- 30 Marks
Question
The University of Okoko Consultancy Unit (Uniko Consult) provides training courses for staff, public and private individuals. The consultancy unit is currently collating information for its budget for the six months ending December 31, 2021. The following information is available:
(i) Provisional bookings for courses
| July | Aug. | Sept. | Oct. | Nov. | Dec. | |
|---|---|---|---|---|---|---|
| Number of courses | 0 | 2 | 4 | 3 | 4 | 4 |
| Average number of attendees per course | 0 | 16 | 8 | 16 | 8 | 12 |
No courses are run during the month of July. Uniko Consult requires intending participants to confirm their attendance in the week prior to the course, giving their credit card number (first and last 4 digits) as a guarantee. On average, 75% of provisional bookings are confirmed and therefore result in fee payment.
(ii) Course prices Each course lasts for three days, running from Friday to Sunday and the fee for each course is N120,000 per attendee. All courses have to be paid for in full on the first day of the course. Any returning participant will be given a 25% discount on the fee. One in three of confirmed bookings is from a returning participant.
(iii) Personnel costs Experienced team of Professors led by Emeritus Professor Omopinleola deliver Uniko Consult‟s courses. He is not a member of staff at Uniko Consult, but rather an outsourced facilitator. Emeritus Professor Omopinleola charges Uniko Consult N300,000 for each course and is supported by his assistant, Dr. Chukwuma. Emeritus Professor Omopinleola pays his assistant a wage of N50,000 per course. Uniko Consult has several part-time support staff. Wages costs for July are only N100,000 per month, but every month thereafter amounts to N400,000. However, the Consult is planning to increase wages by 5% from September. All staff are paid at the end of each month.
(iv) Property costs The University owns a researchers’ lodge, which includes an office, a large kitchen and two conference rooms. Uniko Consult rents the Researchers‟ Lodge at a rental cost of N2,400,000 per annum, with rents being paid quarterly in advance on March 31, June 30, September 30 and December 31. However, the Consultancy Unit has just received a notice from the Bursar of the University, stating that, with effect from December 31, 2021, annual rental payments will increase by 5%.
(v) Food costs (Tea break and lunch) All food items purchased by the Researchers’ Lodge is organic and delivered weekly by Uniko Farms. On the 5th day of each month, Uniko Consult pays the bill for the previous month’s food deliveries. However, in December, Uniko Consult is also required to settle its bill for December’s food requirements due to the two-week holiday taken by Uniko Farm in January. In recent months, the cost for food on each training course has been N5,000 per attendee. However, due to lower availability of organic produce, inflation of 2% per month is expected to occur from September onwards. Food costs for June 2021 are expected to be N110,000.
(vi) General overheads The running cost of Uniko Consult is N835,000 per annum, paid in ten equal instalments from April to January each year. The consult’s fuel cost of N420,000 per annum is paid through equal monthly direct debits. However, it has just come to the fuel supplier‟s attention that the direct debits from January to April failed, due to systems error. Therefore, the direct debit payment for July will include these outstandings.
(vii) Capital expenditure Uniko Consult needs to replace its three air conditioners in one of the conference rooms by August. The price is N180,000 each but Uniko Consult’s Managing Director is confident that he can obtain a 10% discount on this price. The supplier is also allowing Uniko Consult to pay for the air conditioners in two instalments – one in August and the other in October.
(viii) Bank account
The balance on the consultancy’s bank account is expected to be zero on June 30, 2021; it currently has a sufficient overdraft facility to cover any cash deficit arising.
(ix) Remittances The Consultancy Unit is expected to remit 50% of its cash balance to the University’s account on half-yearly basis.
Required:
a. Prepare a cash budget for each of the six months period ending December 31, 2021. Note: All workings should be rounded to the nearest N000 (20 Marks)
b. Enumerate the steps involved in Planning, Programming and Budgeting System (PPBS).
(7 Marks)
c. State and explain THREE characteristics of performance budgeting system.
(3 Marks)
Answer
a. The University of Okoko Consultancy Unit Cash budget for the six months period ended December 31, 2021.
| July | Aug | Sept | Oct | Nov. | Dec | |
|---|---|---|---|---|---|---|
| N„000 | N„000 | N„000 | N„000 | N„000 | N„000 | |
| Cash inflows (Wk.i – iii) | ||||||
| Course fees: | ||||||
| – New attendees | – | 1,920 | 1,920 | 2,880 | 1,920 | 2,880 |
| – Returning attendees | – | 720 | 720 | 1,080 | 720 | 1,080 |
| Total cash inflows (A) | – | 2,640 | 2,640 | 3,960 | 2,640 | 3,960 |
| Cash out flows | ||||||
| Tutor costs (Wk.iv) | – | 600 | 1,200 | 900 | 1,200 | 1,200 |
| Staff costs (Wk.v) | 100 | 400 | 420 | 420 | 420 | 420 |
| Property costs (Wk.vi) | 600 | 630 | ||||
| Food costs (W VII) | 110 | – | 120 | 122.4 | 187.2 | 321.6 |
| General overheads (Wk. viii) | 258.5 | 118.5 | 118.5 | 118.5 | 118.5 | 118.5 |
| Capital expenditure (Wk. ix) | 243 | 243 | ||||
| Total cash outflows (B) | 468.5 | 1,361.5 | 2458.5 | 1,803.9 | 1,925.7 | 2,690.1 |
| Net cash flows (A-B) | (468.5) | 1,278.5 | 181.5 | 2,156.1 | 714.3 | 1,269.9 |
| Cash b/f | – | (468.5) | 810 | 991.5 | 3,147.6 | 3,861.9 |
| Cash balance before remittance | (468.5) | 810 | 991.5 | 3.147.6 | 3,861.9 | 5,131.8 |
| Remittance (Wk. x) | – | – | – | – | – | (2,565.9) |
| Cash c/f | (468.5) | 810 | 991.5 | 3.147.6 | 3,861.9 | 2,565.9 |
Working notes:
i) Budgeted attendees
| July | Aug | Sept | Oct | Nov | Dec | |
|---|---|---|---|---|---|---|
| Number of courses (A) | – | 2 | 4 | 3 | 4 | 4 |
| Provisional attendees(B) | – | 16 | 8 | 16 | 8 | 12 |
| Budgeted confirmed attendees per course (C) | – | 12 | 6 | 12 | 6 | 9 |
| Budgeted total attendees per month (A multiply by C) | – | 24 | 24 | 36 | 24 | 36 |
ii) Budgeted fees from fully paid attendees
| July | Aug | Sept | Oct | Nov. | Dec | |
|---|---|---|---|---|---|---|
| N„000 | N„000 | N„000 | N„000 | N„000 | N„000 | |
| Standard fees (A) | – | 120 | 120 | 120 | 120 | 120 |
| No. of attendees for month paying standard fee (2/3 budgeted of total attendees per month) (B) | – | 16 | 16 | 24 | 16 | 24 |
| Total fully paid fees (A X B) | – | 1,920 | 1,920 | 2,880 | 1,920 | 2,880 |
iii) Budgeted fees from returning attendees
| July | Aug | Sept | Oct | Nov. | Dec | |
|---|---|---|---|---|---|---|
| N„000 | N„000 | N„000 | N„000 | N„000 | N„000 | |
| Standard fees (A) | – | 90 | 90 | 90 | 90 | 90 |
| No. of attendees for month paying standard fee (1/3 of budgeted total attendees per month) (B) | – | 8 | 8 | 12 | 8 | 12 |
| Total fully paid fees (A X B) | – | 720 | 720 | 1,080 | 720 | 1,080 |
iv) Total tutor costs
| July | Aug | Sept | Oct | Nov. | Dec | |
|---|---|---|---|---|---|---|
| No. of courses (A) | – | 2 | 4 | 3 | 4 | 4 |
| Cost per course (N„000) (B) | – | 300 | 300 | 300 | 300 | 300 |
| Total cost per month (N„000) (A X B) | – | 600 | 1,200 | 900 | 1,200 | 1,200 |
Note: Cost of assistant paid by Emeritus Professor Omopinleola is irrelevant because he pays his assistant directly from his own course fee.
v) Staff costs
| July | Aug | Sept | Oct | Nov. | Dec | |
|---|---|---|---|---|---|---|
| N„000 | N„000 | N„000 | N„000 | N„000 | N„000 | |
| Increase in wages by 5% from September | 100 | 400 | 420 | 420 | 420 | 420 |
vi) Rental payments Current quarterly payments = N2,400,000/4 = N600,000 per annum. Annual rental payment from December = N2,400,000 x 1·05 = N2,520,000. Therefore, quarterly rent is N2,520,000/4 = N630,000
vii) Food costs (Tea break and lunch)
| July | Aug | Sept | Oct | Nov. | Dec | |
|---|---|---|---|---|---|---|
| Budgeted attendees (Wk.i) (A) | – | 24 | 24 | 36 | 24 | 36 |
| Food cost per head (N‟000} (B) | – | 5 | 5.1 | 5.2 | 5.3 | 5.4 |
| Total food cost per month (N„000) (A X B) | – | 120 | 122.4 | 187.2 | 127.2 | 194.4 |
viii) General overheads Business rates = N835,000/10 = N 83,500 per month. Fuel = N420,000/12 = N35,000 per month. Therefore, in July fuel cost = N35,000 + (4 x N 35,000) = N175,000. Total = N258,500 for July and N118,500 for each month of August to December.
ix) Capital expenditure Total cost = 3 X (180,000 x 90%) = N486,000 Therefore amount payable in August and October = N486,000/2 = N243,000
x) Remittance
| N | |
|---|---|
| Balance b/f as at December 31, 2024 | 3,861,900.00 |
| December net cash flows | 1,2690,100.00 |
| Total | 5,131,800.00 |
| Payable in December (N5,131,800/2) | 2,565,900.00 |
b. Steps in Planning, Programming and Budgeting Systems (PPBS)
Steps in PPBS are as follows:
(i) Identification and enumeration of goals and objectives of the organisation;
(ii) Defining the total system in detail, including objectives, environment, available resources, the programmes and their objectives, etc;
(iii) Planning and analysis involve continuous process of developing, comparing and analysing alternative programmes, so as to evolve the most appropriate package for the organisation;
(iv) Development of the appropriate measures of performance for the programmes of the organisation;
(v) The agreed package of “programmes” complete with resource requirements and expected results are expressed in the form of “programmed budgets”;
(vi) In reporting and controlling; planning, programming and budgeting system requires sophisticated information service, which is able to monitor the progress made towards meeting the organisational objectives. Performance evaluation, therefore, emphasises the attainment or non-attainment of the desired objectives, rather than the amount spent, which is the focus in traditional budgeting system; and
(vii) The budgeting system requires development in each year, of a multi- year programme and financial plan.
c. Characteristics of performance budgeting systems The characteristics of performance budgeting are as follows:
(i) Classification of budgets in terms of functions and activities;
(ii) Measurement of budgets in terms of functions and activities;
(iii) Measurement of work done or output provided by each activity;
(iv) Expression of the budget in a way which allows direct comparison between a project’s cost and the anticipated income or benefit; an
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