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

IMAC – MAR 2024 – L1 – Q2 – Budgeting

Explain the steps in the annual budgeting process, conditions for successful budget implementation, and identify short-term investment options available to Komba Ltd.

Komba Ltd is a manufacturing company that wants to allocate some funds for short and long-term investments. To support this purpose, Komba Ltd is organizing its annual budget preparation for the coming year. Some senior management of the company are wondering what the budgeting process is about and would be interested in having a better understanding of the annual budgeting process.

Required:
As the cost accountant of Komba Ltd:
a) Explain FIVE (5) steps to be involved in the annual budgeting process. (10 marks)
b) State FIVE (5) conditions for a successful implementation of a budgeting process. (5 marks)
c) Explain TWO (2) short-term investments available to Komba Ltd. (5 marks)

 

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  • 20 Marks

IMAC – NOV 2023 – L2 – Q2 – Budgeting

Discuss the contents of a budget manual, explain incremental and zero-based budgeting, and prepare budgeted profit and loss statement and financial position for Chico Ltd.

a) As organisations become larger and more complex, it is no longer possible for just one person to prepare a budget. Instead, budgeting across the organisation must be carefully coordinated among various actors. As a result, there is the need for a budget manual irrespective of the type of or approach to budgeting.

Required:
i) State FIVE (5) contents of a budget manual. (5 marks)
ii) Write short notes on the following:

  • Incremental budget. (2.5 marks)
  • Zero-Based Budget. (2.5 marks)

b) Chico Ltd, a newly established manufacturing company with branches across Africa is preparing its first annual budget. The following information is relevant:

Sales forecast for each month:

Month Sales Forecast (GH₵)
January to June 20,000
July to December (and thereafter) 22,000
  • Gross profit margin: 20%
  • Credit given to customers: 2 months
  • Credit taken from suppliers: 2 months
  • Closing inventory: 3 months of demand
  • Monthly operating expenses: GH₵1,222

At the start of the budget period, a non-current asset with a cost of GH₵120,000 and a useful life of 6 years was purchased and transferred to one of its branches. In addition, a cash amount of GH₵80,000 was provided for the operations of Chico Ltd.

Required:
Prepare the budgeted statement of profit or loss and budgeted statement of financial position for Chico Ltd. (10 marks)

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  • 20 Marks

IMAC – JULY 2023 – L1 – Q5 – Budgeting | Forecasting

Prepare seasonally adjusted sales forecast and production overheads budget, and explain key components of time series analysis.

Question:
a) Balan Ltd is engaged in manufacturing and selling a single product and is in the process of preparing its budget for 2024. The following information is available:

Sales:
Balan Ltd has developed the linear relationship Y = 20,000 + 4,000X, where X represents the time period (X = 1 for the 1st quarter of 2024) and Y represents the sales trend in units.

The following seasonal variations are required to be adjusted to the sales trend in order to arrive at the sales forecast:

Quarter Jan-Mar Apr-Jun Jul-Sep Oct-Dec
Index value 110 90 80 120

A unit of product can be sold at GH¢1,000 during the first three quarters, and this price will be increased by 10% in the fourth quarter of 2024.

Production Overheads:
Based on the past 6 quarters’ results, the following statistical data has been gathered:
n = 6 (where ‘n’ is the number of quarters considered)
∑X = 306 (where ‘X’ is the production quantity in thousands of units)
∑Y = 146,400 (where ‘Y’ is the total production overheads in GH¢ thousands)
∑XY = 7,578,400
∑X² = 15,886

Balan Ltd estimates a linear relationship between output (X) and production overheads (Y), and the total production overheads can be expressed as Y = a + bX.

Balan Ltd does not maintain finished goods inventories. You are one of the Management Accounting executives of Balan Ltd and have been requested to assist in compiling budget figures.

Required:
i) Prepare the seasonally adjusted quarterly sales forecast in unit and in value for the calendar year 2024. (4 marks)
ii) Prepare the quarterly production overheads budget for the calendar year 2024. (5 marks)

b) Explain the following terms:
i) Trend-Cycle (C) (2 marks)
ii) Seasonal Components (S) (2 marks)
iii) Irregular Components (I) (2 marks)

c) The purpose of Management Accounting is to provide information for planning, control, and decision making. Information for control of the performance is an important management task.

Required:
Outline THREE (3) activities involved in providing information for control purposes. (5 marks)

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  • 20 Marks

IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing

Explain types of budgeting and prepare a flexible budget for cost control, including variance analysis.

a) Explain the following:
i) Incremental Budgeting (2 marks)
ii) Zero-Based Budgeting (2 marks)
iii) Activity-Based Budgeting (2 marks)

b) Cox Ltd is a manufacturing company that produces a body shaping drink for the African market. The company employs a marginal costing system as an integral part of its reporting systems. During the reporting period, there was no opening or closing inventory. The company produces its budgeted and actual results for December 31, 2022, as follows:

Budget Actual
Production/sales (units) 2,000 1,400
Sales (GH¢) 60,000 42,400
Variable Costs:
Direct material (GH¢) (20,000) (13,200)
Direct labour (GH¢) (10,000) (7,600)
Variable overhead (GH¢) (6,000) (4,400)
Contribution (GH¢) 24,000 17,200
Fixed cost (GH¢) (20,000) (20,800)
Net profit/loss (GH¢) 4,000 (3,600)

Required:
Prepare a budget that will be useful for management cost control purposes and briefly comment on the company’s performance in December 2022. (14 marks)

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  • 20 Marks

IMAC – MAR 2023 – L1 – Q5 – Budgeting | Cost Segregation and Estimation

Explain cost estimation in budgeting, prepare sales and production budgets, and calculate variable and fixed overheads using the high-low method.

a) Cost estimation techniques play an important role in budget preparation.

Required:
Explain the statement above. (3 marks)

b) Obsaw Ltd is in the process of preparing budgets for the year 2021. Based on past experience, the following trend equation has been developed in the year 2019 for the estimation of quarterly sales:

S = 21,900 + 900Q
Where, S = quarterly sales in units
Q = time period (Quarter I of year 2019 is time period 1)

The following set of seasonal variation index values has been derived using a multiplicative model, based on year 2019 actual sales:

Quarter of the calendar year Q1 Q2 Q3 Q4
Seasonality -30% -10% +30% +10%

The management expects that the above trend and seasonal effect will continue until year 2023.
The company’s policy is to maintain a finished goods inventory of 20% of the demand for the following month. Monthly sales in each quarter are evenly distributed.

Required:
i) Prepare the quarterly sales budget (in units) for the calendar year 2021. (4 marks)
ii) Prepare the quarterly production budget (in units) for the calendar year 2021. (3 marks)

c) Obsaw Ltd recorded the highest and the lowest production overheads (POHs) during the year 2020 as follows:

Production (units) POHs (GH¢ million)
Highest 37,000
Lowest 18,000

POHs are expected to increase by 10% per year and fixed production overheads are absorbed to products based on the budgeted production.

Required:
i) Using the high-low method, prepare the quarterly variable production overheads budget for the year 2021. (Use the production budget in b) ii) above.) (3 marks)
ii) Calculate the fixed production overheads absorption rate per unit for the year 2021. (2 marks)

d) Explain how standard costs for material and labour might be compiled. (5 marks)

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  • 20 Marks

IMAC – Mar 2023 – L1 – Q2 – Budgeting | Cost and Cost Behaviour

Prepare functional budgets for sales, production, and direct material purchases for Naa Sei enterprise.

Naa Sei enterprise wishes to prepare his functional budgets for the year 2023. The following information has been provided.

Sales

Year Quarter Units
2023 1 1,200
2023 2 1,500
2023 3 2,000
2023 4 1,800

2024

Year Quarter Units
2024 1 2,200
2024 2 2,300

The projected selling price is GH¢15 for the first two quarters, and this will increase by 10% in the third quarter. There will be no further price increase.

Inventory policy
i) Finished Goods: The company plans to keep 10% of the following quarter’s sales quantity. The opening inventory of finished goods is 120 units.
ii) Direct Materials: Only one material is used in production. 5 kilograms of the material are required for the production of a unit of a product. Closing inventory is expected to be 20% of the following quarter’s requirement. The cost of material is expected to be GH¢2 per kilogram.

Required:
Prepare the following functional budgets for each of the four quarters in 2023.
a) Sales
b) Production
c) Direct material purchases in value

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  • 20 Marks

IMAC – DEC 2022 – L1 – Q2 – Budgeting

Preparation of a flexible budget and addressing negative cash balances in a cash budget.

a) A cash budget is an estimation of the cash flows of a business over a specific period of time. This budget is used to assess whether an entity has sufficient cash to continue operating over a given time frame. The cash budget provides a company with insight into its cash needs (and any surplus) and helps to determine an efficient allocation of cash.

Required:
Identify THREE (3) ways a business can address negative monthly cash balances in a cash budget. (6 marks)

b) The following budget report was prepared for the second quarter of 2022.

Budget Actual Variance
Production Level 6,000 units 7,200 units
Revenue and Cost: GH¢ GH¢ GH¢
Sales 120,000 140,600 20,600 F
Direct Material (30,000) (39,600) 9,600 A
Direct Labour (24,000) (25,920) 1,920 A
Variable Overheads (12,000) (21,600) 9,600 A
Semi-Variable Overheads (30,000) (34,600) 4,600 A
Profit 24,000 18,880 5,120 A

The budgeted fixed overhead cost in the semi-variable overhead cost was GH¢12,000.

Required:
Prepare a budget report using the flexible budget for the second quarter of 2022. (14 marks)

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  • 20 Marks

IMAC – DEC 2022 – L1 – Q1 – Budgeting | Marginal Costing and Absorption Costing

Features of a service, calculation of overhead absorption rates and production cost, addressing negative cash balances, and preparation of a flexible budget.

a) Services are the non-physical, intangible parts of the Ghanaian economy, as opposed to goods, which we can touch or handle. Services, such as banking, education, medical treatment, and transportation make up a significant percentage of the economy.

Required: State and explain THREE (3) features of a service. (6 marks)

b) Edwin Ltd manufactures aviation components and parts to order, and the following are budgeted overheads for the year based on normal activity levels:

Department Budgeted overhead Labour hours
Welding GH¢12,000 3,000
Assembly GH¢20,000 2,000

Selling and administration overheads are 25% of factory cost.

An order for 350 units of engine parts, Job X 01, incurred the following cost:

  • Material cost: GH¢24,000
  • Labour:
    • Welding: 200 hours @ GH¢5 per hour
    • Assembly: 400 hours @ GH¢2 per hour
  • GH¢1,000 was paid for the hiring of a special x-ray machine for testing the welds.

Required: i) Calculate the overhead absorption rate for each department. (2 marks)

ii) Calculate the production cost for Job X01. (10 marks)

iii) Calculate the total cost of Job X01. (2 marks)

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  • 20 Marks

IMAC – AUG 2022 – L1 – Q2 – Budgeting

Preparation of production forecast and material purchase budget for Kikaw Ltd, and identification of benefits of budgeting.

Kikaw Ltd engages in the manufacturing and trading of two products namely: Product A and Product B. Kikaw Ltd is presently in the process of preparing budgets for the year ending 31 March 2023, and the following information was estimated.

Purchases: Material cost per unit:

Product A
Material X (GH¢200 per Kg) GH¢550

Sales: The following quarterly sales have been forecasted. Monthly sales are evenly distributed within each quarter.

Apr-Jun 2022 Jul-Sep 2022 Oct-Dec 2022 Jan-Mar 2023 Apr-Jun 2023
Product A (Units) 84,000 88,200 93,000 96,000 100,800
Product B (Units) 63,000 66,000 67,800 69,000 72,000

Additional information:

  • Kikaw Ltd operates FIFO method in issuing inventory and maintains a material inventory of 20% of the following quarter’s production requirement.
  • The policy of the company is to maintain month-end inventory of finished goods equal to 50% of sales of the following month.

Required: a) Prepare a production forecast in units for Products A and B separately on quarterly basis, for the year ending 31 March 2023. (9 marks)

b) Prepare Material Purchase budget for material X in quantity for the first three quarters for product A only. (7 marks)

c) Identify FOUR (4) benefits Kikaw Ltd will gain from preparing budgets. (4 marks)

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  • 20 Marks

IMAC – AUG 2022 – L1 – Q1 – Budgeting

Differences in operating profit under marginal and absorption costing, preparation of profit statements, production forecast, and material purchase budget.

a) Marginal costing and Absorption costing are cost management techniques used to allocate cost to the products produced for their valuation. There are differences in the operating profit when either marginal costing or absorption costing is deployed.

Required: State TWO (2) reasons that account for the differences in the operating profit under Marginal costing and Absorption costing systems. (4 marks)

b) Adam Ltd is a producer of product Wale. In a period, it produced 20,000 units and sold 18,000 units of product Wale. The selling price per unit of the output is GH¢5. In the planned production period, relevant cost and revenue data were stated as:

GH¢
Sales 100,000
Production cost:
Variable 35,000
Fixed 15,000
Administration and selling overhead:
Fixed 25,000

Required: Prepare a profit or loss statement based on the following costing systems: i) Marginal costing systems. (8 marks) ii) Absorption costing systems. (8 marks)

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