Deck 11: Budgeting

Question 1

Which one of the following is not an objective of budgets?

A) Strategy
B) Motivation
C) Communication
D) Responsibility

Answer 1

A

Question 2

Which one of the following statements does not describe an objective of budgeting?

A) Coordinating the different functions of an entity.
B) Translating strategic goals into plans to enable an entity to achieve its objectives.
C) Forcing entities to report on the financial outcomes of the past 12 months.
D) Forcing entities to look ahead and plan for the future

Answer 2

C

Question 3

One of the objectives of budgeting is to motivate employees to achieve targets set by an organization. Which of the following statements describe the motivational objective of budgeting?
Please select all that apply.

A) Delegating responsibility for different parts of the budget.
B) Employees work more effectively if they have a challenging target to aim for.
C) Setting targets against which actual results will be compared.
D) Incentivizing staff to work towards achieving a budgeted target.

Answer 3

B,D

Question 4

Budgeting = delegation

Question 5

Communication of budgets facilitates coordination and integration of activities.

Question 6

Breaking down one big task into several smaller tasks helps allocate responsibility for achieving the objectives of an organization.

Question 7

What is the first step in the budgeting process?

A) Decide on the selling prices for products.
B) Calculate the variable costs for products.
C) Talk to suppliers about price movements over the coming year.
D) Decide on the strategy and objectives of the organization.

Question 8

Joseph is drawing up his budgets to present to the bank in support of his business loan application for his new business which is starting up on 1 January 2020. Joseph's capital expenditure budget shows planned expenditure of £45,000 on new plant and machinery in January 2020, £24,000 on a new delivery van in March 2020 and £18,000 on a new computer system in June 2020. Joseph depreciates all his non-current assets on the straight line basis. Computers and computer systems are depreciated over three years with zero estimated residual value, delivery vans over 4 years and plant and machinery over 5 years. Delivery vans and plant and machinery are estimated to have a residual value of 20% of their original cost. What is Joseph's budgeted depreciation charge in the budgeted statementof profit or loss for May 2020?

A) £1,000
B) £1,400
C) £1,500
D) £1,750

Question 9

Sian makes and sells fencing panels. She is setting her budgets for the coming year. Her budgeted selling price for her fencing panels is £20 and she expects to sell 1,000 panels in June. Her budgeted raw material cost for each fencing panel is £6 and direct labour is £4 per panel. New machinery costing £7,500 is budgeted for purchase in May. The new machinery is expected to last for 5 years and have a resale value of £600 after 5 years. Sian depreciates her property, plant and equipment on the straight line basis. Administration overheads for June are budgeted to be £1,000. What is Sian's budgeted net profit for June?

A) £8,875
B) £8,885
C) £9,000
D) £9,885

Question 10

Which of the following statements is not true?

A) Budgeted sales volumes and terms of trade will enable monthly budgeted cash inflows from sales to be calculated.
B) The budgeted direct costs of sales depend upon the volume of budgeted sales and production.
C) Budgeted fixed costs in the budgeted statement of profit or loss are allocated to each month on the accruals basis, while payments for budgeted fixed costs in the cash budget are allocated to the months in which they are paid.
D) Budgeted net cash flow for the month = the total budgeted monthly cash receipts + the total budgeted monthly cash payments.

Question 11

RST Manufacturing is producing its cost of sales budget. Direct materials are budgeted to be 60% of sales value. However, due to the expansion of the company in the recent past, suppliers are giving RST Manufacturing a 2% discount on all purchases of direct materials by the firm. Budgeted sales for January 2020 are expected to be £200,000 and to rise by £10,000 a month in the budget year up to December 2020. Direct labour is expected to amount to 10% of sales value and variable overhead is budgeted to be 5% of direct labour cost. What is the budgeted cost of sales (direct materials + direct labour + variable overhead) figure that will appear in the budgeted monthly statement of profit or loss for June 2020?

A) £172,000
B) £173,250
C) £176,250
D) £184,500

Question 12

Which budget should entities prepare first?

A) Cash budget
B) Budgeted statement of profit or loss
C) Variable costs budget
D) Sales budget

Question 13

Fred produces top of the range dolls. He is preparing his budget for the coming year. Budgeted selling price for each doll is £30. Budgeted materials cost for each doll is 50% of selling price while budgeted labour cost is 20% of selling price. Each doll is expected to incur direct expenses of £1 on top of the budgeted materials and labour costs. Equipment depreciation is budgeted to be £9,000 per annum and Fred's budgeted administration expenses are £1,200 per month. Demand in September is budgeted to be 10,000 dolls with demand rising to 10,500 dolls in October and 11,025 in November. What is Fred's budgeted gross profit for November?

A) £86,250
B) £87,450
C) £88,200
D) £99,225

Question 14

DD Manufacturing is preparing its budget for next year. Sales are all on credit. The company expects that customers will pay 20% of what is owed in the month sales are made, 45% in the month after sales are made and 35% two months after sales are made. The sales budget shows budgeted sales of £180,000 in January 2020, £160,000 in February 2020 and £200,000 in March 2020. What cash receipts from sales should DD Manufacturing allocate to the cash budget for March 2020?

A) £113,000
B) £175,000
C) £200,000
D) £216,000

Question 15

BC Manufacturing is preparing its budget for next year. 30% of sales are for cash with the remainder on credit. The company expects that credit customers will pay 50% of what is owed one month after the credit sales are made, 30% two months after the credit sales are made and 20% three months after the credit sales are made. The sales budget shows sales of £270,000 in April 2021, £300,000 in May 2021, £320,000 in June 2021 and £340,000 in July 2021. What cash receipts from sales should BC Manufacturing include in its cash budget for July 2021?

A) £212,800
B) £304,000
C) £314,800
D) £392,000

Question 16

EF Manufacturing is preparing its budget for next year. All sales are on credit. To encourage customers to pay promptly, the company offers a 2% discount for payment within the month of sale. The company estimates that 20% of customers will take advantage of this early settlement discount. The company anticipates that 60% of the remaining credit customers will pay what is owed one month after the credit sales are made, 35% two months after the credit sales are made and 5% three months after the credit sales are made. The sales budget shows total sales (before discounts) of £500,000 in July 2021, £450,000 in August 2021, £480,000 in September 2021 and £510,000 in October 2021. What figure for cash receipts from sales should EF Manufacturing present in its cash budget for October 2021?

A) £476,360
B) £478,400
C) £570,460
D) £572,500

Question 17

HO Manufacturing is preparing its budget for next year. The company estimates that it will be making the following raw materials purchases in the last five months of 2021: £200,000 in August, £220,000 in September, £250,000 in October, £280,000 in November and £240,000 in December. The company anticipates that it will pay 55% of what is owed one month after the month of purchase, 30% of what is owed two months after the month of purchase and the remaining 15% three months after the month of purchase. What figure will be presented in the company's cash budget for payments for raw materials purchases in December 2021?

A) £233,500
B) £253,500
C) £262,000
D) £403,500

Question 18

TZ Manufacturing is preparing its budget for next year. The company buys its raw materials from a variety of different suppliers. All of these suppliers offer a cash discount of 3% to customers who settle their accounts immediately in cash. TZ estimates that it will make total raw materials purchases (before discounts) of £400,000 in April 2021, £420,000 in May 2021, £380,000 in June 2021 and £360,000 in July 2021. The company expects to settle 25% of each month's total raw materials purchases in cash to qualify for the 3% cash discount. Of the remaining raw materials purchases made on credit, TZ expects to settle 48% in the month after purchase, 35% two months after purchase and 17% three months after purchase. What is TZ Manufacturing's cash payment figure for raw materials purchases in the cash budget for the month of July 2021?

A) £298,050
B) £385,350
C) £388,050
D) £484,700

Question 19

XO Manufacturing is preparing its budget for next year. All raw materials are purchased on credit. XO Manufacturing's raw material suppliers offer a 2.5% discount for payment within the month of purchase. XO estimates that it will pay for 25% of raw material purchases within the month of purchase. 60% of the remaining raw material purchases will be paid for one month after the month of purchase while 40% will be paid for two months after the month of purchase. The raw materials budget shows budgeted purchases of £500,000 in January 2021, £504,000 in February 2021, £520,000 in March 2021 and £536,000 in April 2021. What is the figure for cash payments for raw materials purchases that XO Manufacturing should present in its cash budget for April 2021?

A) £503,550
B) £515,850
C) £519,200
D) £644,250

Question 20

The budgeted monthly statement of profit or loss is drawn up on the basis of cash received and cash paid while the month-by-month cash budget is drawn up on the accruals basis.

Question 21

Renata has the following budgeted business transactions for the month of May 2020: insurance refund received: £500; payments to be made to materials suppliers: £15,000; payments to be made to employees: £4,000; cash expected from customers: £25,000; budgeted depreciation charge on non-current assets: £800; budgeted interest paid to bank: £40; personal drawings: £2,000. At 1 May 2020, Renata is budgeteding an overdraft at the bank of £4,000. What is Renata's budgeted cash position at the end of May 2020?

A) £340 overdrawn
B) £340 cash in the bank
C) £460 cash in the bank
D) £460 overdrawn

Question 22

Natalie has the following budgeted business transactions for the month of October 2020: budgeted payments to raw materials suppliers: £25,000; payments to be made to employees: £6,000; cash expected from customers: £52,000; budgeted accrual in the statement of profit or loss for electricity: £400; budgeted interest received from the bank: £20; personal drawings: £3,000. At 1 October 2020, Natalie is budgeting for a positive cash balance in the bank of £2,780. What is Natalie's budgeted cash balance in the bank at the end of October 2020?

A) £20,360
B) £20,400
C) £20,760
D) £20,800

Question 23

For April 2021, Charlene has budgeted cash sales of £15,000 and credit sales of £32,000. All credit sales are budgeted to be paid one month after the month in which they were made. Budgeted credit sales for March 2021 are £30,000. Budgeted payments to suppliers are £20,000 while employees will be paid £7,500. New office equipment with a cost of £5,760 and a 4 year useful economic life will be paid for on 1 April 2021. It is Charlene's policy to charge depreciation on office equipment on a monthly basis starting in the month in which it is acquired. £6,000 rent for the three months to 30 June 2021 will also be paid on 1 April 2021. Two thirds of this rent will be prepaid at 30 April 2021. Charlene is budgeting a positive cash balance at the bank of £4,560 on 1 April 2021. What is Charlene's budgeted cash balance at the bank at 30 April 2021?

A) £10,180
B) £10,300
C) £12,300
D) £14,300

Question 24

Omar sells fruit and vegetables from his market stall for cash. His budgeted sales for February, March and April are £45,000, £50,000 and £55,000 respectively. His suppliers allow him one month's credit in which to pay for the fruit and vegetables that he sells. His purchases cost is budgeted to be 80% of the sales value of his produce. Omar rents his market stall at a cost of £1,000 per month, payable on the first day of each month. Electricity costs for his market stall amount to £200 per month and he pays for these quarterly in March, June, September and December. Omar withdraws £2,000 a month from his business for his own personal expenses. What is Omar's net cash inflow for March?

A) £6,400
B) £6,800
C) £10,400
D) £10,800

Question 25

XRT Limited makes cash and credit sales to customers. The sales budget shows total sales for September, October, November and December 2020 of £210,000, £230,000, £250,000 and £300,000 respectively. 30% of total budgeted sales will be for cash. The other 70% of budgeted sales will be on credit. Of the credit sales, 45% are budgeted to be paid in the month after the month of sale, 30% are budgeted to be paid two months after the month of sale and 25% are budgeted to be paid three months after the month of sale. What is the figure for trade receivables that should appear in XRT Limited's budgeted statement of financial position at 31 December 2020?

A) £253,800
B) £306,250
C) £346,500
D) £495,000

Question 26

Zeinep Limited makes cash and credit sales to customers. The sales budget shows total sales for April, May, June and July 2021 of £100,000, £125,000, £140,000 and £150,000 respectively. 20% of budgeted sales in each month will be for cash. The other 80% of budgeted sales will be on credit. Of the credit sales, 50% are expected to pay in the month after the month of sale, 35% are expected to pay two months after the month of sale and 15% are expected to pay three months after the month of sale. What is the figure for trade receivables that should appear in Zeinep Limited's budgeted statement of financial position at 31 July 2021?

A) £133,000
B) £191,000
C) £221,000
D) £238,750

Question 27

Marco Limited sells on credit to all its customers. The sales budget shows total budgeted sales for January, February, March and April of £225,000, £240,000, £250,000 and £275,000 respectively. 40% of customers are expected to pay what is owed in the month after the month of sale, 45% are expected to pay two months after the month of sale and 12% are expected to pay three months after the month of sale. 3% of each month's sales are budgeted to become irrecoverable debts which will not be recovered by the company. What is the figure for trade receivables that should appear in Marco Limited's budgeted statement of financial position at 30 April?

A) £438,050
B) £444,800
C) £461,000
D) £522,250

Question 28

At 1 January 2021, Daniele Limited held plant and equipment at a cost of £400,000 on which £220,000 depreciation had been charged up to that date. The directors of the company are planning to purchase new plant and equipment on 1 April 2021 costing £50,000 and new machinery costing £60,000 on 1 August 2021. The company depreciates plant and equipment on the straight line basis over 4 years. Depreciation is calculated on a monthly basis. All plant and equipment is expected to have a residual value of £nil. There are no disposals of plant and equipment planned for the year to 31 December 2021. What is the carrying amount of plant and equipment that will appear in Daniele Limited's budgeted statement of financial position at 31 December 2021?

A) £94,375
B) £115,625
C) £174,375
D) £229,375

Question 29

Which of the following control activities would not be undertaken on a monthly basis?

A) Comparing actual and budgeted results.
B) Sensitivity analysis of budgets.
C) Identifying variances in cash receipts and payments.
D) Taking corrective action on negative variances.

Question 30

Monthly comparisons of actual results and budgeted results are an example of relevant financial information.

Question 31

Which one of the following statements most accurately describes sensitivity analysis?

A) Assesses the effect on profits and cash flows of actual outcomes in comparison to budgeted outcomes.
B) Assesses the effect on budgeted profits and budgeted cash flows of a % increase or decrease in sales volumes and selling prices.
C) Assesses the effect on budgeted profits and budgeted cash flows of a % increase or decrease in the variable costs of production.
D) Assesses the effect on budgeted profits and budgeted cash flows if certain expectations and assumptions in the budget are changed.

Question 32

A critical factor in sensitivity analysis is determining the effect that changes in budgeted fixed costs will have on budgeted cash receipts and payments and on budgeted profits.

Question 33

When conducting sensitivity analysis on budgeted information, an increase in the budgeted number of products sold will have no effect on the budgeted cost of raw materials.

Question 34

When conducting sensitivity analysis, a decrease in the budgeted selling price of products or services will leave the budgeted variable costs of producing each product or providing each unit of service unchanged.

Question 35

Which one of the following budget items will appear in the cash budget but not in the budgeted statement of financial position of a manufacturing company?

A) Budgeted payments to acquire new plant and machinery.
B) Budgeted payments on administration salaries.
C) Budgeted payments to repay loans.
D) Budgeted receipts of cash from a new loan.

Question 36

Which one of the following budgeted items will appear in the cash budget but not in the budgeted statement of profit or loss of a manufacturing company?

A) Budgeted income from sales.
B) Budgeted income from bank interest received.
C) Budgeted expenditure on repairs to plant and machinery.
D) Budgeted expenditure on the acquisition of plant and machinery.

Question 37

Which one of the following budgeted costs will appear in both the budgeted statement of profit or loss and the budgeted statement of financial position but not in the cash budget of a manufacturing company?

A) Repairs to plant and machinery.
B) Administration expenses.
C) Depreciation.
D) Legal expenses.

Question 38

Which one of the following budgeted expenditures will appear in both the budgeted statement of profit or loss and the budgeted statement of financial position but not in the cash budget of an organization?

A) Expenditure on new non-current assets.
B) Prepaid expenditure.
C) Expenditure on administrators' wages and salaries.
D) Accrued expenditure.

Question 39

Aaron is drawing up his budgets for the financial year to 31 December 2021. In December 2021, he is planning to purchase raw materials for his business which will cost him £55,000. The terms of trade with his supplier allow Aaron 40 days in which to pay for raw materials purchased. To which budgets will Aaron allocate the £55,000 raw material cost?

A) Budgeted statement of profit or loss, cash budget.
B) Budgeted statement of profit or loss, budgeted statement of financial position.
C) Budgeted statement of financial position, cash budget.
D) Budgeted statement of profit or loss, budgeted statement of financial position, cash budget .

Question 40

Clare is drawing up her budgets for the financial year to 31 December 2021. In January 2021, she is expecting her trade receivables to pay her the £85,000 that they are budgeted to owe at 31 December 2020. To which budgets will Clare allocate the budgeted £85,000 receipt of cash from her trade receivables?

A) Budgeted statement of profit or loss, cash budget.
B) Budgeted statement of profit or loss, budgeted statement of financial position.
C) Budgeted statement of financial position, cash budget.
D) Budgeted statement of profit or loss, budgeted statement of financial position, cash budget.