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School Wolverhampton Business Dept FASE

School
Assessment Time Constrained No of 13
Type Assessment Pages
Module Duratio
5AC001 24 hours 0 mins
Code n
Module Budgeting and Financial Reading
Title Control time
Module
Date of 12th May 2020 14:00 hours to
Leader Lorraine Morris
Paper 13th May 13:59 hours
Assessment
Location
type
Open Book Home

Instructions to Candidates:

There is a 24-hour window from the stated start time to download this document, complete
your answers and upload your answer document back onto Canvas via the link provided. It
is advisable to upload your answers well ahead of this deadline.

All answers must be included in the answer document that you upload onto Canvas. Show all
workings in your answer document where applicable.

Your answers should preferably be submitted on a Microsoft Word document. In exceptional

circumstances if you do not have access to a computer then you may hand write your answers
and upload photographs.

Your answers must be your own independent work and should relate to knowledge gained during
this module. Your answer document will be passed through anti-plagiarism software (Turnitin).
Please see the University web site for details of the policy on plagiarism.

The assessment paper is comprised of three COMPULSORY sections:

Section A – Question 1 - answer ALL parts of this question. This section is worth 10 marks in
total. Record your answers for Section A on the first page of your answer document. Show the
question number and the letter which you believe to be the correct answer. Do not show your
workings. No marks will be given for workings for Section A.

Section B – Question 2 - answer ALL parts of this question. This section is worth 10 marks in
total.

Section C – Questions 3-6 - answer ALL four questions.

Each question is worth 20 marks. Total available for this section equals 80 marks

Total marks available = 100

Begin each question on a new page. As a guide for a 20-mark essay between 900 and 1,200
words would be expected, with a MAXIMUM of 1,200 words
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Section A – Answer ALL questions

Question 1 – this question is made up of multiple-choice questions worth a total of 10

marks

1.1 The following details have been extracted from the receivable collection records of LPS
Electrical Limited:
Invoices paid in the month after sale 75%
Invoices paid in the second month after sale 15%
Invoices paid in the third month after sale 7%
Irrecoverable debts 3%

Invoices are issued on the last day of each month. Credit sales for July to October are budgeted
as follows:

July August September October

£52,500 £60,000 £90,000 £67,500

The amount of cash budgeted to be received in October from credit customers is:

A. £66,275
B. £68,325
C. £77,770
D. £80,175

1 mark

The following data is to be used to answer questions 1.2 and 1.3

Rexel plc uses a standard costing system for its only product. The standard cost card includes:
Fixed overhead: 4 hours @ £10.00 per hour = £40.00 per unit

Fixed overheads are absorbed on the basis of labour hours. Fixed overhead costs are budgeted at
£240,000 per annum and are expected to be incurred in equal amounts in each of the twelve
accounting periods during the year.

Production is budgeted to be at an equal number of units in each accounting period.

Actual production during period 2 was 450 units, with actual fixed overhead costs incurred being
£19,600 and actual hours worked being 1,970.

1.2 What is the fixed overhead expenditure variance for period 2?

A. £4,400 F
B. £400 F
C. £100 F
D. £400 A

1 mark
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1.3 What is the fixed overhead volume variance for period 2?

A. £300 A
B. £1,200 A
C. £1,700 A
D. £2,000 A

1 mark

The following data is to be used to answer questions 1.4 and 1.5

Z-Connect plc uses a standard costing system. The budget for May for one of its products
consists of 3,500 units for which the standard labour cost is £117,600 (based on 4 hours per
unit). During May 3,350 of these products were made. The labour cost incurred was £111,850
and the number of direct labour hours worked was 13,450.

1.4 What is the direct labour rate variance for May?

A. £5,750 F
B. £1,130 F
C. £ 710 F
D. £1,130 A

1 mark

1.5 What is the direct labour efficiency variance for May?

A. £420 A
B. £416 A
C. £420 F
D. £416 F

1 mark

1.6 A flexible budget is

A. A budget of variable production costs only.

B. A budget which is updated with actual costs and revenues as they occur during the
budget period.
C. A budget which shows the costs and revenues at different levels of activity.
D. A budget which is prepared using a computer spreadsheet model.
1 mark

1.7 If one batch takes 90 hours to produce and the learning rate is 85% then the total time taken
to complete 14 batches is nearest to:

A 48 hours
B 750 hours
C 679 hours
D 53 hours
1 mark
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The following Data is relevant for questions 1.8 and 1.9

TB London Plc uses standard costing. The details for May were as follows:

Budgeted Output 10,000 Units

Budgeted labour hours 60,000 Hours
Budgeted labour cost £780,000

Actual Output 9,760 Units

Actual Labour hours paid 62,500 Hours
Active labour hours 58,000 Hours
Actual Labour Cost £755,000

1.8 The idle time variance is:

A. £58,500F
B. £58,500A
C. £754,000A
D. £25,000A 1 mark

1.9 The labour efficiency variance is:

A. £7,280A
B. £51,220F
C. 7,280F
D. £51,220A 1 mark

1.10 Which of the following statements are true?

(i) A flexible budget can be used to control operational efficiency.

(ii) Incremental budgeting is a system of budgetary planning and control that measures
the additional costs of the extra units of activity.
(iii) Participative budgeting is a method of centralised budgeting that uses a top-
down approach and aspiration levels.

A. (i) and (ii) only

B. (ii) and (iii) only
C. (iii) only
D. (i) only
1 mark

Total 10 marks
Section B – Answer ALL parts of Question 2
This question is made up of short questions worth a total of 20 marks

2.1 The first batch of a new assembly process takes 12 minutes to produce and the
rate of learning is 85%. It is expected that 25 batches will be produced.

Required:
Calculate the expected average time per batch for 20 batches?
1 mark

2.2 If the first batch takes 18 minutes to assemble, and the twenty fifth batch takes on
average of 5.18 minutes to assemble, calculate the rate of learning?
1 mark

The following data is available for questions 2.3 and 2.4.

The following data is available on a company’s overheads:

Budgeted Actual
Volume of Production 10,000 units 9,900 units
Variable Overheads £100,000 £104,000
Direct Labour hours worked 50,000 hrs 49,000 hrs

Direct labour hours are used as the basis for absorbing overheads. Standard Variable
Overhead Rate per Hour = £2

2.3 Calculate the variable overhead expenditure variance.

1 mark

2.4 Calculate the variable overhead efficiency variance

1 mark

2.5 Warrington plc is preparing its budgets for next year. The following regression
equation has been found to be a reliable estimate of Warrington plc's de-seasonalised
sales in units:

y = 10x + 420

Where y is the total sales units and x refers to the accountancy period. Quarterly
seasonal variations have been found to be:

Q1 Q2 Q3 Q4
+10% +25% - 5% - 30%

Required: For accounting period 33 (which is quarter 1) calculate the expected

seasonally adjusted sales units:
1 mark
2.6 Papier Ltd is preparing its cash budget for the period ended 30 June 2020. An
extract of its sales budget is as follows:

January £50,000
February £45,000
March £60,000
April £55,000
May £48,000
June £60,000

Twenty per cent of the monthly sales are for cash. The payment pattern of the credit
sales is expected to be:

 50 per cent in the month after sale;

 25 per cent in the month two months after sale;
 20 per cent in the month three months after sale.

The remainder from the credit sales is expected to be irrecoverable debts.

Required: Calculate the amount of cash budgeted to be received from customers in

May 2020
1 mark

2.7 The following cost per unit details have been extracted from the production
overhead cost budget of Enterprise Ltd:

Output (units) 5,000 8,000

Production overhead (£/unit) 13,900 20,800

Required: Calculate the budget cost allowance for production overhead for an
activity level of 6,250 units.
1 mark
2.8 A company uses time series analysis and regression techniques to estimate future
sales demand. Using these techniques, it has derived the following trend equation: y =
10,000 + 4,200x
Where y is the total sales units and x is the time period.

It has also derived the following seasonal variation index values for each of the
quarters using the multiplicative (proportional) seasonal variation model:

Quarter Index value

1 120
2 80
3 95
4 105

Required: Calculate the total sales units that will be forecast for time period 25, which
is the first quarter of year.

1 mark

2.9 Xeron Ltd operates a standard costing system. The following information has been
extracted from the standard cost card for one of its products:

Budgeted production 1,250 units

Direct material cost 7kg at £4.10 per kg £28.70 per unit

Actual results for above period were:

Production 1,000 units
Direct material (purchased and used) 7,700kg £33,880

Required: Calculate the value of the material usage variance.

1 mark

2.10 Totam Limited uses a standard costing system. The standard cost card for one of
its products shows that the product should use 3kgs of material X per finished unit
and that the standard price per kg is £3.50. Totam Limited values its inventory of
materials at standard prices.

During April, when the budgeted production level was 1,000 units, 940 units were
made. The actual material quantity of material X used was 3,100kgs at a cost of
£7,750.

Calculate the material price variance for April.

1 mark

End of Question 2- 10 marks Total

Section C

Answer all four questions from this section - (Questions 3-6)

Question 3

You work as an assistant management accountant in a medium sized manufacturing

company. Your main role is to coordinate the company’s budgeting preparation
process and to monitor actual expenditure against standards set at the start of the
budget period.

Required:
Write a report to be presented to management about the usefulness of budgets and
standard costing to a medium sized manufacturing company. The report should also
identify any limitations a budgeting and standard costing system may impose on the
company.
20 marks

Question 4

Exotica Baths supplies shower trays to the building industry. The standard cost of one
unit is: -
£
Direct Material 5 kilos @ £8 per kilo 40
Direct Labour 4 hours @ £12 per hour 48
Fixed Overheads 4 hours @ £8 per hour 32
120

The standard selling price is £200 per unit and budgeted sales are currently 1,200 per
month. The actual results for operations last month were:

 1,300 units were made and sold, for total sales revenue of £253,500.
 Direct material used was 6,600 kilos at a total cost of £50,160.
 Direct labour was 5,330 hours at a cost of £65,026.
 Actual expenditure on fixed overheads was £44,000.

a) Produce a statement that shows the original budget and flexed budget for the
month, and compares the flexed Budget with actual expenditure.
4 marks

b) Produce a statement which reconciles the original budgeted profit with the
actual profit using the relevant materials, labour, fixed overhead and sales
margin variance calculations.
8 marks

c) Based on the above calculations comment on the performance of the business

last month.
8 marks
Total 20 marks
Question 5

The draft statement of financial position of Arnold Ltd as at 30th June 2019 is as
shown below:

Non-Current Assets (Carrying Value) £427,500

Current Assets:
Inventories of Finished Goods 64,500
Inventories of Raw Materials 7,695
Receivables 57,375
Cash 76,500
633,570

Share Capital 390,000

Retained Profit 220,620
Trade Payables 22,950
633,570

The company is preparing its budget for the next 3 months, July, August and
September. Budgeted sales are as follows:

July 12,000 units

August 21,000 units
September 16,500 units
October 18,750 units
November 14,250 units

1. The selling price of each unit is £32.00

2. It is the company’s policy to maintain inventories of finished goods equal to 25%

of the following month’s budgeted sales in units. Inventory of finished goods at
the end of June is 3,000 units.

3. Each unit of product requires 18 kg of materials at a cost of £0.45 per kg. It is the
company’s policy to maintain inventories of timber equal to 15% of the next
month’s production requirements. Material stock at the end of June is 19,740 kg.

4. Each unit produced requires 10 minutes of direct labour; the direct labour rate is
£15.00 per hour.

5. Variable manufacturing overhead is £1.80 per unit produced and fixed

manufacturing overhead is £75,000 per month. The fixed manufacturing overhead
figure includes £35,000 depreciation.

6. Variable selling and administrative expenses are £1.10 per unit sold and fixed
selling and administrative expenses are £96,000 per month. The fixed selling and
administrative expenses include £14,500 of depreciation.
Required:

a) Prepare the following budgets for the months of July August and September:

 Sales budget
1 mark
 Production budget in units
2 marks
 Direct materials purchases budget in Kgs and cost
3 marks
 Direct labour budget
2 marks
 Production overhead budget
2 marks
 Selling and administration budget
2 marks

b) Arnold Ltd uses ‘Top Down’ budgeting but you believe that a ‘Bottom Up’
approach would be better. Prepare a short report justifying your
recommendations to the Managing Director.
8 marks

Total 20 marks

Question 6

Ray Illuminate Ltd is a manufacturer of lamps which are sold to retailers. The
company has designed a new lamp that can easily be attached to a desk and has more
flexibility than its competitors. The Product is called Ray9 and it expects to produce
the Ray9 in a continuous operation. During the first year it is expected that a total of
20,000 Ray9’s will be produced and sold.

The costs of producing the first Ray9 are as follows:

Skilled labour – 0.5 hours at a rate of £18 per hour

Unskilled labour – 0.25 hours at a rate of £10 per hour
Components – £32
Overheads – £5 per labour hour worked (total of skilled and unskilled)

It is known from the experience of producing earlier models of the desk lamp that
skilled labour usage experiences an 90% learning curve effect for the first 900 lamps
produced and unskilled labour usage experiences a 95% learning curve effect for the
first 900 lamps. The Learning curve effect ceases after 900 lamps have been produced
(thereafter the time taken for each unit is the same as for the 900th unit).

Ray Illuminate Limited has decided to set the selling price per unit of the Ray9 as the
average production cost per unit (for the full 20,000-unit production run) plus a 30%
addition for profit.
Requirements:

a) Calculate the selling price per unit of the Ray9 based upon the average
production cost per unit (for the first 20,000 units) plus 30% for profits.
9 marks

b) Towards the end of the year the company receives an order from a major
customer that would require an extra 5,000 units to be produced over and
above the original anticipated production run of 20,000 units. The company
plans to sell these 5,000 units to the customer at a price of full cost plus 25%.
Calculate the amount it would charge its customer.
3 marks

c) Explain and evaluate uses and limitations of the learning curve model.
8 marks

Total 20 marks

End of Questions. Formulae Sheet Follows

 Formulae Sheet 2020

STANDARD COSTING
Total Material Variance
Standard Cost per unit of material x Standard Quantity of input for actual production
less Actual Cost per unit x Actual Quantity used

Material price variance

Standard Cost per unit of material x Actual Quantity used
less Actual Cost per unit x Actual Quantity used

Material usage variance

Standard Qty of input for actual production x Standard Cost per unit
less Actual Qty of input used x Standard Cost per unit

Total Labour Variance

Standard Labour Rate per hour x Standard Hours required for actual production
less Actual Rate per hour x Actual Hours

Direct labour rate variance

Standard Rate per hour x Actual Hours used
less Actual Rate per hour x Actual Hours

Direct labour efficiency variance

Standard Hours required for units of actual production x Standard Rate per hour
less Actual Hours used x Standard Rate per hour

Total Variable overhead variance

Standard Variable Overhead Rate per hour x Standard Hours for actual production
less Actual Variable Overhead Rate x Actual Hrs used

Variable overhead spending variance

Standard Variable Overhead Rate per hour x Actual Hrs used
less Actual Variable Overhead Rate x Actual Hrs used

Variable overhead efficiency variance

Standard Hrs input required for actual production x Standard Rate per hour
less Actual Hrs input x Standard Rate

Total Fixed Overhead Variance

Units of Output Achieved x Standard Overhead Rate per unit
Less Actual Cost of Fixed Overheads incurred

Fixed Overhead Expenditure Variance

Budgeted Units of output x St Fixed Overhead Rate less Actual Cost of Overheads incurred

Fixed Overhead Volume Variance

No of Units of output achieved x St Rate per unit less Budgeted units of output x St Rate

Sales Revenue Variance

Standard Price per unit x Budgeted Sales volume
less Actual Price per unit x Actual Sales volume
Sales Revenue (Price) Variance
Standard Price x Actual Sales volume
less Actual Price x Actual Sales volume

Sales Revenue (Volume) Variance

Standard Price x Budgeted sales volume
less Standard Price x Actual Sales volume

Sales Profit Margin Variance

Budgeted volume of Sales x Standard Margin
less Actual Volume of Sales x Actual Margin

Sales Profit Margin (Price) Variance

Actual Volume of Sales x Standard Margin
less Actual Volume of Sales x Actual Margin

Sales Profit Margin (Volume) Variance

Standard Volume of Sales x Standard Margin
less Actual Volume of Sales x Standard Margin

Sales Contribution Margin Variance

Standard Volume of Sales x Standard Contribution Margin
less Actual Volume of Sales x Actual Contribution Margin

Sales Contribution Margin (Price) Variance

Actual Volume of Sales x Standard Contribution Margin
less Actual Volume of Sales x Actual Contribution Margin

Sales Contribution Margin (Volume) Variance

Standard Volume of Sales x Standard Contribution Margin less Actual Volume of Sales x
Standard Contribution Margin

MANAGING WORKING CAPITAL

Inventory Turnover in days= Inventory x 365
Cost of Sales

Receivables Turnover in days = Receivables x365

Sales Turnover

Payables Turnover in days = Payables x 365

Purchases

LEARNING CURVE
The Learning Curve formula is Yx = a x b
Where:
Y = Average time taken per batch to produce a cumulative number of batches
a = time required to produce the first batch
x = cumulative number of batches under consideration
b = log of the rate of learning / log 2

End of Sheet