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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  • 1 Marks

MI – May 2016 – L1 – SA – Q12 – Budgeting

Identify the term used for the intentional overestimation of expenses or underestimation of revenue in a budget.

The intentional overestimation of expenses and/or underestimation of revenue in a budget is the definition of:

A. Budget slack
B. Sub-optimization
C. Budget targets
D. Incremental budgeting
E. Budget setting

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  • 1 Marks

MI – May 2016 – L1 – SA – Q10 – Budgeting

Identify the function that is not typically associated with a budget committee.

The functions of a Budget Committee include the following EXCEPT:

A. Establishment of budget procedures and timetable
B. Installation of production capacity for the business
C. Revision and acceptance of budgets
D. Co-ordination of business forecasts
E. Review of performance report

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  • 1 Marks

MI – May 2016 – L1 – SA – Q8 – Budgeting

Identify the budgeting system where all costs are justified annually.

The budgetary system that requires each budgeting unit to justify all costs in each year rather than year-to-year cost change is called:

A. Incremental budget
B. Rolling budget
C. Flexible budget
D. Zero-based budget
E. Program planning budgetary system

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  • 1 Marks

MI – May 2016 – L1 – SA – Q7 – Budgeting

Identify the budget that is not a functional budget from the given options.

The following are functional budgets EXCEPT:
A. Sales budget
B. Production budget
C. Distribution budget
D. Cash budget
E. Selling cost budget

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  • 20 Marks

MI – May 2024 – L1 – SB – Q2 – Budgeting

Prepare a cash budget based on sales collections, purchases, and other financial data for the third quarter.

Breakable Limited is preparing for the last half of the year and you, as the cost accountant, have been requested to prepare the cash budget for the third quarter of the year. The following information were available:

  1. Sales – 20% of monthly sales are in cash, while the balance is on credit.
    a. Collections from receivables are as follows:
    i. 60% in the first month after sales.
    ii. 20% in the second month; and
    iii. The balance after considering 1% bad debt and 5% discount on the outstanding balance in the third month after sales.
  2. Purchases are usually 60% of the month’s Sales and are paid for 70% in the same month and 30% in the following month less 2% discount on the total purchase price.
  3. Loan of N500,000 is expected to be approved by the bank on the first day of August, payable equally over twelve months with one month moratorium and 1% interest on the outstanding.
  4. Salary deductions are paid on the preceding month’s basis.
  5. The sum of N951,550 being a fixed deposit will mature in the month of July; N500,000 will be reinvested the same month with 0.5% interest credited the following month.
  6. Cash and cash equivalent balance as at end of June is N1,050,706.
  7. Bank Charges are 1% of total outflow from the bank payment for the month.
  8. Additional information:
Month Sales Net Salaries Expenses Salary Deductions
April 850,000 430,000 210,700 39,400
May 900,000 500,000 221,500 48,400
June 1,250,000 650,000 297,500 49,480
July 1,520,000 720,000 277,200 58,700
August 1,650,000 740,000 287,500 52,750
September 1,800,000 770,000 292,700 57,650
October 1,400,000 770,000 292,700 57,650

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  • 20 Marks

MI – May 2015 – L1 – SB – Q1 – Budgeting

Prepare a cash budget for a three-month period based on sales, purchases, loan, and other projections.

WHYME LIMITED is engaged in the manufacturing and sales of fast-moving consumer products. The following data are projections for a period of six months:

Month Sales (N’000) Purchases (N’000) Salaries (N’000) Staff Salary Deductions (N’000) Overheads (N’000)
Jan 9,600 5,400 1,650 78 1,650
Feb 15,800 12,000 1,760 82 1,920
March 16,000 10,000 1,760 90 2,100
April 17,600 11,000 1,789 89 2,400
May 14,800 11,200 1,842 92 1,860
June 14,200 9,800 1,800 85 1,720

Other additional information:

  1. Sales are 25% on cash basis, 55% is collected in the month following sales, and the balance in the third month.
  2. All purchases are on 30 days credit while 20% of overheads are paid in the same month, with the balance in the following month.
  3. Net salaries will be paid in the same month, while statutory deductions are remitted on the 10th day of the following month.
  4. A N10 million loan will be released in March to finance the purchase of a new asset costing N12 million in the same month. The loan will be repaid equally over four months starting from April. (Ignore interest).
  5. An old asset will be disposed of in April for N1.5 million.
  6. Cash balance as at the end of February will be N6.5 million, with N2.5 million put into a short-term investment in March at a 2% monthly interest rate, credited at the beginning of the following month.

Required:
Prepare a cash budget for the period of March to May. (Ignore taxation).
(20 Marks)

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  • 1 Marks

MI – May 2015 – L1 – SA – Q12 – Budgeting

Identify when a cost variance is said to be favourable.

In measuring budget performance, an item of cost is said to have favourable variance when
A. Actual costs of operation are higher than budgeted costs
B. Budgeted costs of operation are less than actual costs
C. Actual costs of operation are less than budgeted costs
D. Budgeted costs of operation are equal to actual costs
E. Budgeted costs of operation are not available

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  • 1 Marks

MI – May 2015 – L1 – SA – Q7 – Budgeting

Identify the type of budget that starts from scratch each time it is prepared.

A budget whose preparation starts from scratch is known as
A. Rolling budget
B. Flexible budget
C. Zero-based budget
D. Activity-based budget
E. Fixed budget

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  • 1 Marks

MI – May 2024 – L1 – SA – Q5 -Budgeting

Identifies the budgeting process that adjusts costs based on activity levels.

A budgeting process that analyses costs into their fixed and variable elements using the actual activity levels is referred to as:

A. Fixed Budgeting
B. Flexible Budgeting
C. Activity Based Budgeting
D. Zero Based Budgeting
E. Marginal Costing

 

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  • 1 Marks

MI – May 2015 – L1 – SA – Q2 – Budgeting

Identify which component is NOT part of the working capital cycle.

Which of the following is NOT a component of the working capital cycle?
A. Debtors
B. Finished goods
C. Work-in-progress
D. Raw materials
E. Overdraft

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