- 20 Marks
Question
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)
Answer
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