CIE A Level Accounting Work Sheet Topic: Budgeting

1 The following budgeted information is provided for Notlimah Ltd, for the six months ending
30 November 2008. The business assembles cardboard boxes.

Month Sales Materials Wages Other overheads

$ $ $ $
June 46 000 15 000 10 000 24 000
July 47 000 15 600 10 000 24 000
August 48 000 16 000 10 100 26 000
September 52 000 17 000 10 600 24 500
October 56 000 18 600 10 750 24 750
November 60 000 21 000 11 500 26 200

Additional information:

1 It is estimated that the bank balance at 1 September will be $1350 overdrawn.

2 10 % of all sales are expected to be cash sales.
3 Customers who settle their accounts within one month will receive a 5 % discount. Settlement
after one month will be strictly net.
4 It is believed that half of all credit customers will settle their debts within one month and that
the remainder will pay the following month.
5 All materials will be paid for in the month following order, so that a cash discount of 2½ % can
be claimed.
6 Other overheads will be paid for in the month following supply.
7 The workforce was granted a 5 % pay increase which will come into force on 1 November
2008. The pay rise has not been included in the budgeted figures. Wages are paid in the
month following that in which they are earned.
8 The half-yearly interest on 400 000 6 % debentures of $1 each is due to be paid on
15 October 2008.
9 1 000 000 ordinary shares of $0.10 were issued in July 2007 at a price of $0.24 each. The
final call of 25 % is due on 1 November 2008.
10 A new folding machine costing $20 000 will be delivered on 1 September. It will be paid for in
two equal instalments on 1 December 2008 and 1 June 2009. It is expected that the machine
will be used continuously for the next four years.
99
11 It is estimated that stock at 1 September 2008 will have a value of $4700 and will rise by
$1000 at 30 November 2008.
91

REQUIRED
59

(a) Prepare a cash budget for each of the three months ending 30 September, 31 October and
-4

30 November 2008. 39 280 [20]

22

(b) Prepare a forecast trading and profit and loss account for the three months ending
30 November 2008. Loss 5 945 [14]
03

(c) Explain two differences between a cash budget and a cash flow statement. [4]
n
sa

(d) Explain one measure that the managers of a business might adopt if they are faced with a
as

cash deficit in one month of an annual cash budget. [2]

H

[Total: 40]
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Page 1 Rizwan ul Hassan (0322-4599199) Page 1

CIE A Level Accounting Work Sheet Topic: Budgeting

2 The managers of Svennsen Ltd provide the following information.

Selected balances at 1 October 2009
$
Fixed assets (Net book value) 210 000
Ordinary issued share capital 150 000
Profit and loss account 27 150
Revaluation reserve 25 000
Share premium account 40 000
Stock 1 000
Cash budget for the six months ending 28 February 2010
Sept Oct Nov Dec Jan Feb
$ $ $ $ $ $
Receipts
Cash sales 4 600 3 700 4 700 4 800 4 600 4 200
Debtors (1 month’s credit) 24 000 23 000 18 500 23 500 24 000 23 000
Debtors (2 month’s credit) 16 800 19 200 18 400 14 800 18 800 19 200
Sale of fixed assets 8 000
45 400 45 900 49 600 43 100 47 400 46 400
Payments
Creditors (1 month’s credit) 22 000 21 000 18 000 21 000 24 000 20 000
General expenses 14 500 16 800 16 600 20 400 17 700 15 900
Ordinary dividend 4 000
Purchase of fixed asset 8 500
36 500 37 800 43 100 45 400 41 700 35 900
Net cash flow 8 900 8 100 64 500 (2 300) 5 700 10 500
Balance b/fwd (9 250) (350) 7 750 14 250 11 950 17 650
Balance c/fwd (350) 7 750 14 250 11 950 17 650 28 150
REQUIRED
(a) Explain two measures that might be taken to resolve a forecast cash deficit in one month. [4]

Additional information:
1 10 % of sales each month are cash sales.
50 % of sales are expected to be settled one month following the sale.
The remaining 40 % of sales are expected to be settled two months after sale.
99
2 All purchases will be on credit. Suppliers will be paid in the month following purchase.
91
3 General expenses will be paid as incurred.
4 A bonus issue of 1 new ordinary share for every 3 held will be made on 1 December 2009.
59

The directors propose that equal amounts are used from the company’s capital reserves.
-4

5 Fixed assets will be purchased on 1 November 2009 for $17 000. Half of the cost will be paid
on that date, the balance will be paid on 1 April 2010.
22

6 Fixed assets that cost $20 000 will be sold in November 2009 for $8000. They will have been
03

depreciated by $11 000 at the date of sale.

7 Fixed assets are depreciated at 10 % per annum on net book value at the balance sheet
n

date.
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8 Stock at 31 December 2009 was valued at $2000.

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REQUIRED
H

(b) Prepare a forecast trading and profit and loss account and an appropriation account for the
ul

three months ending 31 December 2009 in as much detail as possible. 5 750 [19]
an

(c) Prepare a forecast balance sheet at 31 December 2009 in as much detail as possible. [17]
256 000 [Total: 40]
zw
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Page 2 Rizwan ul Hassan (0322-4599199) Page 2

CIE A Level Accounting Work Sheet Topic: Budgeting

3 Gala Ltd manufactures one product, the Durrell. Its sales for a six month period are expected
to be:

2011 Durrells
July 800
August 1050
September 1400
October 1100
November 950
December 850

On 1 July Gala Ltd expects to have 100 Durrells in inventory. It intends to hold inventory levels of
250 Durrells at the end of July and August, 200 at the end of September and October, and 100
thereafter.

REQUIRED

(a) Prepare a monthly production budget for Gala Ltd for the six months July to December. [6]
Production (units) 950 / 1,050 / 1,350 / 1,100 / 850 / 850
Each Durrell requires 2 kilos of raw material. Until 31 August this is expected to cost $4 per kilo
and $4.50 from 1 September to 30 November and $5 per kilo thereafter.

REQUIRED

(b) Prepare a monthly raw materials purchasing budget for the six months July to December. [6]
7,600 / 8,400 / 12,150 / 9,900 / 7,650 / 8,500

Selling prices for the Durrell are expected to be $190 each in July, August and September and
$200 each thereafter.

All sales are on credit.

50% of debtors pay in the month following sale and receive 4% cash discount, and the remainder
pay in the second month following sale.
99
REQUIRED
91

$275,500 [2]
59

(c) Calculate the expected value of trade receivables on 1 September.

-4

(d) Prepare a monthly trade receivables budget for the four months September to December.
Closing balance 365,750 / 353,000 / 300,000 / 265,000[21]
22
03

(e) State three advantages to Gala Ltd of using budgets. [3]

n

(f) (i) Name one item which may appear in an income statement (profit and loss account)
sa

which cannot appear in a cash budget. [1]

as

(ii) Name one item which may appear in a cash budget which cannot appear in an income
H

statement (profit and loss account). [1]

ul

[Total: 40]
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Page 3 Rizwan ul Hassan (0322-4599199) Page 3

CIE A Level Accounting Work Sheet Topic: Budgeting

4 Ada Campellini runs a business which retails high quality clothing. It is particularly busy during the
festive season.

The budgeted sales and purchases figures for September 2012 to January 2013 are as follows:

September October November December January

$ $ $ $ $
Sales 215 000 225 000 310 000 425 000 195 000
Purchases 175 000 190 000 245 000 135 000 135 000

Additional information:

1 50% of sales are expected to be paid for by cash and these customers will receive a 6%
discount.
50% of the remaining sales are expected to be paid in the following month and these
customers will receive a 3% discount.
The remainder will pay 2 months after the sale.

2 30% of purchases are expected to be paid for in the month of purchase and will receive a 4%
discount.
40% of purchases are expected to be paid for in the month after purchase and will receive a
2% discount.
The remainder are paid for 2 months after purchase.

3 The inventories held on 1 November 2012 are budgeted at $180 000.

The inventories held on 31 January 2013 are budgeted at $129 000.

4 Total general expenses are budgeted at $18 000 in November 2012 with an expected 10%
rise in December and a 15% reduction (on the December total) in January 2013.
All general expenses are expected to be paid in full in the month in which they occur.

5 The depreciation on the non-current assets acquired before November 2012 will be $1 750
per month.

6 99
On 1 November 2012 Ada will acquire a new storage system at a cost of $24 000 and will pay
50% of the cost immediately. The remainder will be paid in equal instalments over the following
91
12 months without any interest charges.
59

This new non-current asset will be depreciated at 10% per annum on a monthly basis.
-4

7 Ada will make drawings of $3 000 every month except for December 2012. In this month she
22

expects to draw 1.5% of the month’s expected sales.

03

8 The bank balance at 1 November 2012 is expected to be $34 850.

n
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REQUIRED:
as

(a) Prepare a cash budget, in columnar format, for the 3 months commencing with November 2012.
H

256,486 [30]
ul

(b) Prepare a budgeted income statement (profit and loss account) in as much detail as possible
an

from the given information for this 3 month period ending in January 2013. 279,160 [10]
zw

[Total: 40]
Ri

Page 4 Rizwan ul Hassan (0322-4599199) Page 4

CIE A Level Accounting Work Sheet Topic: Budgeting

5 The sales budget for Roh Ltd for the six months to 30 November 2003 is as follows:

Units
June 600
July 800
August 1000
September 900
October 980
November 1020

Further information is as follows:

1. All units are sold for $60. Customers are allowed 1 month’s credit.
2. Monthly production of the units is equal to the following month’s sales plus 10% for stock.
3. Costs per unit are as follows:
Material 3 kilos
Cost of material $4.00 per kilo
Labour 2 hours
Labour rate of pay $8.00 per hour
Absorption rates
Variable overhead $14.00
Fixed overhead $3.50

4. Materials are purchased one month before they are needed for production and are paid for
two months after purchase.
5. Wages and variable overheads are paid in the current month.
6. Fixed overheads are paid in the following month.
7. The following information is to be taken into account:
(i) cash book balance at 30 June 2003: $16 000;
(ii) stock of finished goods at 31 July 2003: $56 420.

REQUIRED

(a) The following budgets for the month of August 2003 only.

(i) Production budget (in units only)

990
99
(ii) Purchases budget 3234 kilos
91

(iii) Sales budget $60000 [13]

59

(b) Calculate the cash book balance at 31 July 2003. 8,000 [7]
-4
22

(c) A cash budget for the month of August 2003 only. 11,890 [7]
03

(d) (i) Explain the advantages and uses of budgets. [7]

n

(ii) Explain how principal budget factors affect the preparation of budgets. [6]
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Page 5 Rizwan ul Hassan (0322-4599199) Page 5

CIE A Level Accounting Work Sheet Topic: Budgeting

6 Zeresh Limited provides the following information from its sales budget for 2014.

Units Sales price per unit

$
January 10 000 20
February 11 000 20
March 11 000 21
April 12 000 21
May 12 000 21
June 14 000 24

Additional information

Inventory of finished goods at each month end is maintained at 20% of the units expected to
be sold in the following month.

Each unit requires 0.5 kilos of raw materials, which costs $3 a kilo.

Half a month’s inventory of raw materials is maintained, based on the expected usage in the
following month.

The total production cost of each unit is $11 and this is the value used for inventory
valuation.

REQUIRED

(a) (i) Prepare the production budget for each of the five months January to May 2014. [11]
Budgeted production (units) 10,200 / 11,000 , 11,200 / 12, 000 / 12,400
(ii) Prepare the purchases budget for raw materials for each of the four months January to
April 2014. Show purchases of raw materials in both kilos and dollars. [9]
Budget purchases (kilos) 5,300 / 5,550 / 5,800 / 6,100
(value) $15,900 / $16,650 / $17,400 / $18,300

(b) Calculate the value of finished goods and raw materials inventory at both 1 January 2014
and 30 April 2014.
99
29 650 / 35 700 [4]
91

(c) (i) Prepare a summarised manufacturing account for the four month period ending
Cost of production 488,400 [6]
59

30 April 2014.
-4

(ii) Prepare the trading account section of the income statement for the same period. [6]
Gross profit 419,000
22

(d) State two advantages and two disadvantages to a company of using a budgetary control
03

system. [4]
n

[Total: 40]
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Page 6 Rizwan ul Hassan (0322-4599199) Page 6

CIE A Level Accounting Work Sheet Topic: Budgeting

7 Alfonso Trading Limited provides the following budgeted data for 2014.

January February March April May

Budgeted sales (units) 5000 5200 5600 5800 5500
Sales price per unit $10 $10 $9 $9.50 $10
Purchase price per unit $4 $4 $4.20 $4.20 $4.20

The following information is also available:

1 The company uses the FIFO method of inventory valuation.

2 The directors aim to maintain inventory levels at 25% of the following month’s sales.
They expect to achieve this on 31 December 2013 but know it will not be possible every
month. The company can buy in a maximum of 5500 units in any one month.

3 All sales are on credit. 50% of customers pay in the month following sales and receive a
cash discount of 4%. The remaining customers pay two months after sale.

4 Trade receivables on 1 January 2014 are expected to be:

$24 000 from November’s sales

$49 000 from December’s sales.

5 Trade payables on 1 January 2014 are expected to total $20 000. The company pays for
all its purchases in the month after purchase, receiving a discount of 5% for prompt
payment.

REQUIRED

(a) Prepare for each of the four months January to April 2014:

(i) Purchases budget. Show purchases for each month in both units and value. [8]
Purchases (units) 5,050 / 5,300 / 5,500 / 5,500
Purchases (value) $20,200 / $21,200 / $23,100 / $23,100
(ii) Trade receivables budget. 99 [14]
c/f 74,500 / 77,000 / 76,400 / 80,300
91

(iii) Trade payables budget. [10]

59

c/f 20,200 / 21,200 / 23,100 / 23,100

-4

(b) Prepare an extract from the statement of financial position at 30 April 2014 showing current
22

assets and current liabilities. 84,500 / 23,100 [3]

03

Additional information relating to April 2014 is as follows:

$
n

Budgeted total variable costs 24 900

sa

Budgeted total fixed costs 16 700

as

REQUIRED
H

(c) Calculate for April 2014:

ul

24.5%
an

(i) the sensitivity of performance to changes in the selling price [2]

zw

(ii) the selling price per unit at which profit would be zero $7.17 [1]

54.22%
Ri

(iii) the sensitivity of performance to changes in variable cost. [2]

[Total: 40]
Page 7 Rizwan ul Hassan (0322-4599199) Page 7
CIE A Level Accounting Work Sheet Topic: Budgeting

8 Riffatulah, a retailer, is preparing his budgets for the year ending 31 May 2014. He provides the
following information.

Statement of Financial Position at 31 May 2013

$ $ $
Assets
Non-current assets Cost Depreciation Net book value
Fixtures and fittings 19 200 7 100 12 100
Vehicle 15 100 11 200 3 900
34 300 18 300 16 000

Current assets
Inventories 4 800
Trade receivables 11 900
Other receivables (insurance) 350
Cash and cash equivalents 6 600
23 650
Total assets 39 650

Capital
Total capital 25 550

Liabilities
Non-current liabilities
Bank loan (6%) 8 000
Current liabilities
Trade payables 6 100
Total liabilities 14 100

Total capital and liabilities 39 650

He prepares budgets using three month periods as follows:

Period 99
1 1 June to 31 August
91
2 1 September to 30 November
3 1 December to 28 February
59

4 1 March to 31 May
-4

He provides the following budgeted information for the year ending 31 May 2014.
22
03

Period 1 2 3 4
Sales (units) 4200 4800 4600 4500
n

Unit selling price $3.10 $3.20 $3.40 $3.30

sa

Purchases (units) 4700 4600 4500 4500

as

Unit purchase price $1.20 $1.30 $1.30 $1.40

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Page 8 Rizwan ul Hassan (0322-4599199) Page 8

CIE A Level Accounting Work Sheet Topic: Budgeting

Schedule of receipts and payments

1 2 3 4
$ $ $ $
Receipts
Customer receipts 16 500 14 200 14 000 15 000
Proceeds of vehicle sale 3 400
Legacy from uncle 5 000
Total receipts 16 500 19 200 17 400 15 000
Payments
Supplier payments 5 800 5 700 5 200 4 000
Purchase of new vehicle 18 000
Purchase of fixtures 3 800
Rent 2 500 2 500 2 500 2 500
Loan interest 240
Drawings 3 000 4 000 3 000 5 000
Insurance 2 000
Administration costs 2 400 2 600 2 600 2 700
Total payments 13 700 20 840 31 300 14 200

Additional information

1 Inventory on 31 May 2014 is expected to have a value of $5100.

2 Discount allowed for the year is expected to be 2% of total sales. Bad debts are
expected to be 1% of total sales.

3 Discount received is expected to be 1% of purchases.

4 Riffatulah depreciates vehicles at a rate of 40% a year on the reducing balance basis.
He depreciates fixtures and fittings at a rate of 10% a year on cost. He provides a full
year’s depreciation in the year of purchase and none in the year of disposal. He only
keeps one vehicle at a time.

5 The insurance policy runs from 1 September to 31 August each year. 99

91
REQUIRED
59

(a) Prepare a budgeted income statement for the year ending 31 May 2014. [13]
Budgeted profit 1,242
-4

(b) Prepare a budgeted statement of financial position at 31 May 2014. 16,792 [17]
22

(c) Using only figures from your answers to (a) and (b), calculate Riffatulah’s working capital
03

cycle. (2.5) days [7]

n

(d) Suggest three ways Riffatulah could improve his working capital cycle and reduce his bank
sa

overdraft. [3]
as

[Total: 40]
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Page 9 Rizwan ul Hassan (0322-4599199) Page 9

CIE A Level Accounting Work Sheet Topic: Budgeting

9 MW Limited manufactures a single product, a Tu. The finance director prepares monthly budgets.

The following budgeted information is available for the first three months of 2015.

1 The selling price will be fixed at $60 per unit. In January 2015 sales are expected to be
24 000 units. It is anticipated that there will be a 5% increase in sales volume in every
subsequent month up to April 2015.

2 The finished goods inventory level at the end of each month will be maintained at one-third of
the expected sales volume in the following month. The inventory of finished goods at
31 December 2014 is expected to be 7 500 units with a value of $242 000. The finished
goods inventory value at 31 March 2015 is expected to be $298 000.

3 Each unit of Tu requires 10 kilos of raw material. The closing inventory of raw materials each
month is expected to meet 20% of the production requirement of the following month. The
inventory of raw materials at 31 December 2014 is expected to be 48 000 kilos. The
purchase price will remain at $1.50 per kilo.

4 Direct labour for the first three months of 2015 is expected to be $850 000. Manufacturing
overhead is expected to be 50% of direct labour.

REQUIRED

(a) Prepare the sales budget for the period January to March 2015. State the units and revenue
for each month. [6]
Sales in volume (units) 24 000 / 25 200 / 26 460
Sales revenue ($60 per unit) $1 440 000 / $1 512 000 / $1 587 600
(b) Prepare the production budget for the period January to March 2015. State the units for each
month. 24 900) / 25 620 / 26 901 [9]

(c) Prepare the purchases budgets for the period January to March 2015. State in kilos and cost
for each month. KGs 252 240 / 258 762 / 270 774) [15]
at cost ($1.5 per unit) 378 360 / 388 143 / 406 161
(d) Prepare the budgeted trading section of the income statement for the three months ending
31 March 2015.
99
2 159 285 [10]
91
[Total: 40]
59
-4
22
03
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Page 10 Rizwan ul Hassan (0322-4599199) Page 10

CIE A Level Accounting Work Sheet Topic: Budgeting

10 The directors of Drosnan Retail Limited provide the following budgeted information.

Revenue Purchases Monthly Administration

depreciation costs
2014 $ $ $ $
November 24 000 14 000 120 6 300
December 26 000 17 000 120 6 200
2015
January 30 000 18 000 120 6 200
February 26 000 15 000 120 6 800
March 28 000 19 000 150 7 100
April 32 000 13 000 150 6 700

Other information is as follows.

1. 10% of all revenue are cash sales.

2. 50% of credit customers pay in the month following the sale and receive a 4% cash
discount. Remaining trade receivables pay in the second month following the sale.

3. All purchases are on credit and are paid for in the month following purchase, after
deducting a 5% early settlement discount.

4. The business rent is $9000 a year. This is paid in two equal instalments on 1 February
and 1 August each year.

5. A dividend of $3100 is expected to be paid on 19 January 2015.

6. Administration costs are paid in the month after the one in which they are incurred.

7. The company expects to take out a bank loan of $10 000 with an interest rate of 7.8%
per annum on 1 March 2015. This is to help finance the purchase of a new vehicle in
March which is expected to cost $12 000. The loan is to be repaid in full together with the
interest after one year.

8. 99
The company directors intend to sell an old vehicle in April 2015. This originally cost
$7200 and by the date of disposal will have accumulated depreciation of $5100. The
91
sales proceeds are anticipated to be $1100.
59

9. Inventory on 1 January 2015 is expected to have a value of $2100. Inventory on

-4

30 April 2015 is expected to be valued at $3800.

22

10. It is expected that there will be a bank overdraft of $1303 on 1 January 2015.
03

REQUIRED
n
sa

(a) Prepare a cash budget for each of the four months January to April 2015. [15]
c/f (1 721) / (2 261) / 2 221 / 5 167
as

(b) Prepare a budgeted income statement for the four month period ending 30 April 2015. [14]
22 700
H

(c) Explain two reasons why the change in the bank balance calculated in (a) is different from
ul

the profit figure in (b). [4]

an

(d) State two reasons why management prepares a cash budget. [2]
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Page 11 Rizwan ul Hassan (0322-4599199) Page 11

CIE A Level Accounting Work Sheet Topic: Budgeting

11 The financial statements of Seko Limited for the year ended 30 June 2014 were as follows.

Income statement for the year ended 30 June 2014

$000 $000
Revenue 3000
Cost of goods sold 1650
Gross profit 1350

Operating expenses
Administrative salaries 700
Heating and lighting 98
Rent and rates 340
Depreciation on plant and machinery 60
Depreciation on motor vehicles 48
Bad debts 4
Sundry expenses 72 1322
Profit for the year 28

Statement of financial position at 30 June 2014

$000 $000
Assets
Non-current assets
Plant and machinery 300
Accumulated provision for depreciation 160 140

Motor vehicles 240

Accumulated provision for depreciation 150 90
230

Current assets
Inventory 120
Trade receivables 245
Cash and cash equivalents 86
451 99
91
Total assets 681
59

Equity and liabilities

-4

Equity and reserves

22

200 000 ordinary shares of $1 each 200

03

Retained earnings 286

486
n

Current liabilities
sa

Trade payables 186

Accrued administrative salaries 9
as

Total liabilities 195

H

Total equity and liabilities 681

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Page 12 Rizwan ul Hassan (0322-4599199) Page 12

CIE A Level Accounting Work Sheet Topic: Budgeting

Seko Limited plans to expand its business in the following year and would like to prepare a
budget for the year ending 30 June 2015.

1 Additional plant and machinery $220 000 and motor vehicles $130 000 are to be purchased
on 1 July 2014.

To finance the non-current assets, a 4-year 10% loan $100 000 and a new issue of 250 000
ordinary shares at $1 each will be raised on the same day. The first payment of loan interest
and capital will be made on 1 July 2015.

2 Sales volume is expected to increase by 60% and the selling price is expected to increase by
10%.

3 Gross profit as a percentage of sales is expected to decrease by 5%.

4 Sales and purchases are expected to be made evenly during the year. All sales and
purchases are on credit. The sales credit period will be one month while the purchases credit
period will be two months.

5 The closing inventory is expected to be $180 000 on 30 June 2015.

6 Two salesmen will be employed to strengthen the selling activities. Apart from their total
annual salaries of $123 000, the salesmen will be entitled to:

Commission – 3% of gross sales (payable in July 2015)

Bonus – 5% of the profit for the year after charging the bonus (payable in July 2015)

7 All other expenses are expected to increase by 5% in line with the expected inflation rate.

8 Depreciation on non-current assets held at 30 June 2015 will be charged at 20% on the
straight-line basis.

9 No bad debts are anticipated. However, a provision for doubtful debts will be made at 2% of
the trade receivables at the year end.

REQUIRED 99
91
(a) Prepare the budgeted income statement for the year ending 30 June 2015. 346 000 [16]
59

(b) Prepare the budgeted bank account for the year ending 30 June 2015. 892 500 [8]
-4

(c) Prepare the budgeted statement of financial position at 30 June 2015. 1082 [12]
22
03

(d) Explain two reasons why a business prepares a budget. [4]

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[Total: 40]
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Page 13 Rizwan ul Hassan (0322-4599199) Page 13

CIE A Level Accounting Work Sheet Topic: Budgeting

12 The directors of Sperrabuck Ltd were concerned about the company’s cash flow. They requested
the accountant to prepare a cash budget for the four months ending 31 October 2005.

The following information was available:

(i) Actual sales

2005 $
May 88 000
June 110 000
Budgeted sales
July 82 800
August 87 400
September 89 700
October 101 250
November 120 000
December 108 000
(ii) Sales are made as follows:
40% of total sales are for cash
50% of total sales are on credit and are paid for in the month after sale
10% of total sales are on credit and are paid for two months after sale
(iii) Customers purchasing on credit are allowed a discount of 2% if they pay within one
month of purchase.
(iv) Supplies are purchased two months before sale and paid for one month after purchase.
(v) The selling price is fixed by adding a mark-up of 40% to the cost of goods sold.
(vi) Wages of $8000 per month are paid in the month in which they are earned. It is expected
that wages will be increased by a pay award of 5% from 1 September 2005.
(vii) Staff are paid a bonus of 4% on all sales in excess of $80 000 each month. The bonus is
paid in the following month.
(viii) Other expenses currently amount to $7000 per month and are paid in the month in which
they are incurred. These expenses are expected to increase by 8% from 1 September
2005. 99
91
(ix) The company will pay a final dividend of $30 000 in August 2005.
59

(x) Sperrabuck Ltd will purchase fixed assets for $20 000 in September 2005.
-4

(xi) The balance at bank on 30 June 2005 is $12 000.

22

REQUIRED
03

(a) Prepare a cash budget for Sperrabuck Ltd for each of the four months July, August,
September and October 2005. Prepare the budget in columnar form and make all
n

29 191 / 6 540 / (15 051) / (23 920) [28]

sa

calculations to the nearest $.

as

(b) Prepare an extract from the budgeted Balance Sheet at 31 October 2005 showing the current
H

assets and current liabilities as far as the information is available. 231 565 / 77 993 [6]
ul

(c) State three benefits which may be obtained from the preparation of budgets. [3]
an

(d) State three advantages that may arise from preparing budgets from standard costs. [3]
zw

[Total: 40]
Ri

Page 14 Rizwan ul Hassan (0322-4599199) Page 14

CIE A Level Accounting Work Sheet Topic: Budgeting

13 Hiemstra Limited manufactures a single product. It operates a flexible budgetary control

system.
REQUIRED

(a) Explain what is meant by flexible budgetary control. [3]

(b) Explain why flexible budgetary control is better than a fixed budget to monitor the
costs of a business. [4]
The budgeted sales in units for the next three months are:
Month Units
1 1200
2 1400
3 1600
At the start of month 1 it will have 200 units of finished goods in stock. It wishes to
reduce the closing stock of finished goods by 20 units a month.
REQUIRED
(c) Prepare the company's production budget in units for months 1-3. [8]
1180 / 1380 / 1580
Additional information:
The revenue and cost information for one unit:
Selling price $29 per unit
Direct material 2 kilograms of material at $3 per kilogram
Direct labour 0.5 hours at $10 per hour
Budgeted factory semi-variable costs are:
Output in units Factory overheads
4000 $31 000
4500 $33 000
Other budgeted factory fixed costs are $23 500.
REQUIRED
(d) Calculate the break-even point in units and in value. 2 750 / $79 750 [7]

99
Additional information:
91
The actual results for the three-month period were:
59

Sales 4400 units

-4

Selling price $28 per unit

22

Direct material 2 kilograms at $4 per kilogram

Direct labour 0.4 hours at $10 per hour
03

Factory overheads $36 200

n

Fixed overheads $18 000

sa

REQUIRED
as

(e) Prepare a flexible budget statement for the three-month period, clearly showing
H

the actual and budgeted data and any variances. [10]

Profit A 16 200 / B 23 100 / V (6 900)
ul
an

(f) Explain why, despite an increase in units sold, the actual profit was less than the
budgeted profit. [8]
zw
Ri

[Total: 40]

Page 15 Rizwan ul Hassan (0322-4599199) Page 15