Question Tag: Budget Manual

Search 500 + past questions and counting.
Professional Bodies Filter
Program Filters
Subject Filters
More
Tags Filter
More
Check Box – Levels
Series Filter
More
Topics Filter
More
  • 15 Marks

MA – Nov 2018 – L2 – Q2b – Budgetary control

Preparation of a budgeted profit and loss account for Uswa Ltd and explanation of the term "budget manual."

Uswa Ltd is engaged in manufacturing and sale of footwear. The company maintains one central factory and warehouse and sells its products through company-operated retail outlets as well as through distributors. Management is in the process of preparing the budget for the year 2018 on the basis of the following information:

  • The marketing director has provided the following annual sales projections:
Category No. of Units Retail Price Range (GH¢)
Men 1,200,000 100 – 400
Women 500,000 85 – 250
  • It has been estimated that 30% of the units would be sold through distributors who paid GH¢95 and GH¢70 per footwear for men and women respectively.
  • The remaining 70% will be sold through company-operated retail outlets.
  • The previous pattern of sales indicates that 60% of these units are sold at the minimum price; 10% units are sold at the maximum price and remaining 30% at a price of GH¢200 and GH¢120 per footwear for men and women respectively.
  • The company incurs a variable cost of GH¢45 per footwear regardless of whether sales are through company-operated retail outlet or distributors.
  • The company operates 22 outlets all over the country. The fixed costs per outlet are GH¢12,000 per month and include rent, electricity, maintenance, etc.
  • Fixed costs for the factory and head office are GH¢4.5 million and GH¢1.5 million per month respectively.

Required:

i) Prepare a budgeted profit and loss account for the year 2018 for Uswa Ltd. (13 marks)

ii) Explain the term “budget manual.” (2 marks)

i) Budgeted Profit and Loss Account for the Year Ending 2018

Item Amount (GH¢)
Revenue
Distributor:
Men – (30% x 1,200,000) x GH¢95 34,200,000
Women – (30% x 500,000) x GH¢70 10,500,000
Outlets:
Men
Minimum Price – 60% x 840,000 x GH¢100 50,400,000
Maximum Price – 10% x 840,000 x GH¢400 33,600,000
Average Price – 30% x 840,000 x GH¢200 50,400,000
Women
Minimum Price – 60% x 350,000 x GH¢85 17,850,000
Maximum Price – 10% x 350,000 x GH¢250 8,750,000
Average Price – 30% x 350,000 x GH¢120 12,680,000
Total Revenue 218,300,000
Less: Cost
Variable Cost GH¢45 (1,200,000 + 500,000) 76,500,000
Less: Factory Overheads 4,500,000 x 12 54,000,000
Gross Profit 87,800,000
Less: Administrative overhead 12 x 1,500,000 18,000,000
Cost of retail outlets 12 x 22 x 12,000 3,168,000
Net Profit 66,632,000

ii) Budget Manual: The budget manual is a collection of instructions governing the responsibilities of persons and the procedures, forms, and records relating to the preparation and use of budgetary data.

  • 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)

  • 20 Marks

IMAC – NOV 2021 – L1 – Q1 – Budgeting

CVP analysis with calculation of contribution/sales ratio, total fixed costs, and breakeven sales value. Preparation of a flexed budget and identification of budget manual rules.

a) Cost-Volume-Profit (CVP) analysis is a way to find out how changes in variable and fixed costs affect a firm’s profit. Companies can use CVP to assess the impact on profit taking into consideration some assumptions.

Required:
State FIVE (5) assumptions underlying Cost-Volume-Profit Analysis. (5 marks)

b) The following data has been extracted from the operating records of Sharp Production Ltd:

Year Costs (GH¢) Profit (GH¢)
2019 402,000 54,000
2020 510,000 90,000

Required: i) Calculate the contribution/sales ratio for the company. (5 marks) ii) Compute the total fixed costs per annum. (5 marks) iii) Compute the sales value required to breakeven. (5 marks)

 

a) Assumptions underlying CVP Analysis:

  1. All costs can be conveniently segregated into fixed and variable elements.
  2. Total fixed costs remain constant while variable costs vary proportionately with the level of activity.
  3. The selling price per unit is given and remains constant over the relevant range of activity.
  4. All that is produced can be sold at the prevailing price.
  5. The only factor affecting costs and revenues is the volume of activity.
  6. Technology, production methods, and efficiency remain unchanged.
  7. There are no inventory level changes, or inventories are valued at marginal cost.
  8. There is no uncertainty.
  9. A single product or a constant product mix is produced and sold. (Any 5 points @ 1 mark each = 5 marks)

b) Workings:

Year Cost (GH¢) Profit (GH¢) Revenue (GH¢)
2019 402,000 54,000 456,000
2020 510,000 90,000 600,000
Revenue Cost
High 600,000
Low 456,000
Change 144,000

 

ii) Computation of Total Fixed Costs:

Year Revenue (GH¢) TC (GH¢) TVC (GH¢) TFC (GH¢)
2019 456,000 402,000 342,000 60,000
2020 600,000 510,000 450,000 60,000

Alternatively: Using higher sales level: Contribution = 0.25 x GH¢600,000 = GH¢150,000 Profit = contribution – FC GH¢90,000 = GH¢150,000 – FC This implies FC = GH¢60,000 (5 marks)

 

Take control of your business data with insight and in-depth understanding by taking this course. 

Services

Contact Info

  • +233203701923
    +233543919232
  • info@noohrabusiness.com

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope