Q1.

Q2. Treehorn produces a single product. The cost card for this product is as follows:
 $ per unit
Direct materials 3kg per unit at $6 per kg 18
Direct labour 2 hrs per unit $10 per hour 20
Notes
1. Treehorn prepares budgets on a quarterly basis. Each quarter consists of 13 weeks, with five working
days per week.
2. Selling price is $56 per unit.
3. Treehorn incurs no costs other than those included in the cost card.
4. It is Treehorn’s policy to maintain an inventory of finished goods at the end of each quarter equal to five
days’ demand of the next quarter.
5. Because of its perishable nature it is not possible to hold raw material inventory.
6. Forecast sales units for the next five quarters are:
Quarter 1 1,950,000 units
Quarter 2 2,275,000 units
Quarter 3 3,250,000 units
Quarter 4 2,275,000 units
Quarter 5 1,950,000 units
Required:
(a) Produce the following budgets for EACH of the quarters 1, 2, 3 and 4:
(i) A sales budget showing sales volume in units and sales revenue in $;
(ii) A production budget in units, showing opening and closing inventories, sales and production;
(iii) A purchases budget showing purchases in kg and $.

Q3. Franklin Products Limited manufactures and distributes a number of products to retailers. One of
these products, SuperStick, requires four kilograms of material D236 in the manufacture of each unit.
The company is now planning raw materials needs for the third quarter—July, August, and September.
Peak sales of SuperStick occur in the third quarter of each year. To keep production and shipments
moving smoothly, the company has the following inventory requirements:
a. The finished goods inventory on hand at the end of each month must be equal to 8,000 units plus 20%
of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 22,000 units.
b. The raw materials inventory on hand at the end of each month must be equal to 40% of the following
month’s production needs for raw materials. The raw materials inventory on June 30 for material D236
is budgeted to be 129,000 kilograms.
c. The company maintains no work in process inventories.
A sales budget for SuperStick for the last six months of the year follows:
Budgeted Sales in Units
July . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60,000
August . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
September . . . . . . . . . . . . . . . . . . . . . . . 105,000
October. . . . . . . . . . . . . . . . . . . . . . . . . .53,000
November. . . . . . . . . . . . . . . . . . . . . . . .30,000
December . . . . . . . . . . . . . . . . . . . . . . . 15,000
Required:
1. Prepare a production budget for SuperStick for July, August, September, and October.
2. Examine the production budget that you prepared. Why will the company produce more units than it
sells in July and August and fewer units than it sells in September and October?
3. Prepare a direct materials purchases budget showing the quantity of material D236 to be purchased
for July, August, and September and for the quarter in total.
Q4. The production department of Taylor Company has submitted the following forecast of units to be
produced by quarter for the upcoming fiscal year:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Units to be produced. . . . . . . . . . . . . 6,000 7,000 8,000 5,000
In addition, the beginning raw materials inventory for the first quarter is budgeted to be 3,600 kilograms
and the beginning accounts payable for the first quarter is budgeted to be $11,775.
Each unit requires three kilograms of raw material that costs $2.50 per kilogram. Management wants to
end each quarter with a raw materials inventory equal to 20% of the following quarter’s production
needs. The desired ending inventory for the fourth quarter is 3,700 kilograms. Management plans to pay
for 70% of raw material purchases in the quarter acquired and 30% in the following quarter. Each unit
requires 0.50 direct labour-hours, and direct labour-hour workers are paid $12 per hour.
Required:
1. Prepare the company’s direct materials purchases budget and schedule of expected cash
disbursements for materials for the upcoming fiscal year.
2. Prepare the company’s direct labour budget for the upcoming fiscal year, assuming that the direct
labour workforce is adjusted each quarter to match the number of hours required to produce the
forecasted number of units produced.

Q5. Barzini Co is experiencing a shortage of the highly skilled labour that it uses to produce its only
product, the Sollozzo. It wishes to prepare budgets for the year ending 31 December 2011. The standard
cost card for the Sollozzo for 2011 and other relevant information are given below.
Standard cost card
Product: the Sollozzo
Usage
Per unit Cost Cost per unit
$
Direct material A 6 kg $2 per kg 12·00
Skilled labour 2 hours $25 per hour 50·00
Unskilled labour 4 hours $15 per hour 60·00
Prime cost 122·00
Variable production overhead 6 hours $5 per hour 30·00
Fixed production overhead 6 hours $4 per hour 24·00
Standard full cost of production $176·00

Notes relevant to budget preparation

(i) Direct material A is freely available.
(ii) 20 skilled workers are employed. Each is contracted to work for 40 hours per week for 48 weeks per
year and in addition will work overtime, up to a maximum of 8 hours per week, for a premium of 50% per
hour.
(iii) There is no shortage of unskilled labour and all of their hours will be paid at basic rate.
(iv) The standard fi xed overhead absorption rate was set based upon 150,000 standard labour hours per
year.
(v) The Sollozzo will be sold at $250 per unit, and demand at this price is estimated to be 30,000 units
per annum.
(vi) Barzini Co carries no inventory of raw materials or fi nished goods at any time.

Required:
(a) Construct a budget for skilled labour for the year ending 31 December 2011, assuming that the
maximum amount of overtime is worked. Your budget should show basic hours, overtime hours, basic
pay and overtime premium paid. (4 marks)
(b) Assuming that the principal budget factor for Barzini Co is 46,080 skilled labour hours, and that the
company wishes to maximise its profi ts, calculate the following budgeted fi gures for the year ending 31
December 2011:
(i) Production in units; (1 mark)
(ii) Unskilled labour (in hours and $); (2 marks)
(iii) Direct material usage (in kg and $); (2 marks)
(iv) Sales (in units and $). (2 marks)

Q6.

Q7. Wilmslow Ltd makes two products, the Alpha and the Beta. Both products use the same material and
labour but in different amounts. The company divides its year into four quarters, each of twelve weeks.
Each week consists of five days and each day comprises 7 hours.
You are employed as the management accountant to Wilmslow Ltd and you originally prepared a budget
for quarter 3,. The basic data for that budget is reproduced below.
Original budgetary data: quarter 3 (12 weeks)
Product Alpha Beta
Estimated demand 1800 units 2100 units
Material per unit 8 kilograms 12 kilograms
Labour per unit 3 hours 6 hours
Since the budget was prepared, three developments have taken place.
1. The company has begun to use linear regression and seasonal variations to forecast sales demand.
Because of this, the estimated demand for quarter 3 has been revised to 2000 Alphas and 2400 Betas.
2. As a result of the revised sales forecasting, you have developed more precise estimates of sales and
closing stock levels.
• The sales volume of both the Alpha and Beta in quarter 4 will be 20% more than in the revised budget for
quarter 3 as a result of seasonal variations.
• The closing stock of finished Alphas at the end of quarter 3 should represent 5 days sales for quarter 4.
• The closing stock of finished Betas at the end of quarter 3 should represent 10 days sales for quarter 4.
• Production in quarter 4 of both Alpha and Beta is planned to be 20% more than in the revised budget for
quarter 3. The closing stock of materials at the end of quarter 3 should be sufficient for 20 days
production in quarter 4.
3. New equipment has been installed. The workforce is not familiar with the equipment. Because of this,
for quarter 3, they will need 3.75 hours for ALPHA and 7.5 hours for BETA.
Other data from your original budget which has not changed is reproduced below:
• 50 production employees work a 35 hour week and are each paid £210 per week;
• Overtime is paid for at £9 per hour;
• The cost of material is £10 per kilogram;
• Opening stocks at the beginning of quarter 3 are as follows:
− finished Alphas 500 units
− finished Betas 600 units
− material 12,000 kilograms
• There will not be any work in progress at any time.
Required:
The production director of Wilmslow Ltd wants to schedule production for quarter 3 and asks you to use
the revised information to prepare the following:
(a) the revised production budget for Alphas and Betas; (4 marks)
(b) the material purchases budget in kilograms; (6 marks)
(c) a statement showing the cost of the material purchases; (2 marks)
(d) the labour budget in hours; (4 marks)
(e) a statement showing the cost of labour. (4 marks)
[20 marks]

Q8. Maradona operates a central distribution warehouse which it classifies as a cost centre. The
warehouse can stock up to 600,000 units of finished goods per month. If demand for warehouse space
exceeds this amount in any given month extra capacity can be purchased from a nearby factory for fixed
payments of £30,000 for each capacity increase of up to 40,000 additional units per month. Stock is picked
from shelves by hourly paid labourers who are paid £16 per hour and in this time are expected to pick 20
stock units. Picked units are loaded on to customer vehicles by fork-lift trucks.
Budgeted costs per month throughout 2007, at two different capacity levels are as follows:
 Warehouse space required
Cost element Behaviour of cost 200,000 units 500,000 units
£ £
Warehouse rental Stepped fixed (see above) 160,000 160,000
Stock picking costs Variable 160,000 400,000
Fork-lift costs Semi variable 500,000 1,100,000
During May 2007 when demand was for 724,000 units and 36,250 labour hours were worked; actual costs
for each cost element were reported as:
Warehouse rental £284,000
Stock picking costs £622,640
Fork-lift costs £1,528,822

Required:
Task 1:
What will be the following cost in a flexed budget (6 marks)
Warehouse rental ____________
Stock picking costs ____________
Fork-lift costs ____________

Task 2:
What will be variance of warehouse rental and fork lifter cost (2 marks)
Warehouse rental _______________.
Fork-lift costs _______________.

Task 3:
For which of the following would a production line manager of a manufacturing company be
responsible? (2 marks)
A. Labour rates and raw material prices.
B. Labour hours worked and raw material prices.
C. Labour rates and raw material usage.
D. Labour hours worked and raw material usage.

The Cruyff hotel provides accommodation and meals for tourists. There are two profit centres:
accommodation and restaurant. Rooms are sold at a nightly rate per room and guests have the option of
dining in the hotel restaurant for an extra charge. In the last year the number of rooms sold has
increased but overall hotel profit has fallen. The owners of the hotel recently commissioned a
consultant to introduce a system of budgetary control. Unfortunately the consultant became ill part way
through the project. As an Accounting Technician employed by the hotel, you have been asked to
complete the consultant’s work.
The following extracts from the consultant’s notes are available.
Notes
1. The hotel has 120 rooms. The rate per night is the same for all rooms. Occupancy level is expressed as
a percentage of full capacity.
2. The hotel and restaurant opens for 7 nights a week and for 52 weeks per year.
3. Budgeted restaurant sales are assumed to be a fixed percentage of accommodation sales.
4. Costs are either fixed or variable, except for cleaning, which is semi-variable.
Required:
(a) Calculate the number of room nights sold per week for 100%, 95% and 80% occupancy levels.
(3 marks)
(A room night represents one room occupied for one night.)
(b) Using the budgeted figures prepared by the management consultant as a basis, calculate
(i) the variable cost per room-night for cleaning; (3 marks)
(ii) the fixed cost per week for cleaning. (1 mark)
(c) Prepare a flexed budgeted profit statement for the Cruyff hotel for week 48 for an occupancy level of
95%.
Your statement should show
(i) the budgeted contribution for each profit centre; (8 marks)
(ii) the budgeted traceable profit for each profit centre; and, (6 marks)
(iii) the budgeted profit for the hotel in total. (2 marks)
(d) Calculate, for the restaurant only, the variances between the actual results for week 48 and the
flexed budget figures you have calculated in part (c). Comment on the performance of the restaurant.
(9 marks)

The following information relates to budget period 1 for Leysel Co:

Budget Budget Actual for period
60,000 90,000
units units
Sales £900,000 £1,350,000 £1,240,000
Raw materials £450,000 £675,000 £632,400
Labour £155,000 £207,500 £165,200
Production overheads £190,000 £235,000 £238,000
Actual production and sales in budget period 1 were 80,000 units. Actual labour costs for the period
included £50,000 of fixed labour costs. Actual production overheads for the period included £110,000 of
fixed production overheads.
Required:
Using a marginal costing approach, prepare a flexed budget for the period and calculate appropriate
variances in as much detail as allowed by the information provided above.
(10 marks)