Topic: Budgetary control

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MA – Nov 2024 – L2 – Q2a – Budgetary Control

Preparation of a budgeted profit and loss account for Ankawa LTD for the year ending 31 December 2025.

Question

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:
- Quarters 1 and 2: 25%
- Quarters 3 and 4: 35%
Closing inventory of raw materials is budgeted to fall by 600kg at the end of each quarter.

iii) Product Dee unit data:

Material: 8kg at GH¢1.60 per kg
Direct labour: 1.2 hours at GH¢3.50 per hour

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

Property is depreciated on a straight-line basis at 5% per annum based on total cost.
Value of property as at 31 December 2024: GH¢100,000.

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.

Answer

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Tags: Budgeting, Costing, Financial planning, Forecasting, Profit and Loss
Level: Level 2

Topic: Budgetary control
Series: Nov 2024

MA – Mar 2023 – L2 – Q3b – Budgeting

Prepare a budgeted income statement for AJ Ltd based on given projections and assumptions for 2023.

Question

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.

Answer

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Tags: Budgeted Income Statement, Budgeting, Cost Projections, Sales Projections

Topic: Budgetary control, Master Budget
Series: MAR 2023

MA – Mar 2023 – L2 – Q4b – Budgetary Control

Define budgetary control and its purpose in business operations.

Question

i) Explain budgetary control. (2 marks)

ii) Recommend TWO (2) ways by which budgetary control can help to provide information to ensure operational continuity. (3 marks)

Answer

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Tags: Budgetary Control, Financial planning, Management

Topic: Budgetary control
Series: MAR 2023

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 – Aug 2022 – L2 – Q3b – Budgetary control

This question focuses on explaining how a rolling budget works and calculating a revised budget for Baya Ltd.

Question

The Finance Manager of Baya Ltd has been criticised for using an incremental budget method in preparing the company’s budget. She, however, needs to respond to the issues raised at a board meeting and as a result, she is considering using different budgeting methods for the year-end 31 December 2022. She has asked you, the Management Accountant, to do some preliminary work to help her decide on which of the methods to use. She believes a rolling budget would be ideal for the fast-growing Baya Ltd in a relatively high inflationary country.

Baya Ltd’s incremental budget for the year-end 31 December 2022 is given below:

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Revenue (GH¢’000)	17,520	17,958	18,407	18,867	72,752
Cost of sales	9,636	9,877	10,124	10,377	40,014
Gross profit	7,884	8,081	8,283	8,490	32,738
Distribution costs	(1,577)	(1,616)	(1,657)	(1,698)	(6,548)
Administration	(4,214)	(4,214)	(4,214)	(4,214)	(16,856)
Operating profit	2,093	2,251	2,412	2,578	9,334

The actual figures for quarter 1 (which has just been completed) are:

On the basis of the quarter 1 results, sales volume growth of 3% per quarter is now expected.

Required:
i) Explain how Baya Ltd will operate a rolling budget.
(2 marks)

ii) Recalculate the quarterly rolling budget for Baya Ltd for the last three quarters of the year 2022 and the first quarter of 2023.
(8 marks)

Answer

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Tags: Budgetary Control, Incremental Budgeting, Rolling Budget
Level: Level 2

Topic: Budgetary control
Series: AUG 2022

MA – Aug 2022 – L2 – Q2b – Budgetary control

This question asks for the similarities and differences between a budget and a standard in financial control.

Question

Budgets and standards are very similar and interrelated, but there are notable differences between them.

Required:
Explain TWO (2) similarities and TWO (2) differences between a budget and a standard.

Answer

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Tags: Budgeting, Financial Control, Forecasting, Standard Costing
Level: Level 2

Topic: Budgetary control
Series: AUG 2022

MA – Mar 2024 – L2 – Q2a – Budgetary Control

This question involves preparing sales budgets for gasoline and diesel and a production budget based on crude oil requirements for the first three months.

Question

Squash Refinery has planned the following monthly sales for the first four months in the year:

Months	1	2	3	4
Gasoline (litres)	140,000	200,000	220,000	250,000
Diesel (litres)	100,000	130,000	180,000	210,000

The proposed ex-refinery prices are GH¢12.5 and GH¢10.8 per litre for gasoline and diesel respectively.

One metric tonne of crude oil when processed can yield 2,000 litres of gasoline and 2,500 litres of diesel. The inventory policy of the company is as follows:

Closing inventory at the end of each month: Twice the monthly sales for gasoline and 150% of the monthly sales for diesel.
Opening inventory: Gasoline – 200,000 litres, Diesel – 180,000 litres, and Crude – 140 metric tonnes.

Note: The purchase of crude is based on the production requirement for gasoline.

Required:
i) Prepare the sales budget for gasoline and diesel for the first three months. (3 marks)
ii) Calculate the quantity of crude oil to be purchased for the first three months. (12 marks)

Answer

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Tags: Crude Oil, Diesel, Gasoline, Inventory Management, Production Budget, Sales Budget
Level: Level 2

Topic: Budgetary control
Series: MAR 2024

MA – Dec 2023 – L2 – Q4b – Budgetary control

This question explains programme-based budgeting and outlines the disadvantages of line-item budgeting.

Question

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)

Answer

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Tags: Budget Management, Budgeting, Line-Item Budgeting, Programme-Based Budgeting
Level: Level 2

Topic: Budgetary control
Series: DEC 2023

MA – Dec 2023 – L2 – Q3b – Budgetary control

This question requires the preparation of a budget for the supply of rice and beans needed to feed students at Ghanaman SHS for two semesters.

Question

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:

Rice: 40 bags of 50kg
Beans: 10 bags of 50kg

ii) Inventory policy (Closing inventory):

Rice: 20% of the annual requirement
Beans: 15% of the annual requirement

Required:
Prepare the budget for the supply of both rice and beans needed to feed students for the two semesters of the year 2023.

Answer

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Tags: Budgeting, Food Supply, Inventory Policy, Residential School
Level: Level 2

Topic: Budgetary control
Series: DEC 2023

MA – May 2018 – L2 – Q2b – Budgetary Control

Explain and provide examples of Activity Based Budgeting, Zero Based Budgeting, and Rolling Budgeting in a memorandum format.

Question

The Sales Director has recently attended a course entitled ‘Finance for Non-Accounting Managers’. He wants to understand more about a number of management accounting terms that he feels may be relevant to him.

Required:
Prepare a memorandum explaining and providing examples of the following:
i) Activity Based Budgeting
ii) Zero Based Budgeting
iii) Rolling Budgeting

Answer

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Tags: Activity Based Budgeting, Budgeting Methods, Finance for Non-Accounting Managers, Rolling Budgeting, Zero-Based Budgeting
Level: Level 2

Topic: Budgetary control
Series: MAY 2018

MA – May 2017 – L2 – Q2b – Budgetary control, Cash budgets and master budgets

Prepare the production and labour budgets for a manufacturing company for the first quarter of 2016.

Question

Diminutive Limited is a manufacturing company situated at the Jubilee field that produces chemicals for oil production. The company is preparing its budget for the coming year. It expects to be able to sell 10,000 tonnes of its only product, the “Sparkle Oil,” in January 2016. Sales are then expected to rise to 11,000 tonnes in February and 14,000 tonnes in March and then remain stable for the rest of the year.

Diminutive Limited aims to carry a finished goods inventory at the end of each month equal to 10% of the following month’s sales. Each “Sparkle Oil” takes 2 hours of labour to make. Diminutive Limited’s 132 production workers are employed on contracts that require them to work a minimum of 160 hours per month and are each paid GH¢1,280 per month. Production workers are highly skilled and require a minimum of one year’s training. In the short term, it is not possible to recruit any more production workers. Any labour hours required in excess of 160 hours per worker are made up by overtime that is paid at the basic rate plus an overtime premium of 48% of the basic rate.

Required:

i) Prepare the production budget on a monthly basis for the first quarter of 2016. (3 marks)

ii) Prepare the labour budget for the first quarter of 2016 showing both hours and labour cost (assume that all production workers work at least 160 hours per month). (6 marks)

Answer

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Tags: Budget Preparation, Cost Estimation, Labour budget, Overtime calculation, Production Budget
Level: Level 2

Topic: Budgetary control, Cash Budgets and Master Budgets
Series: MAY 2018

MA – Nov 2015 – L2 – Q2 – Budgetary control

Prepare budgeted income statement, statement of financial position, and cash budget for Brofre Limited for the first quarter.

Question

Brofre Limited retails fertilizer to farmers in Ghana. The company has approached its bankers to provide funding for next year’s operations, and a three-month master budget has been requested for review by the bankers.

You have been approached by the management as a consultant to prepare the 1st quarter budget for the banker’s consideration for its next year’s operations.

End of Accounting year December 2014:

Item	GHS
Debtors	23,000
Bank balance	55,000
Fixed asset at cost	698,000
Provision for depreciation	98,000
Creditors Balance	48,000
Operating expenses (Dec)	60,000
Sales (Dec)	400,000
December Ending Inventory	20,000
Retained earnings	120,000

Additional information provided:

Depreciation is provided at the rate of 5% on the cost of non-current assets.
Closing inventory is expected to increase by GHS 2,000 in January from December levels. This is expected to increase by the same figure in February from the projected figure in January. It is expected that in March, closing inventory is desired to be GHS 26,000.
The company makes a profit of 25% on its sales.
Operating expenses are expected to increase by 10% from that of December and this is projected to increase at the same growth rate until March.
Sales are projected to grow by 15% from December until March.
The Debtors figure is desired to be proportional to the sales values.
Creditors value for the three months is expected to be as follows: January – GHS 50,000; February – GHS 46,000; March – GHS 52,000.

You are required as a consultant for Brofre Limited to prepare for their bankers:

a) The budgeted income statement for the three months. (7 marks)
b) The budgeted statement of financial position for the three months. (7 marks)
c) The cash budget for the three months. (6 marks)
(Total = 20 marks)

Answer

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Tags: Budgeting, Cash Budget, Financial Position, Income Statement
Level: Level 2

Topic: Budgetary control
Series: NOV 2015

MA – May 2016 – L2 – Q1a – Budgetary Control, Cash Budgets and Master Budgets

Discuss differences and benefits of budgeting models and the advantages of cash budget as a control tool.

Question

Your newly appointed Managing Director is preparing to deliver a paper on the need to keep budgets clean and use it as a model of change in the organization. As the Management Accountant of your organization, briefly explain to him:

i) FOUR differences between Zero-Based and Activity-Based Budgeting. (4 marks)

ii) FOUR benefits of Activity-Based Budgeting. (4 marks)

iii) FOUR advantages of using a cash budget as a management control tool. (4 marks)

Answer

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Level: Level 2

Topic: Budgetary control, Cash Budgets and Master Budgets
Series: MAY 2016

MA – Nov 2016 – L2 – Q5b – Budgetary control

Identify and explain reasons for the unsuccessful implementation of budgetary control systems in organizations.

Question

Budgetary control is one of the important tools used by management, yet most organizations are unable to derive its full benefits.

Required:
Identify and explain FOUR reasons that may account for the unsuccessful implementation of a budgetary control system.

(8 marks)

Answer

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Tags: Budgetary Control, Implementation Challenges, Management practices
Level: Level 2

Topic: Budgetary control
Series: NOV 2016

MA – Nov 2016 – L2 – Q3c – Budgetary control, Performance analysis

Explain the controllability principle and budgetary slack in the context of responsibility accounting.

Question

Explain the following concepts and describe their application in responsibility accounting:

i) The controllability principle (2.5 marks)

ii) Budgetary slacks (2.5 marks)

Answer

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Tags: Budgetary Slack, Controllability Principle, Performance Measurement, Responsibility Accounting
Level: Level 2

Topic: Budgetary control, Performance analysis
Series: NOV 2016

MA – Nov 2016 – L2 – Q2b – Budgetary control

Identify the benefits of using product life cycle costing in cost management.

Question

Most products go through five stages in their life namely, Development, Introduction, Growth, Maturity, and Decline. These stages have helped in the design of marketing strategies, and it is now believed that it can be equally useful for accountants in the determination of the cost of products.

Required:
Identify FIVE benefits of product life cycle costing. (5 marks)

Answer

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Tags: Cost Management, Product Development, Product Life Cycle Costing, Strategic Planning
Level: Level 2

Topic: Budgetary control
Series: NOV 2016

MA – Nov 2016 – L2 – Q2a – Budgetary control

Calculate the overhead absorption rates and determine the total costs and selling price of a specific job in a manufacturing company.

Question

Smooth Sailing Ltd is a medium-sized company that specializes in the construction of iron gates for clients. It has three production departments through which all jobs are processed: Assembling, Welding, and Finishing. The following data relates to the year ended 30 September 2015:

Budgeted Data:

	Assembling	Welding	Finishing
Overheads (GH¢)	64,050	108,900	83,520
Direct labour hours	–	–	14,400
Machine hours	5,250	6,600	–

Job CA2 was undertaken during the last month of the year recording the following:

Direct materials:

From stores: GH¢16,500
Bought-in: GH¢12,600

Direct labour:

Assembling: 450 hours @ GH¢8/hr
Welding: 535 hours @ GH¢8/hr
Finishing: 1,235 hours @ GH¢6/hr

Machine hours:

Assembling: 425
Welding: 532
Finishing: –

Trials and testing cost of GH¢5,400 is incurred on each job.

It is company policy to make a mark-up of 50% of profit on each job.

Required:

i) Calculate an appropriate overhead absorption rate for each department for the year ended 30 September 2015. (5 marks)

ii) Determine the total costs, and hence, the price of Job CA2. (10 marks)

Answer

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Tags: Cost Calculation, Job Costing, Labour Hours, Machine Hours, Overhead Absorption Rate, Pricing
Level: Level 2