FNSACC503A Budgeting Assessment 2 QUESTION and ANSWER … · Question Number & Topic Marks Allocated Marks Achieved 1: Multiple choice 35 2: Cash budget 20 ... Question Answer Marks

FNSACC503A

Manage Budgets and Forecasts

ASSESSMENT TASK – QUESTION & ANSWER BOOKLET

Version 1 NSI Meadowbank TAFE Page 1

UNIT CODE: FNSACC503A UNIT NAME: Manage Budgets &

Forecasts

ASSESSMENT EVENT: 2 of 2 ASSESSMENT DUE: Flexible

STUDENT NUMBER: STUDENT NAME:

Performance measurement:

* For this unit, results will be reported as either competent or not yet competent.

* Students will be required to show competency in each element of the unit which means that questions

addressing each of the core elements within the assessment have to be attempted and 61% or more has to be

achieved for each.

Assessment conditions / instructions to students:

* Questions must be answered in the spaces provided.

* All questions must be attempted.

* You may use a calculator.

* The use of pencil is allowed provided it is clearly legible.

* Please make sure your writing is legible ‐ answers that cannot be read won’t be marked.

* Please SCAN and UPLOAD your completed assessment via the SAKAI site for marking.

Question Number & Topic Marks Allocated Marks Achieved

1: Multiple choice 35

2: Cash budget 20

3: Budgeted financial statement 10

4: COGS budget 10

5: Performance report 10

6: Part A: Flexible budget 7

6: Part B: Variance analysis 8

Total 100

COMPETENT NOT YET

COMPETENT

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Plagiarism declaration:

I have read the Student Services Guide under Student Responsibilities to “…not engage in plagiarism, collusion

or cheating in any assessment event or examination”.

Please note: Your assessment will not be marked until you have signed the declaration below.

Student Signature:__________________________________________

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Question 1 (35 marks)

There are twenty eight (28) parts to this question. Some parts are worth one (1) mark and other parts are

worth two (2) or three (3) marks. For each question, you must write the letter that correspondonds with your

answer in the grid below. Answers that are not written in the grid below will not be marked.

Question Answer Marks Question Answer Marks Question Answer Marks

1 1 11

1 21 2

2 1 12

1 22 1

3 1 13

1 23 1

4 1 14

1 24 1

5 1 15

1 25 1

6 1 16

1 26 3

7 1 17

1 27 3

8 1 18

1 28 3

9 1 19

1

10 1 20

1

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1. A budget is broadly defined as:

(a) A formal written statement of management’s plans for the future expressed in financial terms (b) A statement of fact (c) A substitute for sound management practices (d) A financial statement used to report the cash inflows and cash outlows of an organisation 2. A budget that covers a range of activity within which an organisation may operate is called a:

(a) Static budget (b) Rolling budget (c) Flexible budget (d) Master budget

3. If you were asked to prepare a budget where you had to set the initial figures for each activity across the organisation to zero and to receive funding you had to justify each activity in terms of the contribution it would make to the business, then the type of budget that you would be preparing would be a:

(a) Zero‐based budget (b) Rolling budget (c) Static budget (d) Flexible budget

4. The qualitative method used to forecast revenue when experts’ opinions are sought by the use of questionnaires is called:

(a) Jury of executive opinion (b) The Delphi technique (c) Sales force composite (d) Market research

5. Which one of the following best describes a benefit of budgeting:

(a) It provides the different business units across an organisation with a performance target (b) It acts as a communication tool (c) It can be used as a tool for motivating staff (d) All of the above

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6. Which one of the following best describes a limitation of budgeting:

(a) A budget provides the different business units across an organisation with unrealistic performance targets

(b) A budget is used to demotivate staff (c) Having a budget in place does not guarantee success because budgets are only estimates, they are not

statements of fact (d) All of the above

7. Which one of the following factors should be taken into account when forecasting revenue?

(a) Economic and industry trends (b) The size of the Managing Director’s pay packet (c) The size of the firm’s Christmas party (d) Future tax rates 8. If the mark‐up on cost is 25% and the product costs $180, then the selling price must be:

(a) $45 (b) $144 (c) $225 (d) $264

9. An unfavourable variance for an expense means that the actual expense compared to budgeted expense must be:

(a) Higher (b) Lower (c) The same (d) None of the above

10. Ted Smith is the manager of the sales department at Big Constructions, a commercial construction

company located in the city. This year Ted has decided to submit a conservative estimate for sales revenue knowing that if his department’s sales exceed the budget, he will appear in a favourable light to senior management. Ted believes that a realistic estimate for sales revenue for the year is $1,000,000, but he submits $800,000 to the budget committee. Ted has built slack into the budget equal to:

(a) $0 (b) $200,000 (c) $800,000 (d) $1,000,000

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11. Which of the following statements is not correct:

(a) Budget targets that are perceived by staff as being too difficult to achieve will most likely result in feelings of resentment and stress

(b) Involving lower level management in the budgeting setting process will most likely result in a budget that is more accurate because it includes the input of those who are experts in there own area

(c) Budget targets that are perceived by staff as being to easy to achieve will most likely motivate staff to work even harder to achieve those targets

(d) All of the above statements are not correct

12. Fixed costs should not be budgeted for because in total, they remain constant in the short run within

the relevant range of activity. This statement is:

(a) True (b) False (c) True, but only with respect to budgeting (d) False, but only with respect to the relevant range of activity

13. Which of the following would be classified as a ‘fixed cost’?

(a) Rent (b) The salesperson’s salary (c) Materials for production (d) Excess water consumption

14. Which of the following would be classified as a ‘variable cost’?

(a) The accountant’s salary (b) Insurance on factory premises (c) The factory manager’s salary (d) Metal used in car production

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15. Management by exception means that:

(a) All variances on a performance report will be investigated (b) Only unfavourable variances on a performance report will be investigated (c) None of the variances on a performance report will be investigated (d) Only material variances on a performance report will be investigated

16. The total cost of a block of chocolate is $3.00 and each block contains 100 grams. What is the price per gram if the budget is to increase it by 8%?

(a) 24 cents (b) 324 cents (c) 3.24 cents (d) 0.324 cents

17. For a manufacturing organisation, total production cost includes:

(a) Direct materials and direct labour only (b) Direct materials, direct labour and factory overhead (c) Direct materials only (d) Finished goods 18. Depreciation of factory equipment would be included in the:

(a) Indirect materials budget (b) Indirect labour budget (c) Factory overhead budget (d) Direct labour budget

19. For cash budgeting purposes, bad debts:

(a) Should be omitted from the cash budget because they will not be collected (b) Should be omitted from the cash budget only if the entity accounts for GST on an accrual basis (c) Should be included in the cash budget only if the entity accounts for GST on a cash basis (d) Should be included in the cash budget because it is included in the budgeted income statement

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20. The budgeted cash flow statement is prepared in accordance with AASB 107 entitled ‘Cash Flow

Statements’ and it states that a budgeted cash flow statement should disclose cash inflows and cash outflows from which three (3) main activities:

(a) Operating, Investing and Financing activities (b) Operating, Investing and Funding activities (c) Operating, Inventorising and Financing activities (d) Opening, Investing and Financing activities 21. * THIS QUESTION IS WORTH TWO (2) MARKS *

You are the Management Accountant of Tiny Teddies Inc. and you are in the process of preparing the budgeted balance sheet for the quarter ending 30 June. You have been provided with the following budgeted figures for the quarter: Accounts Receivable balance as at 1 April = $80,000.

April ($) May ($) June ($) Total ($)

Credit sales 131,250 135,625 140,000 406,875

Cash collected from Accounts bl

119,845 126,290 130,810 376,945

Discount allowed 6,560 6,780 7,000 20,340

Bad debts 5,250 5,425 5,600 16,275

The closing Accounts Receivable balance that you will include on the budgeted balance sheet as at 30

June is: (a) $146,545 (b) $109,930 (c) $86,685 (d) $73,315

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* THE FOLLOWING INFORMATION RELATES TO QUESTIONS 22, 23, 24 AND 25 *

Bob Dyson works at Little People Inc. which is a manufacturing facility that makes toy boxes. For the

purposes of preparing his budgets for the coming year, he has to classify some of the costs incurred by the

business and he needs your help with this task.

22. Work‐related travel expenses incurred by the sales manager should be classified as:

(a) A factory overhead cost (b) A product cost (c) A period cost (d) An indirect cost

23. A very small amount of glue is used in the manufacture of the toy boxes. As such, it would be most accurate to classify the cost of the glue as:

(a) A direct material cost (b) An indirect material cost (c) A period cost (d) An indirect labour cost

24. Cardboard is mainly used in the manufacture of the toy boxes. As such, it would be most accurate to classify the cost of the cardboard as:

(a) A period cost (b) A factory overhead cost (c) An indirect material cost (d) A direct material cost 25. Repairs to factory machinery should be classified as:

(a) A direct labour cost (b) A period cost (c) A direct material cost (d) A product cost

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* THE FOLLOWING INFORMATION RELATES TO QUESTIONS 26, 27 & 28 *

* EACH QUESTION IS WORTH THREE (3) MARKS *

Fish‐O Ltd specialises in manufacturing fish tanks. You have been provided with the following budget‐

related data for the period 1 October to 31 December:

Estimated sales:

Month No. of boxes

October 750

November 820

December 730

January 600

Direct materials:

Fish‐O Ltd uses 1.5 kilograms of heavy duty glass to make each fish tank. This heavy duty glass costs $5.00 per

kilogram.

Direct labour:

Four (4) fish tanks can be made in one (1) hour and production staff are paid $15.00 per hour.

Finished goods inventory:

Management wants each month’s beginning inventory of completed fish tanks (in units) to be equal to 40% of

that month’s sales.

26. According to the production budget, how many fish tanks do production staff need to make for the quarter ending 31 December? To answer this question, you need to prepare a production budget.

(a) 1,440 (b) 1,780 (c) 2,240 (d) 2,360

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27. Based on the numbers of fish tanks that need to be made for the quarter ending 31 December, the direct materials usage budget shows that the total cost of the heavy duty glass required will be:

(a) $16,800 (b) $17,700 (c) $10,800 (d) $13,350

28. Based on the numbers of fish tanks that need to be made for the quarter ending 31 December, the direct labour budget shows that the total labour cost will be:

(a) $5,400 (b) $8,400 (c) $6,675 (d) $8,850

* * * END OF QUESTION 1 – MULTIPLE CHOICE * * *

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The Finance Manager of Daisy Ltd provides you with the following information:

Sales (incl. GST) $ Purchases (incl. GST) $

Actual Actual

October 55,000

November 66,000 November 16,000

December 77,000 December 24,000

Budgeted Budgeted

January 80,000 January 18,000

February 60,000 February 20,000

SALES INFORMATION:

20% of Daisy Ltd’s sales are for cash. The rest are on credit.

All sales include GST.

On average, debtors pay to the following pattern:

* 60% of credit sales are collected in the month of sale and these customers

receive a 5% discount (i.e. M)

* 35% of credit sales are collected in the month after sale and these customers don’t receive any

discount (i.e. M+1)

* 5% are estimated to be uncollectable and the company’s policy is to write these debts off 12 months

after the original transaction date.

PURCHASES INFORMATION:

All purchases are on credit.

All purchases include GST.

On average, all purchases are paid to the following pattern:

* 40% of credit purchases are paid for in the current month for which a 2% discount is received (i.e. M)

* 60% of credit purchases are paid for in the month after purchase (i.e. M+1)

OTHER ADDITIONAL INFORMATION:

Operating expenses are GST inclusive and are paid for in the same month that they are incurred. They

are budgeted at 10% of sales.

Depreciation is included in operating expenses and is $1,000 per month.

Equipment will be paid for on 15 June for $30,000 (including GST).

GST is accounted for on an accruals basis.

The opening cash balance on 1 January is $100,000.

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Required:

Prepare a properly formatted cash budget by month for the months of January and February.

Note: The following two (2) pages have been left blank intentionally for you to do any workings in relation to your cash budget if you want to.

CASH BUDGET WORKINGS

1. Cash collections from customers

Month cash collected

Month of sale $ JANUARY ($) FEBRUARY ($)

December

January

February

Total

Collection pattern:

2. Cash payments to suppliers

Month cash paid

Month of purchase $ JANUARY ($) FEBRUARY ($)

December

January

February

Total

Payment pattern:

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CASH BUDGET WORKINGS (continued)

3. GST workings

GST collected (payable) JANUARY ($) FEBRUARY ($)

Total income subject to GST

GST payable

GST paid (refundable) JANUARY ($) FEBRUARY ($)

Total expenses subject to GST

GST refundable

Net GST payable/(refundable)

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Daisy Ltd Cash budget for January and February

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Jamie Oliver Ltd has provided you with the following information for the month of July:

Sales are expected to be $910,000.

Bad debts are expected to be 2.5% of sales. They are recognised in the month of sale for budgeting

purposes.

Inventory is $50,000 at the start of July. This figure is expected to increase by $25,000 by the end of

the month.

Goods are sold with a 40% mark‐up on cost.

Expenses are expected to be:

* Marketing $12,500,

* Administration $24,000

Required:

Prepare a properly formatted budgeted income statement for the month of July.

* * * NOTE * * *

For COGS, don’t forget to disclose opening inventory, purchases & closing inventory.

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Jamie Oliver Ltd Budgeted income statement for the month of July

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You are the Financial Accountant of Snooze Ltd which manufactures bed frames. You have been provided with

the following information:

INVENTORIES:

Inventory type Actual balance as at 1 May Desired balance as at 31 May

Finished goods 340 completed bed frames valued

at $19,550

520 completed bed frames

Direct materials 210 units of timber valued at

$2,100

180 units of timber

COST OF PRODUCTION:

* Two (2) units of timber are needed to make each bed frame at a cost of $10 per unit.

* 1.5 hours of direct labour are needed to make each bed frame at a cost of $18 per hour.

* Factory overhead is applied to production on the basis of machine hours. Each bed frame requires one (1)

machine hour to complete. The application rate is $10.50 per machine hour.

* Budgeted production for May is 5,080 bed frames.

Required:

Prepare a properly formatted cost of goods sold budget for the month of May.

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WORKINGS

Snooze Ltd

Cost of goods sold budget for the month of May

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Marie Claire Ltd provides you with the following figures as at 30 June:

BUDGET ($000’s) ACTUAL ($000’s)

Current assets 620 560

Non‐current assets 500 655

Current liabilities 220 300

Non‐current liabilities 450 410

Owner’s equity 450 505

Required:

Prepare a properly formatted balance sheet performance report as at 30 June.

(round all variance percentages to 1 decimal place)

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Marie Claire Ltd

Balance sheet performance report as at 30 June

BUDGET

($000’s)

ACTUAL

($000’s)

VARIANCE

($000’s)

VARIANCE

(%)

F or U

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PART A: (7 marks)

Kookaburra Sky Tours is a small sightseeing tour company in Western Australia. The firm specialises in aerial

tours of the region by helicopter. As the Management Accountant of the company, you have been provided

with the following performance report which was prepared by the aircraft operations manager.

Kookaburra Sky Tours

Performance report for the month ended 30 September

Activity level BUDGET ACTUAL VARIANCE F or U

Air km 35,000 32,000 3,000 U

Passenger revenue $122,500 $112,000 $10,500 U

Less: Variable expenses $85,750 $78,500 $7,250 F

Contribution margin $36,750 $33,500 $3,250 U

Less: Fixed costs $23,800 $24,900 $1,100 U

Net profit $12,950 $8,600 $4,350 U

Required:

Based on this information, complete the following flexible budget which discloses the contribution margin

and net profit at the following two (2) activity levels: 32,000 air kilometres and 38,000 air kilometres.

(round all ‘per km’ amounts to the nearest 2 decimal places)

ACTIVITY LEVEL 1: 32,000 air kilometres

ACTIVITY LEVEL 2: 38,000 air kilometres

Total $ $ per km Total $ $ per km

Passenger revenue

Less: Variable costs

Contribution margin

Less: Fixed costs

Net profit

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PART B: (8 marks)

Required:

Using both the information provided in ‘PART A’ and the information that you calculated in ‘PART A’ of this

question, calculate the:

i) static budget variance (based on NET PROFIT)

ii) activity volume variance (based on NET PROFIT)

iii) flexible budget variance (based on NET PROFIT)

for the month of September.

You also need to state whether each variance is a favourable variance or an unfavourable variance.

WORKINGS:

VARIANCES:

Variance Variance ($) U / F

i) static budget variance

ii) activity volume variance

iii) flexible budget variance

Documents

FNSACC503A Budgeting Assessment 2 QUESTION and ANSWER … · Question Number & Topic Marks Allocated Marks Achieved 1: Multiple choice 35 2: Cash budget 20 ... Question Answer Marks