ACC5221

Tutorial Questions
Question 1
Butler has forecast sales for the next three months as follows: July 14,000 units,
August 16,000 units, September 17,500 units, October 18,000 units. Butler's policy is
to have an ending inventory of 20% of the next month's sales needs on hand. July 1
inventory is projected to be 2,500 units. Manufacturing overhead is budgeted to be
$18,000 (depreciation $2,000, supervision $7,000, factory lease $1,500, maintenance
$4,000, training $3,500) plus $5 per unit produced ($3 indirect materials, $2 utilities).

a. Prepare a production budget for Butler for as many months as is possible.

b. Prepare a manufacturing overhead budget for the three months July through
September. Be sure to include a total for the quarter as well.

Question 2
Glinski Corporation is working on its direct labor budget for the next two months. Each unit
of output requires 0.29 direct labor-hours. The direct labor rate is $7.00 per direct labor-hour.
The production budget calls for producing 5,600 units in June and 6,100 units in July.

Required:
Construct the direct labor budget for the next two months, assuming that the direct labor work
force is fully adjusted to the total direct labor-hours needed each month.

Question 3
Deviney Corporation is working on its direct labor budget for the next two months. Each unit
of output requires 0.86 direct labor-hours. The direct labor rate is $8.20 per direct labor-hour.
The production budget calls for producing 6,500 units in July and 6,000 units in August. The
company guarantees its direct labor workers a 40-hour paid work week. With the number of
workers currently employed, that means that the company is committed to paying its direct
labor work force for at least 5,600 hours in total each month even if there is not enough work
to keep them busy.

Required:
Construct the direct labor budget for the next two months.
Question 4
Unique Bakery Ltd sells two types of grant wedding cake called, Delight and Grandeur.
The current year (2022) budgeted sales quantity for Delight and Grandeur is 500 units and
700 units respectively. The sales quantity is expected to increase by 10% for the next year
(2023). The current selling price per cake for Delight and Grandeur is $1,000 and $1,500
respectively. The company expects to increase all selling prices in the next year by 20% to
cope with rising costs of baking ingredients, decoration items and display materials.

The company will have an opening inventory of 60 units and 40 units of Delight and
Grandeur respectively at 1/1/2023. The company wants to maintain a closing inventory level
at 31/12/ 2023, equivalent to two (2) weeks of sales for each of the products. (assume: 52
weeks in a year and round-up your answer to the nearest whole number – no decimal
point)).However, there were some damaged cakes in the opening inventory of Delight by 20
units and Granduer by 10 units, which is not accounted yet in the company’s inventory
records.

The company also anticipates stock losses during the year 2023 due to mishandling and
pilferages of 9 units for Delight and 20 units for Grandeur. Additional information is given
below about the raw materials required to produce both cakes. Other related production and
non-production costs are also given below.

Per cake of finished good: Delight Grandeur

Direct material - X (in kg) 3.0 2.5
Direct material - Y (in kg) 4.5 3.2
Direct labour (minutes) 72 78

Direct Materials: X Y
- Desired closing inventory (in kg) 425 742
- Opening inventory (in kg) 400 620

Standard rates and prices:

Direct labour rate (hourly) $20.00 per hour
Direct material price - X $15.00 per kg
Direct material price - Y $22.00 per kg
Production overheads - Variable $11.00 per direct labour hour
- Fixed $20.00 per direct labour hour
Non-production overheads - Variable $70,075
- Fixed $190,000
Required:
i. Prepare the following operational budgets:
a) Sales Budget
b) Production Budget (no decimal point)
c) Raw Material Usage and Purchase Budget
d) Direct Labour Budget
e) Total Overheads Budgets

Question 6
An article in Management Accounting concluded that there will always be some budgetary
padding in any organisation.
Requirements:
(a) As Management Accountant, write a report to your Finance Director, explaining what
steps can be taken by you, and by senior management when approving budgets, to minimise
budgetary slack. (8 marks)
(b) The Finance Director, having read the report referred to in part (a), discussed the problem
with the Managing Director and suggested that appropriate action be taken to reduce
budgetary slack. The Managing Director expressed doubts, stating that in his opinion
removing all budget padding could cause considerable problems. Requirement: Explain the
arguments that can be advanced for accepting some budgetary slack, and the advantages of
this to the manager being appraised and to the organisation.

Question 7
Beyond Budgeting is a model that proposes that traditional budgeting should be halted.
Discuss
the issues that was highlighted by the Beyond Budgeting Round Table with relevant
examples.

Question 8
Discuss the differences between “incremental budgeting’ and ‘zero-based budgeting’ with
appropriate examples and/or illustrations. Illustrate how they are used in business.
Question 9
Illustrate how a zero based budgeting is done in an organization.
Question 10
Discuss the differences in budgeting in a private sector companies and public sector
organizations. Which is more challenging ?
Are there any similarities ?