U Win Bo Myint Homework F – 2

Budget
Question – 1
A business is preparing its production budget for the year ahead for product A998. It is
estimated that 100,000 units of A998 can be sold in the year and the opening inventory is
currently 14,000 units. The inventory level is to be reduced by 40% by the end of the year.
How many units of A998 need to be produced?

Question – 2
What is the formula to calculate the production budget?
A Sales budget + opening inventory – closing inventory
B Sales budget – opening inventory + closing inventory
C Sales budget – opening inventory – closing inventory
D Sales budget + opening inventory + closing inventory

Question – 3
A process has a normal loss of 10% and budgeted output is 4,500 litres for the period.
Opening inventory of raw material is 600 litres and is expected to increase by 20% by the end of the period.
The material usage budget is:
A 4,500 litres
B 5,000 litres
C 5,133 litres
D 5,120 litres

Question – 4
What is the formula to calculate the material usage budget?
A Production budget multiplied by the standard material quantity per unit
B Sales budget multiplied by the standard material quantity per unit
C Production budget less opening inventory plus closing inventory
D Production budget plus opening inventory less closing inventory

Question – 5
A company has a budget for two products A and B as follows:
Product A Product B
Sales (units) 2,000 4,500
Production (units) 1,750 5,000
Labour:
Skilled at $10/hour 2 hours/unit 2 hours/unit
Unskilled at $7/hour 3 hours/unit 4 hours/unit
What is the budgeted cost for unskilled labour for the period?
A $105,000
B $135,000
C $176,750
D $252,500

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Question – 6
What would be the principal budget factor for a footwear retailer?
A The cost item taking the largest share of total expenditure
B The product line contributing the largest amount to sales revenue
C The product line contributing the largest amount to business profits
D The constraint that is expected to limit the retailer’s activities during the budget period

Question – 7
A company makes 2 products, X and Y, which are sold in the ratio 1:2. The selling prices are $50 and $100
respectively. The company wants to earn $100,000 over the next period. What should the sales budget be?
X (units) Y (units)
A 1,334 667
B 800 400
C 667 1,334
D 400 800

Question -8
A business is preparing its production budget, materials usage and materials purchases budget for the forthcoming
period. The following information is known:
Budgeted sales 2,300 units
Current inventory of finished goods 400 units
Required closing inventory of finished goods 550 units
Each unit of the product uses 6 kg of material X and details of this are as follows:
Current inventory of X 2,000 kg
Required closing inventory of X 2,600 kg
What is the production volume required for the forthcoming period to meet the sales demand?
A 3,050 units
B 2,450 units
C 2,300 units
D 2,150 units

Question – 9
A company makes three products, X, Y and Z. The following information is available:
X Y Z
Budgeted production (units) 200 400 300
Machine hours per unit 5 6 2
Variable overheads $2.30 per machine hour
Fixed overheads $0.75 per machine hour
What is the overhead budget?
A $12,200
B $12,000
C $11,590
D $10,980

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The following information should be used for questions 10, 11 and 12

Question – 10
What is the total direct material usage budget?
A 1,540 kg
B 1,470 kg
C 1,460 kg
D 1,440 kg

Question – 11
What is the total direct material purchases budget?
A $7,350
B $7,300
C $7,250
D $7,200

Question – 12
What is the total direct labour budget?
A $3,264
B $3,280
C $3,290
D $3,296

Question – 13
A job requires 2,400 actual labour hours for completion but it is anticipated that idle time will be 20% of the total time
required. If the wage rate is $10 per hour, what is the budgeted labour cost for the job, including the cost of the idle
time?
A $19,200
B $24,000
C $28,800
D $30,000

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Question – 14
What is a continuous budget?
(i) Prepared in advance for the period in question
(ii) Updated regularly by adding further periods
(iii) Also known as a rolling budget
(iv) Always prepared for a full year in advance
A (i), (ii) and (iii)
B (i), (iii) and (iv)
C (i), (iii) and (iv) only
D (i), (ii) and (iv)

Question – 15
Vincent is preparing a cash budget for July. His credit sales are as follows.
$
April (actual) 40,000
May (actual) 30,000
June (actual) 20,000
July (estimated) 25,000
His recent debt collection experience has been as follows.
Current month’s sales 20%
Prior month’s sales 60%
Sales two months prior 10%
Cash discounts taken 5%
Irrecoverable debts 5%
How much may Vincent expect to collect from credit customers during July?
A $18,000
B $20,000
C $21,000
D $24,000

Question – 16
DRF’s projected revenue for 20X9 is $28,000 per month. All sales are on credit.
Receivables’ accounts are settled 50% in the month of sale, 45% in the following month, and 5% are written off as
irrecoverable debts after two months.
What are the budgeted cash collections for March?
A $24,500
B $26,600
C $28,000
D $32,900

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Question – 17

If the company pays for all purchases in the month of acquisition, what is the cash outlay for January
purchases of w?
A $84,000
B $80,000
C $44,000
D $12,000

Question – 18
A company has a two-month receivables’ cycle. It receives in cash 45% of the total gross sales value in the month of
invoicing. Irrecoverable debts are 20% of total gross sales value and there is a 10% discount for settling accounts
within 30 days.
What proportion of the first month’s sales will be received as cash in the second month?
A 25%
B 30%
C 35%
D 55%

Question – 19
Spears makes gross sales of $40,000 per month, of which 10% are for cash, the rest on credit.
Experience shows that the credit sales are received as follows:
Receivables paying
within one month 40%
within two months 50%
Settlement discounts (for payment within one month) 4%
What will be the total expected cash receipts in any month?
A $35,824
B $36,400
C $38,560
D $40,000

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Question – 20
Selected figures from a firm’s budget for next month are as follows.
Sales $450,000
Gross profit on sales 30%
Decrease in trade payables over the month $10,000
Increase in cost of inventory held over the month $18,000
What is the budgeted payment to trade payables?
A $343,000
B $323,000
C $307,000
D $287,000

Question – 21
A company has a current cash balance of $7,000, trade receivables of $15,000 and trade payables of $40,000. The
company can sell goods costing $50,000 for $70,000 next month.
One half of all sales are collected in the month of sale and the remainder in the following month. All purchases are
made on credit and paid during the following month. Inventory levels will remain constant during the month. General
cash expenses will be $60,000 during the month.
What is the cash balance at the end of the month?
A $25,000 overdrawn
B $26,000 overdrawn
C $33,000 overdrawn
D $43,000 overdrawn

Question – 22
Which of the following would NOT be included in a cash budget?
(i) Depreciation
(ii) Provisions for doubtful debts
(iii) Wages and salaries
A All three
B (i) and (ii) only
C (i) and (iii) only
D (ii) and (iii) only

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Question – 23

What amount is budgeted to be paid to suppliers in September?

A $278,500
B $280,000
C $289,000
D $292,500

Question – 24
Galway Ltd budgeted to make sales of $1,500, $1,800 and $2,800 in its first three months of operation.
25% of its sales are expected to be for cash and another 25% of total sales will also be collected in the same month
by offering a 10% discount; 40% will be collected in the following month, and the remainder the month after that.
How much cash did Galway Ltd budget to receive in its third month of operation?
A $1,800
B $2,200
C $2,270
D $2,800

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Question – 25

Question – 26
What is a flexible budget?
A. a budget for semi-variable overhead costs only
B. a budget which, by recognising different cost behaviour patterns, is designed to change as volume of activity
changes
C. a budget for a twelve month period which includes planned revenues, expenses, assets and liabilities
D. a budget which is prepared for a rolling period which is reviewed monthly, and updated accordingly

Question – 27
What is a purpose of a flexible budget?
A. to cap discretionary expenditure
B. to produce a revised forecast by changing the original budget when actual costs are known
C. to control resource efficiency
D. to communicate target activity levels within an organisation by setting a budget in advance of the period to which
it relates

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Question – 28
What is a fixed budget?
A a budget for a single level of activity
B a budget used when the mix of products is fixed in advance of the budget period
C a budget which ignores inflation
D an overhead cost budget

Question – 29
Which of the following statements are correct?
(i) A fixed budget is a budget that considers all of an organisation’s costs and revenues for a single level of activity.
(ii) A flexible budget is a budget that is produced during the budget period to recognize the effects of any changes in
prices and methods of operation that have occurred.
(iii) Organisations can use budgets to communicate objectives to their managers.
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D All of them

Question – 30

What does the flexed budget show?

A a profit of $10,000
B a loss of $10,000
C a profit of $100,000
D a loss of $100,000

Question – 31
Which of the following statements is true?
A. A fixed budget is a budget that remains the same from one accounting period to the next
B. A fixed budget is produced for one product for different levels of activity
C. A flexible budget is designed to change as activity levels change
D. A fixed budget is useful when comparing budget figures with actual figures

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Question – 32

In a period where the actual sales were 1,200 units, what would be the budgeted flexed profit?
A $17,000
B $20,000
C $22,000
D $35,000

Question – 33

The standard selling price of the product is $220 per unit. During October only 13,600 units were produced.
What is the total budget cost allowance contained in the flexed budget for October?
$...................

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Question – 34

What would the budgeted overhead cost be for an activity level of 80%?
A $115,000
B $120,000
C $160,000
D $360,000

Question – 35

What is the total production cost of the flexed budget?

$....................

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