budgetary Control

Preparation of flexible budgets for varying production levels and analysis of variances.

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MI – May 2016 – L1 – SA – Q8 – Budgeting

Identify the budgeting system where all costs are justified annually.

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MA – Nov 2019 – L2 – Q2b – Budgetary Control

Prepare a budgetary control statement for MZ Ltd for May 2019 using a flexible budget basis.

You're reporting an error for "MA – Nov 2019 – L2 – Q2b – Budgetary Control"

MA – May 2019 – L2 – Q2b – Budgetary control

Analyze the performance of a fast-food restaurant using flexible budgeting and discuss the usefulness of the original operating statement.

You're reporting an error for "MA – May 2019 – L2 – Q2b – Budgetary control"

PSAF – May 2019 – L2 – Q3a – Public sector fiscal planning and budgeting

Prepare a flexible budget for 50% activity level and a variance analysis for the Ministry of Works and Housing.

You're reporting an error for "PSAF – May 2019 – L2 – Q3a – Public sector fiscal planning and budgeting"

IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing

Explain types of budgeting and prepare a flexible budget for cost control, including variance analysis.

You're reporting an error for "IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing"

IMAC – DEC 2022 – L1 – Q2 – Budgeting

Preparation of a flexible budget and addressing negative cash balances in a cash budget.

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IMAC – DEC 2022 – L1 – Q1 – Budgeting | Marginal Costing and Absorption Costing

Features of a service, calculation of overhead absorption rates and production cost, addressing negative cash balances, and preparation of a flexible budget.

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PM – May 2022 – L2 – SA – Q6 – Budgeting and Budgetary Control

Preparation of flexible budgets for varying production levels and analysis of variances.

You're reporting an error for "PM – May 2022 – L2 – SA – Q6 – Budgeting and Budgetary Control"

MI – May 2016 – L1 – SA – Q8 – Budgeting

Identify the budgeting system where all costs are justified annually.

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MA – Nov 2019 – L2 – Q2b – Budgetary Control

Prepare a budgetary control statement for MZ Ltd for May 2019 using a flexible budget basis.

You're reporting an error for "MA – Nov 2019 – L2 – Q2b – Budgetary Control"

MA – May 2019 – L2 – Q2b – Budgetary control

Analyze the performance of a fast-food restaurant using flexible budgeting and discuss the usefulness of the original operating statement.

You're reporting an error for "MA – May 2019 – L2 – Q2b – Budgetary control"

PSAF – May 2019 – L2 – Q3a – Public sector fiscal planning and budgeting

Prepare a flexible budget for 50% activity level and a variance analysis for the Ministry of Works and Housing.

You're reporting an error for "PSAF – May 2019 – L2 – Q3a – Public sector fiscal planning and budgeting"

IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing

Explain types of budgeting and prepare a flexible budget for cost control, including variance analysis.

You're reporting an error for "IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing"

IMAC – DEC 2022 – L1 – Q2 – Budgeting

Preparation of a flexible budget and addressing negative cash balances in a cash budget.

You're reporting an error for "IMAC – DEC 2022 – L1 – Q2 – Budgeting"

IMAC – DEC 2022 – L1 – Q1 – Budgeting | Marginal Costing and Absorption Costing

Features of a service, calculation of overhead absorption rates and production cost, addressing negative cash balances, and preparation of a flexible budget.

You're reporting an error for "IMAC – DEC 2022 – L1 – Q1 – Budgeting | Marginal Costing and Absorption Costing"

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