Topic: Budgeting

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  • 8 Marks

ICMA – Nov 2024 – L1 – Q2b – Working Capital

Calculates total amount held in working capital excluding cash and equivalents.

Working Capital Calculation
A company has annual sales revenues of GH¢45 million and the following working capital periods:

Working Capital Item Period (months)
Inventory conversion period 2.5
Accounts receivable collection period 2.0
Accounts payable payment period 1.5

Production costs are 70% of sales revenue.

Required:
Calculate the total amount held in working capital excluding cash and cash equivalents.

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  • 20 Marks

MI – Nov 2020 – L1 – SB – Q1 – Budgeting

Prepare the cash budget for the first three months of the year based on provided sales, expenses, and additional company details.

WXYZ is preparing for the first half of the next year. The following information was available:

a. Sales – 15% of monthly sales are in cash, while the balance is sold on credit. Collections from receivables are 50% in the first month after sales, 30% in the second month, and the balance in the third month after sales.
b. Purchases are usually 55% of sales and paid in the month of purchase.
c. Insurance company is expected to pay the sum of N525,000 in February based on the company’s accidented vehicles.
d. Salary deductions are paid on a preceding-month basis.
e. Company income tax of N475,550 will be paid in March.
f. Cash and cash equivalent balance as at December is N502,760.
g. Bank charges are 1% of total payments for the month.
h. Additional Information:

Month October (N) November (N) December (N) January (N) February (N) March (N)
Sales 750,000 600,000 850,000 520,000 670,000 800,000
Net Salaries 230,000 200,000 250,000 210,000 240,000 270,000
Other Expenses 200,700 187,500 197,500 177,200 187,500 192,700
Salaries Deductions 29,400 28,400 39,400 28,700 32,750 27,650

Required:
Prepare the cash budget for the first three months of the year. (Total 20 Marks)

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  • 15 Marks

PSAF – May 2018 – L2 – Q5 – The Budgeting Process in the Public Sector

Explains the concept of a national budget, surplus and deficit budget implications, and challenges in the implementation of national budgets in Nigeria.

In government’s quest to optimally develop and efficiently manage available resources, national budgets are usually prepared to put economic development firmly on course.

Required:

a. Describe briefly a national budget. (3 Marks)

b. Explain briefly the implication of each of the following for the performance of the economy: i. A surplus budget ii. A deficit budget (4 Marks)

c. Explain FOUR problems to be encountered in the effective implementation of national budgets in Nigeria. (8 Marks)

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  • 13 Marks

PSAF – May 2018 – L2 – Q2 – The Budgeting Process in the Public Sector

Prepare a proposed budget for Imafidon Local Government Authority Happiness and Social Centres for the year ended December 31, 2019.

The Local Development Authorities (LDAs) of Imafidion Council agreed to transfer
their Social Centres for the purpose of adequate maintenance to the state
government‟s Ministry of Happiness. The state government accepted to take over
the centres and therefore requested for their 2019 budget. The following were
supplied by the Social Centres to the government through the Director of Accounts,
Ministry of Happiness.
Actual salaries, wages and overhead expenses (2018)

Other details provided include:

ii. The wages were for 5 employees (known as Happiness Assistants) paid on
hourly basis with maximum of 20 hours per week at N1,260 per hour, plus over
time bonus as follows:

The guideline for the budget has been given as follows:
i. Rent to remain as for last year since the lease would still be running for two
years, but security service providers would charge only N0.6m next year;
ii. No festival would be planned for the following year and as a result there
would be no promotion expenses and grant in the following year;
iii. Though same number of visitors would come to the centre, the rate of
admission fees would go up by 10 percent for the following year;
iv. There would be an increase of 5% on other incomes. The budget for Artifact
for sale would increase by the same proportion as the Sales in the Centre
budget which would increase by 20%;
v. Power/electricity and rates would increase by 8% and 2% respectively while
other supplies would increase by 2.5%;
vi. There would be 2.60% increase in wages, while the National Insurance
contributions would increase to 12% of salaries instead of the current 10%
and pension contribution would be 15% of salaries;
vii. Director of Finance, Ministry of Happiness would not be due for salary
increment but the Social Officer would earn increment of N0.088m;
viii. There would be no overtime payment; and
ix. Service level agreement was fixed at N2.948m.
You are required to prepare a proposed budget for Imafidon Local Government
Authority Happiness and Social Centres for the year ended December 31, 2019 (use
same format as in the Question). (Total 2O Marks)

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  • 20 Marks

MI – Nov 2015 – L1 – SB – Q2 – Budgeting

Compiles functional budgets for sales, production, and material purchases for six months.

ABC Limited is engaged in the production of AiBiCi product and the following data were extracted from the Budget Committee’s Report:

i. Sales is expected to be 20,000 units each in months 1 and 2, this will increase by 10% each in months 3 and 4, and 5% each in months 5 and 6.

ii. Unit selling price is currently estimated at N250, and due to increased awareness, the price will move up to N300 in the fourth month.

iii. To produce one unit of AiBiCi, the following materials are required:

  • 2kgs of A @ N20/kg
  • 5kgs of B @ N5/kg
  • 2kgs of C @ N10/kg

iv. The company keeps 10% of estimated sales as closing inventory for the month. Assume no opening inventory for month 1.

You are required to compile, in tabular form, the following functional budgets for the next 6 months:

a. Sales in quantity and value. (6 Marks)

b. Production in quantity. (6 Marks)

c. Material purchase in quantity and the total cost. (8 Marks)

(Total 20 Marks)

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  • 1 Marks

MI – Nov 2015 – L1 – SA – Q12 – Budgeting

Identifies which option is not considered a functional budget.

he following are functional budgets EXCEPT:
A. Distribution cost budget
B. Production budget
C. Sales budget
D. Material purchase budget
E. Cash budget

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  • 1 Marks

MI – Nov 2015 – L1 – SA – Q1 – Budgeting

Identifies the term for intentionally underestimating revenues or overestimating costs in budgeting.

A situation where budgeted revenues are intentionally under-estimated or budgeted costs are intentionally over-estimated is known as:
A. Participatory budget
B. Surplus budget
C. Budget slack
D. Deficit budget
E. Imposed budget

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  • 20 Marks

MI – May 2018 – L1 – SB – Q2 – Budgeting

Preparation of a cash budget for Orok Trading Company.

Orok Trading Company sells cement bags at N2,000 each. According to projections, it would sell 100 bags each in October, November, and December; and 120 bags per month in the succeeding months.

The company sells on credit, with customers paying 50% in the month following sale, and the balance 30 days later.

Other expected inflows are:

  • Sale of plant, N80,000 in January and N50,000 in February
  • Insurance claim, N50,000 in February
  • Damages from a lawsuit, N60,000 in March

The company purchases its products from a supplier who gives two months’ credit. The company’s cost of sale is 60%.

Projected outflows are:

  • Salaries of N30,000, paid monthly
  • Rent of N25,000, paid monthly
  • Other administrative expenses of N55,000 per month are settled as they arise.
  • Income tax of N25,000 payable in January
  • New asset, N40,000 to be purchased in January

The bank balance on December 31 is N235,000 negative.

You are required to:

  • Prepare a monthly Cash Budget for January to March. Show all workings.

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  • 1 Marks

MI – May 2018 – L1 – SA – Q12 – Budgeting

Understanding the purpose of cash budgeting.

Which of the following is NOT a purpose of cash budgeting?
A. To ensure availability of working capital throughout the period concerned
B. To determine the timing of cash inflows and outflows in advance
C. To plan on investing surplus cash whenever it arises
D. To plan against likely cash deficits during the budget period
E. To reduce cost of operation

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  • 1 Marks

MI – May 2018 – L1 – SA – Q10 – Budgeting

Distinguishing between a budget and a forecast.

What is the difference between a budget and a forecast?
A. They mean the same and they are used interchangeably
B. A budget is for internal use while a forecast is for external use
C. A budget is qualitative while a forecast is quantitative
D. A budget is a plan whereas a forecast is the actual
E. A budget is a plan of where a business wants to go while a forecast is the indication of where it is actually going

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  • 20 Marks

MI – Nov 2014 – L1 – SB – Q1 – Budgeting

This question focuses on defining working capital, explaining the working capital cycle, and calculating it based on given data.

a. Working capital is generally understood to mean the difference between current assets and current liabilities. Explain the term working capital cycle. (2 Marks)
b. List FIVE factors that determine the working capital requirements of a firm. (5 Marks)
c. GLORY Limited has provided you with the following data regarding next year’s budget that has just been presented to the board by the financial controller of the company:

Budgeted Average Amount Outstanding N
Inventory: Raw materials 480,000
Work-in-Progress 360,000
Finished goods 244,800
Receivables 600,600
Payables (422,400)
Budgeted Average Working Capital 1,263,000

The following are available daily averages:

Daily Averages N
Revenue 9,240
Cost of Sales 7,200
Purchases of raw materials 3,840

You are required to compute the working capital cycle based on the above figures. (13 Marks)

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  • 1 Marks

MI – Nov 2021 – L1 – SA – Q6 – Budgeting

Identify the incorrect purpose of budgeting.

Which of the following is NOT a purpose of budgeting?

A. To coordinate the actions of all the different parts of the organization
B. To communicate the company plans to individuals
C. To motivate managers and employees
D. To ensure that planning is linked to the long-term objectives
E. To convert short-term plans into more detailed long-term plans

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  • 20 Marks

MI – May 2021 – L1 – SB – Q4 – Budgeting

Prepare a monthly cash budget for Wareroom Trading Limited for the first three months of 2020.

From the information below, prepare a monthly cash budget for Wareroom Trading Limited for the first three months of 2020 using a columnar format.

NOV 2019 DEC 2019 JAN 2020 FEB 2020 MAR 2020
Sales 850,000 950,000 720,000 750,000 780,000
Purchases 360,000 360,000 300,000 400,000 350,000
  1. All sales are on credit, collectable 50% in 30 days, 25% in 60 days, 20% in 90 days and balance regarded as bad debts.
  2. All purchases are also on credit, payable 40% in 30 days and 30% each in 60 and 90 days respectively.
  3. A new generator costing N455,000 will be acquired in February under a 30-day credit agreement.
  4. An old car will be sold for N50,000 cash in February.
  5. Monthly salaries are N80,000 payable as and when due.
  6. Commission on sales are 5% payable to sales agents 2 months in arrears.
  7. Company income tax of N235,000 is due and payable in January.
  8. An investment is expected to bring in N60,000 gross in February, subject to 10% withholding tax.
  9. The staff Christmas party in December is expected to cost the company a total of N90,000, though 60% of the expenses will be settled the following month.
  10. Assume an overdraft of N283,000 on 31 December 2019.

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  • 1 Marks

MI – Nov 2014 – L1 – SA – Q3 – Budgeting

Identify the budgeting approach involving all departmental managers.

Where there is active involvement of all departmental managers in the budgeting process, the budgeting approach is known as:

A. Bottom-up budgeting approach
B. Continuous budgeting approach
C. Feedback budgeting approach
D. Top-down budgeting approach
E. Activity-based budgeting approach

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  • 1 Marks

MI – May 2021 – L1 – SA – Q10 – Budgeting

Calculate the material purchase budget based on given production and inventory details.

XYZ Company has the following budget for the coming year:

Details Amount
Production 144,000 units
Sales 140,000 units
Materials
Usage per unit 4 kg
Opening inventory 8,000 kg
Closing inventory 10,000 kg

The material purchase budget is:

A. 578,000kg
B. 574,000kg
C. 568,000kg
D. 562,000kg
E. 558,000kg

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  • 1 Marks

MI – May 2023 – L1 – SA – Q3 – Budgeting

This question asks for the name of the budgeting method that analyses activities thoroughly to predict costs.

A budgeting method where activities are analysed thoroughly to predict costs is known as:
A. Cost based budgeting
B. Production based budgeting
C. Market focussed budgeting
D. Activity based budgeting
E. Raw materials based budgeting

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  • 1 Marks

MI – Nov 2019 – L1 – SA – Q11 – Budgeting

This question asks to calculate the quantity to be produced based on expected sales and opening/closing inventory.

If the expected sales is 360,000 units and the opening inventory is 40,000 units while the closing inventory is anticipated to be one third of sales units, what is the quantity to be produced for a given period?
A. 480,000 units
B. 440,000 units
C. 400,000 units
D. 360,000 units
E. 220,000 units

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  • 3 Marks

MI – May 2017 – L1 – SA – Q12 – Budgeting

Identify the component that is not part of working capital.

Which of the following is NOT part of the component of working capital?
A. Stock of raw material
B. Stock of finished goods
C. Debenture
D. Receivables
E. Payables

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  • 1 Marks

MI – Mar-Jul 2020 – L1 – SA – Q7 – Budgeting

Calculate the sales collection in Month 4 based on given purchasing and collection pattern.

MNO is a retailer of various domestic goods, selling all purchases in the same month, therefore not keeping any stock. The company’s policy is to sell at a margin of 9.091% and collection of sales proceeds is 50% in the month of sales, 30% the month after, and the balance in the 3rd month. Purchases for the past four months are as follows:

Month Amount (N)
1 65,000,000
2 72,000,000
3 60,000,000
4 80,000,000

What is the sales collection in Month 4?

A. N64,000,000
B. N70,400,000
C. N72,000,000
D. N78,793,459
E. N79,200,000

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  • 5 Marks

MI – May 2016 – L1 – SB – Q2a – Budgeting

Discuss the need to justify each decision package in zero-based budgeting.

“Under Zero-Based Budgeting, a budget decision must be made before including any decision package in the budget”. State what factors you would consider in including a decision-package in a zero-based budget.

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