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i) Budget period
The conventional approach is that once per year the manager of each budget center prepares a detailed
budget for one year. The budget is divided into either twelve monthly or thirty four weekly periods for
control purposes
An alternative approach is for the annual budget to be broken down by months for the first three
months and by quarters for the remaining nine months. The quarterly budgets are then developed on a
monthly basis as the year proceeds. For example during the first quarter, the monthly budgets for the
third quarter will be prepared. The quarterly budgets quarter may also be reviewed as the year
unfolds. For example, during the first quarter, the budget for the next three quarters may be changed
as new information becomes available. Anew budget for a fifth quarter will also be prepared. This
process is known as continuous or rolling budgeting and ensures that a twelve months budget is
always available by adding a quarter in the future as the quarter just ended is dropped. Contrast this
with a budget prepared once per year. As the year goes by, the period for which a budget is available
will shorten until the budget for next year is prepared. Rolling budgets also ensure that planning is not
something that takes place once a year when the budget is being formulated. Instead budgeting is a
continuous process and managers are encouraged to constantly look ahead and review future plans.
Furthermore, it is likely that actual performance will be compared with a more realistic target;
because budgets are being constantly reviewed and updated.
Irrespective of where the budget is prepared on an annual or a continuous basis it is important that
monthly or four-weekly budgets be used for control purposes.
ii) Budget committee
The budget committee should consist of high level executives who represent the major segments of
the business. Its major task is to ensure that budgets are realistically established and that they are coordinate
satisfactorily. The normal procedure is for the functional heads to present their budgets to the
committee for approval. If the budget does not reflect a reasonable level of performance, it will not be
approved and the functional head will be required to adjust the budget and re-submit it for approval. It
is important that the person whose performance is being measured should agree that the revised
budget can be achieved otherwise, if it is considered to be impossible to achieve, it will not act as a
motivational device. If budget revisions are made, the budgeters should at least feel that they were
given a fair hearing by the committee
The budget committee shall appoint a budget officer who will normally be the accountant. The role of
the budget officer is to co-ordinate the individual budgets into a budget for the whole organization, so
that the budget committee and the budget can see the impact of an individual budget on the
organization as a whole.
iii) Budget manual
A budget manual should be prepared by the accountant. It will describe the procedures involved in the
budgeting process and will provide a useful reference source for managers responsible for budget
preparation. In additional the manual may include a time table specifying the order in which the
budgets should be prepared and the dates when they should be presented to the budget committee. The
manual should be circulated to all individuals who are responsible for preparing budgets.
marto answered the question on February 25, 2019 at 09:13
- Bright Retailers Ltd. operates a budgetary control system. The following is the company's profit
forecast for the six months period ending 31 March 2012:(Solved)
Bright Retailers Ltd. operates a budgetary control system. The following is the company's profit
forecast for the six months period ending 31 March 2012:
Additional information:
1. 25%, of the sales are on cash basis. The balance is receivable three months after the month of
sale.
2. A generator worth Sh.600,000 was procured in September 2011. The supplier would install and
test the generator for three months whereas the payment will be made in January 2012.
3. Payment for raw materials is made to suppliers two months after delivery.
4. A dividend of Sh.900,000 will be paid in December 2011.
5. Rent for three months is payable in advance on the first day of each quarter.
6. Advertising expenses are paid three months in arrears.
7. 75% of the wages are paid in the month they are incurred with the balance being paid in the
following month.
8. The company's cost accountant estimates the closing cash balance for the quarter ending
December 2011 to be Sh.1 million.
Required:
A cash budget for the quarter ending 31 March 2012
Date posted: February 25, 2019. Answers (1)
- Explain five factors to consider when preparing a sales forecast for a cash budget.(Solved)
Explain five factors to consider when preparing a sales forecast for a cash budget.
Date posted: February 22, 2019. Answers (1)
- Distinguish between the following sets of terms:
ii) Fixed budget and flexible budget.(Solved)
Distinguish between the following sets of terms:
ii) Fixed budget and flexible budget.
Date posted: February 22, 2019. Answers (1)
- Kilim Ltd manufactures and sells a single product. The financial year of the company ends on 31
December every year. The following data have been collected...(Solved)
Kilim Ltd manufactures and sells a single product. The financial year of the company ends on 31
December every year. The following data have been collected for use in preparing the company's
quarterly budgets for the financial year ending 31 December 2013.
4. At the end of each quarter, closing stocks of finished goods are expected to be 10% of the
next quarter's sales requirement.
5. The closing stock of raw materials is expected to be higher than the opening stock by 10%.
6. Sales for the quarter ending 31 March 2011 A ate expected to be 36,000 units.
7. As from 1 July 2013, the selling price per unit is expected to increase by 10% from the
current price of Sh 600.
Required;-
i) Sales budget in value for each quarter.
ii) Production budget for each quarter.
iii) Material usage budget in units for each quarter
iv) Materials purchase budget for the year in units and value.
Date posted: February 22, 2019. Answers (1)
- Outline three differences between budgets and standards.(Solved)
Outline three differences between budgets and standards.
Date posted: February 22, 2019. Answers (1)
- Kazuri Furniture manufactures a single product branded 'sofa'. The following were the budgeted
costs at different levels of output for the year ended 31 December 2013:(Solved)
Kazuri Furniture manufactures a single product branded 'sofa'. The following were the budgeted
costs at different levels of output for the year ended 31 December 2013:
Date posted: February 22, 2019. Answers (1)
- Foper Ltd. currently operates a 'top-down' budgeting system where senior managers impose
budgets on departmental managers.
The company is now considering allowing departmental managers to participate in...(Solved)
Foper Ltd. currently operates a 'top-down' budgeting system where senior managers impose
budgets on departmental managers.
The company is now considering allowing departmental managers to participate in the setting of
their own budgets.
Required:
Argue the case for and against the participation of departmental managers in the preparation of their
budgets.
Date posted: February 22, 2019. Answers (1)
- Outline three advantages of flexible budgets over static budgets as tools for planning and
control.(Solved)
Outline three advantages of flexible budgets over static budgets as tools for planning and
control.
Date posted: February 22, 2019. Answers (1)
- Differentiate between the following types of budgets
i) Functional budget and master budget.
ii) Rolling budget and incremental budget.(Solved)
Differentiate between the following types of budgets
i) Functional budget and master budget.
ii) Rolling budget and incremental budget.
Date posted: February 22, 2019. Answers (1)
- XYZ Ltd. Carries on its business in Nairobi. The company has been reporting its profits using
absorption costing system. During the financial year ended 30 September...(Solved)
XYZ Ltd. Carries on its business in Nairobi. The company has been reporting its profits using
absorption costing system. During the financial year ended 30 September 2005, the following
summary statement was provided:
Date posted: February 22, 2019. Answers (1)
- Jogi Transporters operate in the transport industry. On 1 December 2005, the management
acquired a new lorry to meet customer needs and cater for the increase...(Solved)
Jogi Transporters operate in the transport industry. On 1 December 2005, the management
acquired a new lorry to meet customer needs and cater for the increase in business volume.
The following information relates to the initial and maintenance cost of the lorry.
Additional information:
1. The lorry has an economic life of 4 years.
2. The lorry has 6 tyres after each costing Sh.8000
3. Service is carried out after every 5,000 kilometres.
4. On average the lorry covers 20 kilometres per litre of fuel consumed.
5. The lorry is projected to cover 100,000 kilometres in January 2006, 25,000 kilometres in
Required:
Prepare a schedule for the three months showing
i. Variable costs per kilometer
ii. Fixed costs per kilometer
iii. Total costs per kilometer
c) Fixed costs are actually variable cost
With reference to (b) above explain whether you agree or disagree with the statement.
February 2006 and 50,000 kilometres in March 2006.
Date posted: February 22, 2019. Answers (1)
- Briefly explain the following terms as used in cost accounting:
i. Mixed costs
ii. Cost behaviour
iii. Incremental cost(Solved)
Briefly explain the following terms as used in cost accounting:
i. Mixed costs
ii. Cost behaviour
iii. Incremental cost
Date posted: February 22, 2019. Answers (1)
- Happy Holidays Resort operates a leisure complex in Watamu Town. The company offers a
variety of facilities among which are sporting, accommodation, a shopping centre and...(Solved)
Happy Holidays Resort operates a leisure complex in Watamu Town. The company offers a
variety of facilities among which are sporting, accommodation, a shopping centre and a
restaurant.
The accountant of the resort is preparing a budget for the busy season which lasts for twenty
weeks. Eight weeks out of the twenty are considered to be peak period.
The accommodation facility comprises 80 single rooms and 40 double rooms. The prices charged
for double rooms are 150% of the single room rate
The following forecasts have been made:
1 Accommodation facility : Daily variable costs will be Sh.500 for single room
and Sh.700 for double room.
: Fixed costs will be Sh.1, 700,000.
2 Sporting facility : Resident charges will be Sh.200 per person per day.
:Casual customers will be charged Sh.500 per day, for
use of this facility
3 Restaurant facility :This facility will generate an average contribution of
Sh.300 per person per day
: Fixed cost will be Sh.2, 500,000.
4 Shopping centre facility : This facility will generate a contribution of
Sh.2,000,000.
5 Bookings : All rooms are booked for the peak season. For the
remainder of the busy season occupancy is expected to
be 60% for double rooms 70% for single rooms.
: On average, there will be 50 casual customers per
day. All customers are assumed to dine at the restaurant
and use the sports facility.
The resort's policy is that only two people can occupy a double room.
Required:
(i). Break – even rate per single room and double room.
(ii). If a profit of Sh.10 million is budgeted for on the accommodation facility alone, compute the
required rate per single and per double room.
(iii). If the leisure complex aims at earning Sh.10 million on accommodation, prepare the budgeted
complex statement for the complex
Date posted: February 22, 2019. Answers (1)
- State the limitations of break – even analysis.(Solved)
State the limitations of break – even analysis.
Date posted: February 22, 2019. Answers (1)
- State the methods that a company can use to determine the break-even point or the output needed
to achieve a target operating income.(Solved)
State the methods that a company can use to determine the break-even point or the output needed
to achieve a target operating income.
Date posted: February 22, 2019. Answers (1)
- Urembo Ltd. Produces and sell a wide range of homecare detergents. Currently the company has
sufficient spare capacity to undertake additional contracts.
Additional information:
1. The company absorbs...(Solved)
Urembo Ltd. Produces and sell a wide range of homecare detergents. Currently the company has
sufficient spare capacity to undertake additional contracts.
Additional information:
1. The company absorbs production overhead using a rate of 200% on direct wages. The rate is
derived from the following budgeted figures:
Sh.
3. Urembo Ltd has a purchase order to supply Watalii Restaurant with 4,000 units of ,fresh'
beauty soap at Sh.32 each.
4. If the purchase order is accepted the normal budgeted sales of Urembo Ltd. Would be
affected adversely.
Required:
(i). Advise the management of urembo Ltd on whether to accept the purchase order from
Watalii Restaurant
(ii). Explain the principles that you have applied in arriving at the conclusion in (b) (i) above.
Date posted: February 22, 2019. Answers (1)
- Maridadi limited a privately owned company, specializes in the manufacture of these products
namely, hair combs, hair rollers and hair bands.
For the financial year commencing 1...(Solved)
Maridadi limited a privately owned company, specializes in the manufacture of these products
namely, hair combs, hair rollers and hair bands.
For the financial year commencing 1 August 2008, the sales manager has prepared the following
two possible sales forecasts:
3. Direct labour cost will be restricted to a maximum of sh. 250,000 in the period. This is
assumed that labour is of the same grade and is freely transferable between products
4. Other resources are expected to be available
Required:
i. Identify the principal budget factor
ii. Calculate the sales budget mix that you would recommend to maximize profit
iii. Compute the maximum profit that could be generated by Maridadi limited.
Date posted: February 22, 2019. Answers (1)
- Rangi limited, a paint manufacturer produces two types of plant namely 'gloss' and 'Shine'
The following information relates to the company?s projections for the year ending...(Solved)
Rangi limited, a paint manufacturer produces two types of plant namely 'gloss' and 'Shine'
The following information relates to the company‟s projections for the year ending 31 December
2008.
Required:
i. Compute the break-even point of Gloss in units and break-even point of „Shine” in
shillings
ii. Given that customers purchase composite units of sox for 'Gloss' and four for 'Shine'
calculate composite unit contribution margin.
iii. Given that customers purchase composite units of six for 'Gloss' and one litre of 'Shine'
calculate the composite contribution margin ratio.
iv. Determine the break even sales in shillings assuming that 'Gloss and Shine' become
components and that there is no change in the company's cost.
Date posted: February 22, 2019. Answers (1)
- ABC limited manufactures and sells a single product branded “Zed”. The following data has been
extracted from the budgets and standard costs to product “Zed”.(Solved)
ABC limited manufactures and sells a single product branded 'Zed'. The following data has been
extracted from the budgets and standard costs to product 'Zed'.
Date posted: February 22, 2019. Answers (1)
- Westlife company limited manufacturers three products X, Y, and Z
The following data relating to the products is provided(Solved)
Westlife company limited manufacturers three products X, Y, and Z
The following data relating to the products is provided
Required:
i. Optimal production mix that would result in the maximum profit
ii. Forecast ed profits statement using the optimal production mix in (b) (i) above
Date posted: February 22, 2019. Answers (1)