KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY

SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING AND FINANCE
HTM 351: HOSPITALITY INDUSTRY ACCOUNTING
PRACTICE SET 7: BUDGETING
SOLUTION
Question 1
I. Sales Budget for the year
Department Units Sold Selling Price Total Revenue
GH₵ GH₵
Fries 8,500 400 3,400,000
Sigma 1,600 560 96,000

II. Annual Inventory budget

Department 1 Department 2
(Fries) (Pastries)
Units to be sold 8,500 1,600
Planned closing inventory 1,870 90
Total units required for sales and inventories 10,370 1,690
Less planned opening inventories 170 85
Units to be produced 10,200 1,605

III. Cash budget for the year

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
GH₵ GH₵ GH₵ GH₵ GH₵

Opening balance 34,000 114,000 294,000 421,984 34,000

Receipts from customers 1,000,000 1,200,000 1,120,000 985,000 4,305,000
1,034,000 1,314,000 1,414,000 1,406,984 4,339,000
Payments:
Materials 400,000 480,000 440,000 547,984 1,867,984
Payments for wages 400,000 440,000 480,000 646,190 1,966,190
Other costs and expenses 120,000 100,000 72,016 13,640 305,656
920,000 1,020,000 992,016 1,207,814 4,139,83
114,000 294,000 421,984 199,170 199,170

1
Kwadjo Appiagyei| KSB
Question 2

i. Machine A
Net annual saving
Accounting Rate of Return =
Average investment
1,540
=
( 5,000 + 1,000)/2
= 1,540
3,000
= 51.3%
Machine B
Net annual saving
Accounting Rate of Return =
Average investment
1,260
=
( 4,700 + 200)/2
= 1,260
2,450
= 51.4%

Initial Investment
ii. Payback period (years) = Net Annual cash saving
Machine A Machine B
GH₵ GH₵
Net annual saving 1,540 1,260
Add depreciation 800 900
Net annual cash saving 2,340 2,160

Therefore, our payback period for each machine is:

Machine A Machine B
GH₵ GH₵
5,000 4,700
2,340
= 2.14 yrs 2,160
= 2.18 yrs

iii. Net Present Value (NPV)

2
Kwadjo Appiagyei| KSB