Cost Accounting Questions
Questions on Principal Budget Factor
QUESTION ONE
From the following statements, prepare a month-by-month cash budget for the six months to 31 December.
- Revenue budget (i.e. trading profit and loss account).
Six months to 31 Dec (all revenue/costs accrue evenly over the six months.
| Shs ‘000’ | Shs ‘000’ | ||
| Sales (Cash received/month in arrears) | 1,200 | ||
| Cost of sales: | |||
| Paid one month in arrears | 900 | ||
| Paid in one month of purchase | 144 | ||
| Depreciation | 72 | 1116 | |
| Budgeted profit | . | 84 | |
| (b) Capital Budget | Shs ‘000’ | ||
| Payments for new plant | |||
| July | 12 | ||
| August | 25 | ||
| September | 13 | ||
| November | 50 | ||
| 100 | |||
| Increase in stocks payable in August | 20 | ||
| 120 | |||
| Receipts – New issue of Share Capital (October ) | 30 | ||
| Shs ‘000’ | Shs ‘000’ | ||
| (c) Balance sheet | Actual/July Shs ‘000’ | ||
| Assets Fixed Assets | 720 | ||
| Stocks | 100 | ||
| Debtors | 210 | ||
| Cash | 40 | ||
| 1070 | |||
| Liabilities | |||
| Capital and reserve | 856 | ||
| Taxation (payable December) | 30 | ||
| Creditors – Trade | 160 | ||
| Dividends (Payable August) | 24 | ||
| 107 | |||
QUESTION TWO
S. Ltd Manufactures three products A. C and E in two production departments F and 6 each of which employs to grades of labour. The following data are available
| Total | A (Units) | C (Units) | E (Units) | |
| Finished stocks | ||||
| Budgeted stocks are as follows. | ||||
| 1 January, Year 2 | 720 | 540 | 1800 | |
| 31 December, Year 2 | 600 | 570 | 1000 | |
| All stocks are valued at expected cost @ unit | Shs24 | Shs15 | Shs20 | |
| Expected Profit | ||||
| Calculated as % of S.P | 20% | 25% | 16% | |
| Shs ‘000” | Shs ‘000” | Shs ‘000” | Shs ‘000” | |
| Budgeted sales South | 6600 | 1200 | 1800 | 3600 |
| Midlands | 5100 | 1500 | 1200 | 2400 |
| North | 6380 | 1500 | 800 | 4080 |
| 18080 | 4200 | 3800 | 10080 | |
| Normal loss in production | 10% | 20% | 5% |
Expected labour times per unit and expected rates/hr.
| Rate Shs | Hrs/Unit | Hrs/Unit | Hrs/Unit | |
| Department F Grade 1 | 1.80 | 1.0 | 1.50 | 0.50 |
| Grade 2 | 1.60 | 1.25 | 1.00 | 0.75 |
| Department 6 Grade 1 | 2.0 | 1.50 | 0.50 | 0.50 |
| Grade 2 | 2.00 | 1.50 | 0.50 | 0.50 |
| 1.80 | 1.00 | 0.75 | 1.75 |
Prepare the production budget is units for products A, C and E.
Prepare the direct wages budget wages budget for department F and with the labour costs of products A, C and E and totals shown separately.
QUESTION THREE
- Give sound reasons why it is necessary for a business concern to prepare budgets.
- A whole selling company had the following data for the month of November 1997.
| Stocks | 1 November 1997 | 1300 units |
| Sh | ||
| Cash balance | 1 November 1997 | 700,000 |
| Expected credit sales | 4,860,000 | |
| Expected cash receipts | 1,960,000 | |
| Minimum cash balance | 30 Nov 1997 | Sh. 100,000 |
| Stocks balance | 30 Nov 1997 | 1700 units |
| Expected sales | 10,000 units | |
| Expected collection from customers | Sh. 47,000,000 | |
| Expected cash disbursement | Sh. 1,740,000 |
Required:
- Budgeted purchases
- Budgeted debtors
- Cash budgets
QUESTION FOUR
Stop over industries ltd, a recently incorporated company plans to go into production next year. The following standard cost matrix has been assembled for one of the products it proposes to manufacture.
| Cost per unit | ||
| Shs. | Shs. | |
| Direct materials | 18.00 | |
| Direct labour | 10.00 | |
| Variable factory overhead | 8.00 | |
| Salaries | 6.00 | |
| Rent | 5.00 | |
| Depreciation | 3.00 | 4.00 |
| Total standard cost | 50.0 | |
The following recent information is available.
- The company anticipates to manufacture and sell 198,00 units in the 2000 financial year.
- Sales in the second and fourth quarters of the year are expected to be twice those of the first and third quarters.
- Direct materials are ordered and paid for a month in advance.
- 20% of the company sales are in cash. 60% of the credit sales are collected in the month following the month of sale and the balance the following month.
- Expenses are settled in arrears at month end.
- Overdraft facilities have been agreed at 30% p.q and the company’s bank balance at 31 December 19x9 is expected to be Sh. 50,000.
- The product is expected to retail at Sh. 80@ unit.
Required
- Budgeted profit and loss for the first quarter.
- Sales collection and schedule for the months of January, February and March 2000.
- Cash flow for the months of January, February and March 1999.
QUESTION FIVE
Budgets are plans expressed in financial and/or quantitative terms for a specified period of time in the future in setting up a budgetary control system.
- Describe what is the principal budget factor.
- Essentials of effective budgetary control system
