Deck 16: Budgeting

Question 1

Slocombe and Quarmby Limited's overhead budget for the 20X4 financial year shows a total of £3 360 000, of which 30% is classified as selling and administration overhead, with the remainder being production overhead. Estimated production and sales for the year is 600 000 units.Each unit requires 1.5 machine hours.Production overhead is recovered per machine hour.
What is the budgeted production overhead recovery rate for 20X4 (to the nearest penny)?

A)£3.92
B)£2.61
C)£3.73
D)£5.88

Answer 1

£2.61

Question 2

Berry Fitzsimmons Limited uses a standard metal component in its production of lampstands (one component per lampstand).The components can be supplied at very short notice, and so only 20% of the components required for the current month's production are kept in inventory.The opening inventory of components at the beginning of March 20X6 was 120, rising to 130 by the end of the month. Assuming that the inventory holding policy has been strictly applied, what was the increase in the production budget for lampstands between March 20X6 and April 20X6?

A)24 lampstands
B)50 lampstands
C)10 lampstands
D)2 lampstands

Answer 2

50 lampstands

Question 3

Finch and Villefranche Limited budgets sales of 136 000 units for its 20X2 financial year.The budget selling price per unit is £9.75.Prime cost is budgeted at £3.45 per unit.Production overhead is to be recovered at £4.81 per machine hour.Each unit produced is budgeted to use 0.75 machine hours.The selling and administration overhead is estimated at £143 000. What is the company's budget profit for the 20X2 financial year?

A)£59 640
B)£223 180
C)£366 180
D)£692 380

Answer 3

£223 180

Question 4

Hamburg and Schlossfelder Limited manufactures a product that requires 3.5 metres of metal edging per unit.The production budget in units for May and June 20X6 is as follows: The inventory holding policy is to have available at the beginning of each month 50% of the raw material required for the current month's production.
How much of the metal edging must be purchased during May in order to comply with this policy?

A)1155 metres
B)2222.5 metres
C)2047.5 metres
D)2135 metres

Question 5

Speel & Pooley Limited's overhead budget for the 20X5 financial year includes the following totals for fixed overheads: Estimated production and sales for the year is 750 000 units.Each unit requires1.3 machine hours.Production overhead is recovered per machine hour.
What is the budgeted production overhead recovery rate for 20X5 (to the nearest penny)?

A)£3.66
B)£2.98
C)£2.17
D)£2.82

Question 6

Snaith and Tewkesbury Limited manufactures pencil tins.The directors have decided that the production budget for June 20X6 will be 16 500 tins, and 17 100 tins in the following month. Each tin uses 0.3kg of metal which is bought in at a cost of £6.80 per kilo.The inventory holding policy of the company is to hold 40% of the raw material inventory required for production in the month as opening inventory.
What will be the cost of purchases of the metal in June 20X6?

A)£13 953.60
B)£34 149.60
C)£33 660.00
D)£33 170.40

Question 7

Bowler and Perkiss Limited manufactures a product, the XPZ 100, that requires 6 kg of metal per unit. The production budget for the XPZ 100 is 320 units in February 20X1 and 300 units in March 20X1.
The directors have decided to adopt a policy of reducing inventory holdings where possible.From February 20X1 onwards they intend to hold in inventory at the beginning of the month exactly 40% of the raw material required for the current month's production.
The amount of metal in inventory at the beginning of February was 1510 kg.
What quantity of metal must be purchased during February in order to comply with the directors' new policy?

A)410 kg
B)1130 kg
C)720 kg
D)2710 kg

Question 8

Baldric makes 60% of his sales on credit with the remainder made for cash.In respect of credit sales in any given month he expects to receive 50% in the next month following, 30% in the month after that and 20% in the month after that. Budget data relating to Baldric's sales for the early part of the 20X6 financial year are as follows:
Baldric is currently preparing his cash flow forecast for May.How much should he include as forecast credit sales receipts for that month?

A)£13 332
B)£21 210
C)£12 726
D)£8484

Question 9

Formosa Dangerfield Limited budgets sales of 600 000 units for the 20X6 financial year.Budget selling price per unit is £7.50 and prime cost is expected to be £3.25 per unit, comprising £1.30 in direct materials and £1.95 in direct labour.Production overhead is to be recovered at 133% of direct labour.Selling and administrative overheads are budgeted at £623 400. What is the company's budget profit for the financial year?

A)£1 046 901
B)£892 200
C)£993 900
D)£370 500

Question 10

The directors of Charleroi and Biswas Limited are preparing a production budget for December 20X4.The sales budget for December 20X4 is 6000 units, dropping to 4500 for January 20X5.The company's policy is to hold closing inventorys of finished goods at 50% of the next following month's sales level. What is the production budget in units for December 20X4?

A)5250
B)4500
C)2250
D)6000

Question 11

Omar sells goods entirely on credit.In respect of sales in any given month, he expects 50% to be paid for in the next following month, 40% in the month after that and the final 10% in the month after that.(So, for example, 50% of sales made on credit in January would be received in February, 50% in March and 10% in April). Budget data relating to 5 months' worth of Omar's sales are as follows:
Omar is currently preparing his cash flow forecast for June.How much should he include as forecast sales receipts for that month?

A)£16 163
B)£16 975
C)£16 417
D)£18 571

Question 12

Identify the missing word in the following sentence from the list given. The starting point for most budgets is the ____ budget.

A)capital expenditure
B)cash flow
C)sales
D)production

Question 13

Genever and Bruton Limited are preparing a production budget for the three-month period covering March, April and May 20X4.Sales budgets are as follows: The company has a policy of holding closing inventory of finished goods at 60% of the next following month's sales levels.
What is the total production budget in units for the three-month period?

A)9732
B)18770
C)15 770
D)16 220

Question 14

Skapinker and Giles plc manufactures photocopier casing units.The prime cost of each casing is £26.50.For the year ended 31 March 20X4, the directors estimate that production overheads will be £6 761 000 and selling and administration overheads will be £3 626 000.Estimated production and sales for the financial year is 275 000 units. The company uses percentage of prime cost as its overhead recovery rate.
What is the budget production overhead recovery rate, expressed as a percentage, for the year ended 31 March 20X4 (to one decimal place)?

A)107.8%
B)92.8%
C)142.5%
D)70.2%

Question 15

Metz and Bentley Limited is currently preparing its production budget for the month of March 20X5.The company has a policy of holding closing inventory equivalent to the whole of the next month's sales in units, plus 50% of the next following month's sales in units. The sales budget includes the following figures:
What is the production budget in units for March 20X5?

A)7880
B)7860
C)7820
D)11 770

Question 16

Which one of the following statements is correct? An incremental budget is one that:

A)adds value to the business organization by helping managers to plan, control and make decisions
B)adds another month to the end of the annual budget as each month elapses so that the business always has a full year's budget in place
C)adds together all the monthly figures from the previous twelve months in order to calculate an average figure
D)takes last year's figures and adds a fixed percentage increase to all items of income and expenditure

Question 17

Senior managers of Blucher Demosthene Limited are preparing a production budget for the month of August 20X6.The sales budget for the month is 8500 units.Sales for September 20X6 are budgeted at 8760 units.The company's policy is to hold closing inventory of finished goods at 75% of the next following month's sales levels. What is the production budget in units for August 20X6?

A)6375
B)8695
C)8500
D)6570

Question 18

Brinscall Kielder Limited produces garden leaf blowers.The prime cost of each leaf blower is £26.50.For the year ended 31 March 20X4, the directors estimate that production overheads will be £6 761 000 and selling and administration overheads will be £3 626 000.Estimated production and sales for the financial year is 275 000 units, and the budget selling price is £76.50. What is the budget profit of the company for the year ended 31 March 20X4?

A)£10 387 000
B)£10 650 500
C)£6 989 000
D)£3 363 000

Question 19

Which one of the following statements is correct? Budgetary slack occurs where managers:

A)are very demotivated and so are likely to ignore budgeted targets for achievement
B)set targets for a broad general range (e.g.5-10% increase) rather than committing to specific figures
C)are so inefficient in preparing the budget that they miss the deadlines for submission of the figures
D)set themselves low achievement targets so that they will be easily able to outperform the budget

Question 20

Asha sells goods entirely on credit.In respect of sales in any given month she expects 40% to be paid for in the next following month, 40% in the month after that, 15% in the month after that and the remainder in the month after that. Budget data relating to 6 months of Asha's sales are as follows:
Asha is currently preparing her cash flow forecast for June.How much should be included as forecast credit sales receipts for that month?

A)£14 708
B)£13 829
C)£13 709
D)£13 515

Question 21

Snoeke Downfall Limited purchases 85% of its goods on credit, paying cash for the remainder.On average, the company expects to pay for 80% of its credit purchases in the month immediately following purchase, with the remaining 20% paid for in the month after that. The company's purchases budget for the final quarter of 20X1 is as follows:
How much cash outlay will be budgeted in respect of purchases, both credit and cash, in December 20X1?

A)£57 348
B)£63 876
C)£61 224
D)£52 734

Question 22

Sawbridge Farnsworth Limited purchases all its goods on credit.70% are paid for in the month following purchase, with the remaining 30% paid in the next following month.(So, for example, 70% of January purchases will be paid for in February, and 30% of January purchases will be paid for in March). Purchases of goods are budgeted as follows for the second quarter of 20X6:
How much cash outlay will be budgeted in respect of credit purchases for the month of June 20X6?

A)£17 020
B)£18 110
C)£16 780
D)£17 590

Question 23

Sisley Wollenstein Limited made an actual net profit of £31 400 in the financial year ended 31 March 20X5.Revenue was £39 000 higher than budget, and actual net profit margin was 5.7% compared to budget net profit margin of 4.9%.Budget gross profit margin was 33.5%. What was the company's budget cost of sales for the year (to the nearest £)?

A)£366 333
B)£340 398
C)£171 479
D)£400 208

Question 24

Robertson & Jellicoe Limited purchases 90% of its goods on credit, paying cash for the remainder.On average, the company expects to pay for 90% of its credit purchases in the month immediately following purchase, with the remaining 10% paid for in the month after that. The company's purchases budget for the third quarter of the 20X5 financial year is as follows:
How much cash outlay will be budgeted in respect of purchases, both credit and cash, in September 20X5?

A)£138 078
B)£145 554
C)£152 538
D)£153 420

Question 25

Piero makes his living from organizing boat trips across a lake with scenic views.He charges £6.50 per trip, and he budgets to sell 11 650 trips during his 20X4 season, which runs from May to September. During May 20X4 Piero found that business was slow.Therefore he took the decision to lower the fare per trip from £6.50 to £6.00 with effect from the beginning of June, in an effort to increase business.
Actual figures for number of trips sold in 20X4 were as follows:
Piero's budget expenses for the 20X4 season were as follows:
Actual staff costs exceeded budget by 5%.Boat maintenance charges were actually £7550 and administrative expenses were £9590.Depreciation was charged in line with budget.
By how much did Piero's actual profit exceed budget profit in the 20X4 season?

A)£1573
B)£16 347
C)£347
D)£37

Question 26

Frances is a travel agent.Her budget for 20X4 assumed that she would sell 1450 holidays at an average price of £1500, earning 10% commission on each holiday sold.Comparing actual with budget figures after the year end, Frances finds that she sold only 1375 holidays, but at an average price of £1521.In order to negotiate some special deals, she had to take lower commission in some cases.Her average commission for the year was 9.7%. What was the difference between Frances' budget and actual commission revenue for the 20X4 financial year (to the nearest £)?
Actual commission revenue was:

A)£3571 better than budget
B)£14 637 worse than budget
C)£3571 worse than budget
D)£14 637 better than budget

Question 27

Jeannie Products Limited purchases all its goods on credit.On average, 70% are paid for in the month following purchase, 20% in the month after that and 10% in the month after that. Purchases of goods are budgeted as follows for the second half of 20X4:
How much cash outlay will be budgeted in respect of credit purchases for the month of November 20X4?

A)£5100
B)£4150
C)£5500
D)£3850

Question 28

Britt is a financial services adviser.Her budget for the financial year ended 31 December 20X2 estimated sales of 150 insurance policies and pension plans at an average commission of £430.Following a review of commissions by one of the major financial services companies, her actual average commission per deal fell to £395.She actually sold 143 policies and plans in the year. Travel expenses were budgeted at £5500 and general administrative expenses at £4820.Britt spent slightly less than budget on travel expenses, saving 6% of the budget amount.Administrative expenses, however, exceeded budget by 4%.By how much did Britt's actual net profit for the year fall short of budget net profit (to the nearest £)?

A)£8538
B)£7492
C)£7878
D)£8152

Question 29

Candida makes 70% of her sales on credit with the remainder made for cash.In respect of credit sales in any given month she expects to receive 60% in the next month following, 30% in the month after that and 10% in the month after that. Candida has budgeted sales of £15 000 in January 20X4.She expects sales to rise by 1% each month during the rest of 20X4.
She is preparing her cash budget for April 20X4.How much should she include as forecast credit sales receipts for that month (to the nearest £)?

A)£15 226
B)£10 605
C)£10 659
D)£10 765