Accounting & Budgeting Assessment No. 1

This assessment includes tasks related to accounting and budgeting. Task 1 requires preparing an adjusted trial balance, Task 2 requires preparing an income statement and balance sheet, Task 3 requires preparing a statement of cash flow, and Task 4 requires calculating ratios and analyzing financial statements. The subject is Accounting and Budgeting, and the course code is FNSACC414 and FNSACC412 for the units of competency. The college is not mentioned.

T-1.8.1
Details of Assessment
Term and Year Term 4, 2018 Time allowed Week 2, 3, 4, 5, 6, 7, 8
Assessment No 1 Assessment Weighting 60%
Assessment Type Written Response
Due Date Week No. 8 Room 710
Details of Subject
Qualification FNS40217 Certificate IV in Accounting& Bookkeeping
Subject Name Accounting and Budgeting
Details of Unit(s) of competency
Unit Code (s) and
Names
FNSACC414 Prepare financial statements for non-reporting entities
FNSACC412 Prepare operational budgets
Details of Student
Student
Name
College Student ID
Student Declaration: I declare that the work
submitted is my own, and has not been
copied or plagiarised from any person or
source.
Signature: ___________________________
Date: _______/________/_______________
Details of Assessor
Assessor’s Name Tashfiq Chowdhury
Assessment Outcome
Results Competent Not yet competent Marks / 60
FEEDBACK TO STUDENT
Progressive feedback to students, identifying gaps in competency and comments on positive improvements:
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
Student Declaration: I declare that I have been
assessed in this unit, and I have been advised of my
result. I also am aware of my appeal rights and
reassessment procedure.
Signature: ____________________________
Date: ____/_____/_____
Assessor Declaration: I declare that I have
conducted a fair, valid, reliable and flexible
assessment with this student, and I have provided
appropriate feedback
Student did not attend the feedback session.
Feedback provided on assessment.
Signature: ____________________________
Date: ____/_____/_____
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Assessment/evidence gathering conditions
Each assessment component is recorded as either Competent (C) or Not Yet Competent (NYC). A student can only
achieve competence when all assessment components listed under “Purpose of the assessment” section are recorded
as competent. Your trainer will give you feedback after the completion of each assessment. A student who is assessed
as NYC (Not Yet Competent) is eligible for re-assessment.
Resources required for this Assessment
 All documents must be created in Microsoft Word
 Upon completion, submit the assessment printed copy to your trainer along with assessment
coversheet.
 Refer to the notes on eLearning to answer the tasks
 Any additional material will be provided by Trainer
Instructions for Students
Please read the following instructions carefully
 This assessment has to be completed In class
 The assessment is to be completed according to the instructions given by your assessor.
 Feedback on each task will be provided to enable you to determine how your work could be improved. You will be
provided with feedback on your work within two weeks of the assessment due date. All other feedback will be
provided by the end of the term.
 Should you not answer the questions correctly, you will be given feedback on the results and your gaps in
knowledge. You will be given another opportunity to demonstrate your knowledge and skills to be deemed
competent for this unit of competency.
 If you are not sure about any aspects of this assessment, please ask for clarification from your assessor.
 Please refer to the College re-assessment for more information (Student Handbook).
Assessment Instructions:
 This is an individual task with written response. You need to prepare answers from the
materials available at elearnings or you may use any web materials.
 To be assessed as competent for this unit, the student must complete all of the assessment
tasks satisfactorily.
 All questions must be answered correctly in order for a student to be assessed as having
completed the task satisfactorily.
 Please read through this assessment thoroughly before beginning any tasks. Ask your trainer
for clarification if you have any questions at all.
 Answers must be word processed and you need to submit the hard copy of assessment to
your trainer.
 Keep a copy of all of your work, as the work submitted to your assessor will not be returned to
you.
Task 1 - Accounting (2.5 Marks)
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The trial balance of V Emery does not balance. The owner
has asked for your help. After looking at the business records you find:
 some items in the trial balance are on the wrong side
 the goodwill account with a balance of $20000 has been omitted
 the balance of accounts payable control should be $37 600, and
 there is a balance for the accounts receivable control but the amount is not
clear (balancing figure)
You are required to prepare an adjusted trial balance with the above information.
Trial Balance of V Emery
As at30June2018
Unadjusted Adjusted
Accounts Debit Credit Debit Credit
Inventory 64800
Accounts receivable control ?
Allowance for doubtful debts 940
Bank (debit balance) 13600
Petty cash 1000
GST paid 2000
Land and buildings 137000
Accumulated depreciation –
buildings
2700
Goodwill
Accounts payable control 36700
GST collected 6100
Income received in advance 3700
Capital 268000
Sales 194000
Rent income 10400
Bad debts recovered 1900
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Cost of goods sold 120600
Advertising 3600
Salaries and wages 39800
General expenses 17200
Donations 1800
440,940 484,900
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Task 2 - Accounting (2.5 Marks)
Use the information in adjusted Trial Balance (in Week 2), prepare an Income
Statement and a Balance Sheet.
V.Emery
Income Statement
For the year ending 30 June 20X8
Particulars $ $ $
Revenues
Sales 194000
Less: Cost of goods sold -
120600
Gross Profit 73400
Other income
Income received in advance 3700
Bad debts recovered 1900
Rent income 10400 16000
Total revenue (A) 89400
Expenses
Advertising 3600
Salaries and wages 39800
General expenses 17200
Donations 1800
Total expenses (B) 62400
Net profit (A-B) 27000
V.Emery
Balance Sheet
As at 30 June 20X8
Particulars $ $ $
Assets
Current assets
Bank (debit balance) 13600
Petty cash 1000
Inventory 64800
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GST paid 2000
Goodwill 20000
Accounts receivable control 103940
20534
0
Non current assets
Land and buildings 137000
Less: accumulated depreciation -2700 13430
0
Total assets 33964
0
Liabilities and equities
Liabilities
Current liabilities
Accounts payable control 37600
GST collected 6100
Allowance for doubtful debts 940
Total liabilities 44640
Equity
Capital 268000
Net income 27000
Total equity 295000
Total liabilities and equity 339640
Task 3- Accounting (2.5 Marks)
Prepare a Statement of Cash Flow of ABA Trading for the year ended 30 June 2018
from the following information:
Cash Sales 20,000
Credit Sales 150,000
Repayment of Mortgage- Principal 50,000
- Interest 2,000
Wages and salaries 50,000
Other Operating Expenses paid 20,000
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Payments to Accounts Payable 30,000
Discount Received 1,000
Depreciation expense 5,000
Receipts from Accounts Receivable 160,000
Dividends received on share investments 500
Proceeds from sale of Office Equipment 2,000
New Capital introduced by the owner 40,000
Bad Debts written off 3,000
Drawings by the owner 20,000
Purchase of Office Equipment 5,500
Cash at Bank 1/7/2017 5,000
Cash at Bank 30/6/2018 ?
Solution:
ABA Trading
Statement of cash flows
For the year ending 30 June 2018
Particulars $ $ $
Cash flow from operating
activities
Cash sales 20,000
Receipts from Accounts
Receivable
160,000
Payments to Accounts Payable 30,000
Wages and salaries 50,000
Other Operating Expenses paid 20,000
Cash generated from operations 80,000
Interest paid 2,000
Net cash flow from operations 78,000
Cash flow from investing
activities
Proceeds from sale of Office
Equipment
2,000
Dividends received on share
investments
500
Purchase of Office Equipment 5,500
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Cash used in investing
activities
-3,000
Cash flows from financing
activities
New Capital introduced by the
owner
40,000
Repayment of Mortgage-
Principal
50,000
Drawings by the owner 20,000
Cash used in financing
activities -30,000
Net increase/decrease in cash 45,000
Add: Opening balance 5,000
Closing balance 50,000
Task 4 - Accounting (5 Marks)
Financial Statement Analysis:
You are given the following financial statements for Huffington Post Trading:
Income Statement for the year ended 30June 2018
$ $ $
Sales (all credit) 480,000
Less, Cost of Goods Sold
inventories (1/7/2017)Purchases 54,500
Goods available for sale 331,800 386,300
Less, Inventories 30/6/2018 69,500 316,800
Gross Profit 163,200
Other Income 5,000
Total Operating Income 168,200
Less, Operating Expenses 110,600
Net Profit 57,600
Balance Sheet as at 30 June 2018
$ $ $
Current Assets
Accounts Receivable 78,000
Less, Allowance for Doubtful Debts 3,000 75,000
Inventories 69,500
Prepaid Expenses 500
Accrued revenue 1,000 146,000
Non-Current Assets
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Land 100,000
Buildings(net) 54,000
Plant & Equipment (net) 80,000
Motor Vehicles (net) 20,000 254,000
Total Assets 400,000
Current Liabilities
Bank Overdraft 25,000
Accounts Payable 52500
Accrued Expenses 2500 80000
Non-Current Liabilities
Mortgage Loan 80000
Total Liabilities 160000
Net Assets (Net Asset - Total Liabilities 240000
Owner's Equity
Capital-(1/7/2017) 222400
Add, Net Profit for the year 57600
Less, Drawings 40000
Owner's Equity 240000
Other Information:
30/06/2017 Industry Average 30/06/2018
Gross Profit Rate 37.00% 33.00%
Net Profit Rate 9% 12.00%
Current Ratio 1.6:1 2:1
Liquid Ratio 1.3:1 1.2:1
inventory Turnover Rate 5.8times 5times
Average Collection Period 50days 45days
Required:
1. Calculate for the year ended 30 June 2018 (2.5 Marks):
 Gross Profit Rate
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Net Profit Rate
 Current Ratio
 Liquid Ratio
 Inventory Turnover Rate
 Average Collection Period
2. Based on the ratios you have calculated and the other information given,
comment briefly on each of the following for Bowman's business (1.5 Marks):
 Profitability
 Business Activity
 Liquidity
3. Advise the company of possible reasons for any unsatisfactory situations that
exist in relation to the business and suggest actions that may be taken to
improve them. (1 Mark)
Ratios Formula
Gross profit rate Gross profit/Total revenue 34.00%
Net Profit Rate Net profit/Total revenue 12.00%
Current Ratio Current assets/current liabilities 1.83
Liquid Ratio Quick assets/current liabilities 0.95
Inventory Turnover Rate COGS/Average inventory 5.11
Average Collection Period Accounts receivables/Credit sales per day 59
Requirement 2
 Profitability
The gross profit ratio of the company has reduced from 37% to 34% during the year,
though it is still more than the industry average of 33%. The significant increase in
company’s cost of goods sold has lower down its GPR.
However, a reverse trend has been noticed in the net profit ratio of the Bowman as it
increased from 9% to 12%, equivalent to the industry standard. This proves that
company has improvised its profitability position and is performing well in its industry,
as per the benchmarks. Its profits have increased and Bowman has outperform its
competitors by meeting the industry average.
 Business activity
The inventory turnover ratio has shown an upsurge as it rises from 5.8 times to 5.11
times during the year. This reflects that the business is efficient enough to generate
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more revenues from its inventory.
However, its average collection period increased from 50 days to 59 days and is also
way more than the industry average of 45 days. This means that the business is not
competent enough to collect its receivables quickly and on time. Bowman needs to
focus on improving this as it may create problems in company’s functioning.
 Liquidity
The current ratio of the business increase from 1.61:1 to 1.85:1. This was due to the
fact that the current assets of the business are more than its current liabilities which
anyway boosted up the ratio.
In contrast to it, the quick ratio reduced to 0.95:1 from 1.3:1 because of the no cash
balance within the business. Most of the cash is hold by accounts receivables and
inventories which eventually eliminates the liquid assets of the company. overall,
Bowman has stable liquidity position as it can pay off all its short term financial
obligations easily.
Requirement 3
It is advisable to Bowman that it should reduce its cost of goods sold and increase its
overall revenue. Moreover, it should also include some cash sales in the business so
that the whole dependence for liquidity does not go on to debtors. Having minimum
cash balance in the business is very much necessary for Bowman to maintain its
liquidity and solvency position. Along with that the company should also focus on
reducing its average collection period so that the cash balance can increase and
quick ratio can be improved. By focusing on these areas, Bowman will be able to
enhance its overall profitability and liquidity position.
Task 5- Accounting (10 x 0.5 Mark = 5 Marks)
Short questionnaire
1. What is the difference between current assets and non-current assets?
Current assets
These are those assets which can be converted into cash within a period of one year
or less than that. They include cash and bank, inventories, debtors, prepaid
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expenses and others. All these assets provide economic benefit to the company
within a year.
Non-current assets
These assets are held by the company for more than one year and are considered
as the long term investments of the firm. They provide economic benefits to the
company for long run and require more than one year to get converted into cash. For
instance, property, plant and equipment, land, machinery, building and others.
2. Explain revenue and revenue recognition.
Revenue
In accounting terms, revenue the amount earned by a business from its operations
or activities. It is generated by the sale of goods and services to the consumers.
Revenue is also received from other sources like interest income, fees, royalties and
many more.
Revenue recognition
It is an accounting concept that focuses on specific circumstances under which the
revenue is recognized by the company. IFRS has laid down some criteria for the
same such as transfer of risks and rewards from seller to buyer, measureable
amount of revenue and cost of revenue and others.
3. What does it mean to capitalize expenditure?
Capitalization of expenditure means that it will now recorded in the balance sheet as
an asset rather than in income statement as an expense.
4. What supporting charts, diagrams or data may be useful to be presented with
the financial statements?
Charts like pie-chart reflecting the revenue of the company from different
segments, line graph showing the net profit growth, column graph reflecting the
main items like historical sales, return on equity, operating profit and others might
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prove to be useful for the readers while presenting the financial statements,
5. Describe the difference between data and knowledge.
Data means the collection of raw facts and figures which are not been processed
or used by the system.
When the data is processed or filtered, it becomes information and out of that
filtered pool of information, the useful fact and figures is known as knowledge.
Data is raw while the knowledge is experienced and informed.
6. What do information systems capture and why are they important?
Information systems are designed to capture the internal and external data from
the organization and the environment within which it works. They are important for
the businesses as they help in achieving operational excellence, improved
decision making, creating new products and services and others.
7. What steps should you take to check accuracy and consistency of invoices?
Following steps should be taken:
 Tracking the sales and entering the details correctly.
 Using good accounting software suitable to the business for improving the
invoicing process.
 Establishing an effective and proper communication between sales manager
and accounts manager so that no transaction left unrecorded.
 Invoice regularly so that customers’ queries can be solved promptly.
8. What role does double entry accounting have in checking financial data for
consistency and accuracy?
Double entry accounting system requires companies to record the transaction in at
least two accounts simultaneously, one is debit and other is credit. In such way all
the transactions are balanced out in the last which eventually make the financial data
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accurate and consistent.
Another reason is that it implements the matching principle which deals with the
recording of accrual revenue and expenses. Such recording leads to accurate
calculation of profits and loss making the entire data accurate.
Further, human errors can also be detected as the system provides checks and
balances.
9. What approach would you take if you were required to make a presentation
about profit and loss over the last financial period?
Conducting a graphical representation of the items which contributed to the profit
and loss can be a suitable approach. It includes creation of bar graphs and pie
charts of the figures representing revenue and expenses and amount of profit and
loss.
10. Consider the following scenario. While preparing bank reconciliation you have
noticed several inconsistencies that have been made by one of your
managers in accounts. It is not fraudulent but charges have been wrongly
allocated which has resulted in inaccurate information. What would you do in
this scenario?
Firstly, the discrepancies or the items which are wrongly charged must be identified
in order to be got corrected. Then the adjustments of the identified items must be
done so that the balance as per bank and balance as per cash book can be
matched. Proper treatment of each and every transaction should be made and the
company should communicate the differences to the bank immediately.
Task 6- Accounting (7.5 Marks)
Partnership:
1. On 1 January 2018 A and B agreed to go into a business partnership
contributing $50,000 and $30,000 respectively as capital. Prepare general
journal entries to record the capital contributions of A and B. (0.5 Mark)
Date Particulars Debit Credit
1-Jan Cash A/c $80,000
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A’s Capital A/c $50,000
B’s Capital A/c $30,000
2. M and N agreed to form a partnership on the 15 January 2018. M will provide
the business premises valued at $250,000 and Motor Vehicle $33,000 as his
capital contribution. N is to bring in an equivalent amount in cash $280,000.
Market value of motor vehicle is $30000.
Prepare general journal entries to record the capital contributions of M and N.
(0.5 Mark)
Date Particulars Debit Credit
15 Jan Business premises A/c 250,000
Motor Vehicle A/c 30,000
M’s Capital A/c 280,000
15 Jan Cash A/c 280,000
N’s Capital A/c 280,000
3. On 31 December 2017, A and B agreed to combine their businesses and
operate as Happy Traders. The balance sheets of the respective businesses
are as follows:(1 Mark)
A B
Balance sheet as at 31
Dec 2017
Balance sheet as at 31
Dec 2017
Asset Asset
Bank 8,000 Inventory 12,000
Accounts
receivable
10,000 Premises 20,000
Inventory 12,000 Delivery
Van
16,000
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30,000 48,000
Liability Liability
Accounts
Payable
12,000 Overdraft 15,000
Net Asset 18,000 Net Asset 33,000
Owner’s Equity Owner’s Equity
Capital - A 18,000 Capital - B 33,000
The agreed values of A's and B's businesses are $25,000 and $40,000 respectively.
The agreed value of A's inventory and accounts receivable are $10,000 and $7000
respectively. The agreed value of B's premises and delivery van are $22,000 and
$6,000 respectively. The agreed value of all other items was at their book value.
Prepare general journal entries to record the capital contributions of A and B.
Date Particulars Debit Credit
Inventory A/c 10000
Accounts Receivable A/c 7000
A’s Capital A/c 17000
Business premises A/c 22000
Delivery Van A/c 6000
B’s Capital A/c 28000
Not for profit entities
The following balances have been extracted from the ledger of the Amateur Sailors
Club for its operations for the year to 30 June 2018:
$
Subscription Revenue 25,500
Printing of Club Journal 2,500
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Wages – General 15,050
Depreciation - Club Equipment 1,250
Telephone 1,200
Genera l Expenses 750
Interest received 2,500
Joining Fees 500
Electricity 300
Treasurer's Honorarium 500
Postage 600
Maritime museum Tours – Receipt 2,000
Maritime museum Tours – Expenses 1,000
Surplus from Refreshments Trading 4,000
Required:
1. Prepare Income and Expenditure account (2 Marks)
2. Prepare Income and Expenditure statement (2 Marks)
Answer:
Amateur Sailors Club
Income & Expenditure Account for the year ended 30 June 2018
Expenditures Amoun Incomes Amoun
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t t
Wages – General 15050 Subscription Revenue 25500
Depreciation - Club
Equipment
1250
Interest received
2500
Telephone 1200 Joining Fees 500
Genera l Expenses 750 Surplus from Refreshments
Trading
4000
Electricity 300 Surplus from museum Tours 1000
Treasurer's Honorarium 500
Postage 600
Printing of Club Journal 2500
Surplus (excess of
incomes over expenses) 11350
Total 33500 Total 33500
Amateur Sailors Club
Income & Expenditure Statement for the year ended 30 June 2018
Particulars $ $
Revenues
Subscription Revenue 25500
Interest received 2500
Joining Fees 500
Surplus from Refreshments Trading 4000
Surplus from museum Tours 1000
Total revenue 33500
Expenses
Wages – General 15050
Depreciation - Club Equipment 1250
Telephone 1200
Genera l Expenses 750
Electricity 300
Treasurer's Honorarium 500
Postage 600
Printing of Club Journal 2500
Total expenses 22150
Profit (revenue - expenses) 11350
On 01 July 2012, ABC Ltd purchased a truck for a total cost of $132000 cash including
GST. In addition, delivery charges of $2750 including GST and registration and
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insurance of $4500 including GST were paid on same day. The useful life of the truck
was estimated to be five years, with a salvage value of $2000 excluding GST. The
company calculates annual depreciation using the straight-line method.
You are required to:
I. Calculate the annual depreciation, using the straight-line method (0.5 Mark)
II. Calculate annual depreciation at 30% Reducing Balance Method (0.5 Mark)
III. Which method is better and why? (0.5 Mark)
Straight line method
Cost of truck (excluding GST) 118800
Salvage value 2000
Life of truck 5
Depreciation 23360
Written down value method
Years Cost Depreciation at 30%
Net
book
value
1 118800 35640 83160
2 83160 24948 58212
3 58212 17464 40748
4 40748 12225 28524
5 28524 8557 19967
Mostly companies prefer written down value method as it is easy to use and understand. It uses
a fixed rate of depreciation and the amount of same reduces along with the reduction in asset’s
balance. Also, WDV takes into account the obsolescence problems as the major part of
depreciation is charged in the earlier years. It is also used by tax authorities and legal bodies.
Therefore, WDV method is always chosen over SLM method and is better than it.
Task 7 - Budgeting (10 x 0.50 Mark = 5 Marks)
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Scenario
A new member of the staff-Sally has been working with you for two months as
Accounts Clerk. She is new to budgeting and forecasting. She needs a clear
understanding of organisational policy, aims, projects and forecasts to prepare
different budgets. She studied budgeting in the Accounting study, but she has
forgotten most of what she learnt. You are given a job by your supervisor to provide
a comprehensive orientation on budgeting, particularly focusing in the following
areas related to the purpose & policy statement of your company's budget policy.
You are required to read these two issues of budget policy and answer all questions
carefully.
1. Purpose
When identifying the purpose of the policy, consider how it might apply to your
organisation’s activities. Your organisation may have a need for separate budgets
for different activities for monitoring or reporting purposes and may need to report to
external bodies on different budgets for accountability purposes.
2. Policy statement
If you are adopting the policy statement in the template, consider whether there are
any additional commitments your organisation wants to make.
In identifying the actions your organisation will take to implement this policy, you
should include the following:
 developing an annual budget for the organisation for approval by the board or
management committee
 monitoring income and expenditure against the budget on a regular basis
 reporting to the board or management committee on the budget position
 taking action when there is a significant variation between projected and
actual figures
 reviewing and adjusting the budget on a regular basis."
Required: Provide answers based on scenario.
1. Define the term 'budgeting'.
Budgeting refers to a procedure of planning in advance the income and expenses of
the business for a particular fiscal year. It involves creation of budgets and deals
with balancing the income and expenditures. It is the very important function of
management and needed to be carried out at each level of the organization.
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2. List objectives of the budget policy.
 Allocate the organization’s available resources as per the economic and
social benefit to the business.
 Preparation of separate budgets for various activities and departments.
 Ensuring proper review and monitoring of the income and expenses of the
business.
 Reporting to the external bodies on the budgets prepared in order to establish
accountability in the business.
3. Why is it necessary to determine and confirm scope and nature of budgetary
planning activity with relevant colleagues?
It is very important for the company to define the scope of budgetary planning with
its employees as they are the one who needs to be aware about the activities that
are planned in order to achieve the set target of the company. Budgets are basically
the financial plans which are used by the every organization as per their needs and
requirements. They are also of different time frames and prepared for different
purposes. Such information is needed to be shared with the team members as the
purpose and time frame will identify the type of information required to be collected
and determine the manner in which it can be used.
Budgets reflect how the money has to be spent and help in determining who is
accountable for what activity and how it has to be performed. Overall it guides the
company in utilizing its human resources effectively and efficiently. Therefore, it is
necessary to discuss the scope and nature of budgetary planning with the
colleagues.
4. According to Policy Statement, who will approve the annual budget?
As per the policy statement, the board of directors or the
management committee of the organization is authorized
for the approval of annual budget.
5. List the activities involves in budgeting process.
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 Communication within the executive management.
 Determining the objectives and targets.
 Preparation of detailed budget.
 Compilation and revision of budget model.
 Review and approval from budget committee.
 Approval from board of directors.
6. List the benefits of budgeting.
 Helps in the planning and controlling function of the management.
 It is used as a performance measurement tool by the management which
helps the managers to evaluate the company’s performance.
 It provides a benchmark against which the actual results are compared and
variances are identified.
 Budgeting helps the management to improve their decision making process.
 It provides an overview of company’s profitability by estimating the incomes
and expenses in advance.
7. List the limitations of budgets.
 Budgeting is completely based on assumptions and thus may prove to be
inaccurate in actual circumstances.
 It is a very time consuming and costly process.
 There is a full scope of manipulation as budgets are prepared by managers
and they can modify the figures in their best interest.
 It only covers the financial outcomes and does not define the non financial
performance of the company.
8. Examine five cost reduction methods that could be investigated and identify
who (person or role), within a business, could be made responsible for each
method or strategy.
The five cost reduction methods that could be identified and applied by the
organization are as follows:
 Using the advanced technology in the business by using automated
machines with the help of information technology. This will eventually lower
the labour cost of the firm. The IT department and its manager is responsible
to carry out such method.
 Another method is outsourcing the activities in which the company is not
Accounting & Budgeting, Assessment No. 1 Page 22
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T-1.8.1
competent enough as this will allow it to control and reduce the costs to a
great extent. The top management must be responsible for conducting such
outsourcing operations.
 Reducing and removing the wastage from the process such as unnecessary
activities and inventories. The operational manager should be authorized for
looking up to the operational efficiency of the workers and removing the
waste.
 Applying various costing techniques such as activity based costing, target
costing which help the company to identify the costs appropriately and reduce
the same. Senior managers and executives are responsible for strategizing
the most appropriate costing technique for their business.
 Establishing quality control within the operations also results in reduced and
minimized costs. Identifying the quality problems at each and every stage of
the production is the responsibility of every manager who is appointed at
every stage.
9. What is the importance of a cash flow budget or report?
Cash flow is the important factor which is required to keep the business in
operations by funding the day to day expenses. Therefore, preparation of cash flow
budgets and reports are vital for the organization. They provide the data which is
necessary for the creation of new forecasts and design of new budgets. Such
reports help the company to manage their cash flow as it provides them with the
forecasted surplus and shortage of cash. This eventually results in more informed
decisions taken by the management regarding the purchase of equipment, tax
purposes and others. Overall, the cash flow budget or report helps in improvising the
performance of the company by facilitating proper control and monitoring of the cash
position.
10. Explain the principles of double entry bookkeeping.
The main principle of double entry bookkeeping system is that one account is
debited while the other in correspondence is credited. In other words, the key
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T-1.8.1
principle of the system states that every debit has a corresponding credit of the
equal amount of money. Under this, every transaction has two entries and is
recorded twice in the accounts. It follows the matching principle by balancing out the
amounts in ledger accounts.
Task 8 – Budgeting (10 x 1 Mark = 10 Marks)
Answer all questions
1. You are employed by a white goods distributor and have been asked to
prepare a list of controllable and uncontrollable factors that might affect the
sales of refrigerators in the coming year. Prepare a list for the next
management meeting.
Controllable factors are also known as marketing mix which includes four Ps that
can affect the sale of refrigerators.
 Product: The refrigerators should be designed in such a manner that they
occupies less space and are faster on operations with latest technology
installed in them. More product quality, more will be the demand and more
will be the sale.
 Place: the company must target the potential market where the refrigerators
can be sold and are easily accessible to the consumers. Pointing out the
favourable market segment and targeted consumer group will have a great
impact on the product sales.
 Price: a competitive pricing policy must be farmed in order to create a strong
consumer base and beating the competitors.
 Promotion: another factor which can affect the sales as proper advertising of
the product leads to high demand and high sale of the product.
Uncontrollable factors:
 Political conditions
 Economic forces
 Competition
 Technological changes
 Legal compilations
 Socio-cultural conditions.
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T-1.8.1
2. At January 1, Arrant Ltd. had 1,100 32 GB USB on
hand. Its policy is to maintain an ending inventory equal to 15% of units
needed for the next month’s sales. Arrant estimates it will sell 8,000 USBs
during the first month with a 5% increase in sales each subsequent month.
Each USB is sold for $16.
Required: Prepare a sales budget for the March.
Solution:
32 GB USB
Expected Sales (units) 8820
Selling Price per unit ($) 16
Expected Sales ($) 141120
3. Orient Trading Co. sells products B and C. Sales for February were 1500
units of B at $40 and 1000 units of C at $50. A price rise of $5 per unit will be
effective from March 1 on both products. It is expected that this will result in a
10% fall in the number of units of product B sold, and a 20% fall in the number
of units of C sold during March compared with February.
Required: Prepare a Sales Budget for Orient Trading Co. for March.
Solution:
Product B Product C Total
Expected Sales (units) 1350 800 2150
Selling Price per unit ($) 45 55
Expected Sales ($) 60750 44000 104750
4. Apple glassware sells four basic styles of glass. A wine, beer, scotch and juice
glass. The prices per glass are as follows: Wine $7.00. Beer $5.50, Scotch $6.25,
Accounting & Budgeting, Assessment No. 1 Page 25
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T-1.8.1
Juice 4.50. Expected Sales for March were 1,400 wine,
1,200 beer, 1,100 scotch and 1,320 juice.
Required: Prepare a Sales Budget for March showing expected sales by product and
in total.
Solution: Apple Glassware
Wine Beer Scotch Juice Total
Sales units 1400 1200 1100 1320 5020
Price $ 7 5.50 6.25 4.50
Sales $ 9800 6600 6875 5940 29215
5. Sales Budgets by Period
Angelina on the Affleck Electronics Ltd provides the following figures and asks that
you prepare sales budget for the quarter ending 31 July.
January February March
Average number of Electrical goods 560 495 520
Average bill $ 140 110 90
Solution:Angelina on the Affleck Electronics Ltd
January February March Total
Sales $
78400 54450 46800 179650
6. Sales Budgets by Area
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T-1.8.1
Archie Clothing Warehouse have stores in Sydney,
Melbourne and the Gold Coast. The sales manager has supplied the sales figures
for October, November and December.
Sydney $ Melbourne $ Gold Coast $ Total $
October 46,000 31,000 54,000 131,000
November 68,000 48,000 76,000 192,000
December 53,000 42,000 66,000 161,000
$167,000 $121,000 $196,000 $484,000
Those figures were achieved during a relatively cool summer. This year is expected
to be warmer and sales are budgeted to increase by 14% in Sydney, 6% in
Melbourne and 26% on the Gold Coast.
Required: Prepare a projected sales budget for the same period next year.
Solution:
Sydney $ Melbourne
$
Gold Coast
$
Total $
October 52440 32860 68040 153340
November 77520 50880 95760 224160
December 60420 44520 83160 188100
190380 128260 246960 565600
7. Gillard’s books sells year end hampers for $90.50 each. Based on last years’
figures the sales department has budgeted for the following sales this year.
NSW VIC QLD SA WA NT TAS
No. Of
Sales
4,150 3,420 3,790 2,600 2,900 1,150 880
$90.50
Required: Prepare a sales budget for this year’s year end hampers.
Solution: Gillard’s books hampers
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T-1.8.1
NSW VIC QLD SA WA NT TAS
Sales $
375575 309510 342995 235300 262450 104075 79640
8. Fees Budget
CMDP’s Accountants have four accountants in the business. Charlie who charges
$60 per hour, Mary $45 per hour, Dickson $80 per hour and Peter $58 per hour. In
the month of June the hours charged were expected to be: Charlie 140, Mary 160,
Dickson 80 and Peter 120.
Required: Prepare a Fees budget for June.
Solution:
Charlie Mary Dickson Peter Total
Hours 140 160 80 120 500
$ per hour 60 45 80 58
Income $ 8400 7200 6400 6960 28960
9. BMW financial advisers provide service by the hour and charge a separate fee for
preparing a financial plan. During January, hours charged are expected to be 1,210
and 62 financial plans are expected to be prepared. Cost per hour is $44 and each
plan costs $1,600.
Required: Prepare a Fees Budget for January.
Solution: BMW Financial Advisors
Charged
Hours
Financial
Plans
Total
Hours /
Plans (units)
1210 62 1272
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T-1.8.1
Price per
Hour / Plan
($)
44 1600
Fees /
Income ($)
53240 99200 152440
10. Using the example in the text of the three products: A, B and C, complete the
table:
Sales Budget:
Produ
ct
Cost
price
Sale
price
Total budget
sales last
month Total
costs on
sales
Gross profit
budget last month
Profit
% per
item
on
sale
price
Qt
y $
per
item on sales
A $7.50 $12.0
0
50
0
$6,000.00 $3,750.00 $4.50 $2,250.00 37.50
%
B $9.25 $17.0
0
40
0
$6,800.00 $3,700.00 $7.75 $3,100.00 45.59
%
C $10.0
0
$30.0
0
30
0
$9,000.00 $3,000.00 $20.0
0
$6,000.00 66.67
%
Total $21,800.0
0
$10,450.0
0
$32.2
5
$11,350.0
0
Actual Sales:
Produ
ct
Cost
price
Sale
price
Total sales last
month
Total
costs on
sales
Gross profit last
month
Profit
% per
item
on
sale
price
Qt
y $
per
item on sales
A $7.50 $12.0
0
65
0
$7,800.00 $4,875.00 $4.50 $2,925.00 37.50
%
B $9.25 $17.0
0
50
0
$8,500.00 $4,625.00 $7.75 $3,875.00 45.59
%
C $10.0
0
$30.0
0
20
0
$6,000.00 $2,000.00 $20.0
0
$4,000.00 66.67
%
Total $22,300.0
0
$11,500.0
0
$32.2
5
$10,800.0
0
Total:
Accounting & Budgeting, Assessment No. 1 Page 29
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T-1.8.1
Product
Gross profit
budget ($)
Gross
profit
actual ($) Variance ($)
A $2,250.00 $2,925.00 $675.00
B $3,100.00 $3,875.00 $775.00
C $6,000.00 $4,000.00 -$2,000.00
Total $11,350.00 $10,800.00 -$550.00
Task 9- Budgeting (5 x 1 Marks = 5 Marks)
1. Purchase Budget by Product
Sandra Retail Co. purchase products A and B. Purchases for September were 400
units of A at $25 and 800 units of B at $45. A price rise of $5 per unit will be effective
from October 1 on both products. It is expected that this will result in a 5% fall in the
number of units of product A purchased and a 10% fall in the number of units of C
purchased during October compared with September.
Required: Prepare a Purchase Budget in dollars and units for Sandra Retail Co. for
October.
Solution: Sandra Retail Co.
Product
A
Product
B
Total
Expected
Purchases Units
380 720 1100
Purchase Price
per unit $
30 50
= Expected
Purchases $
11400 36000 47400
2. Local fruit shop purchase four types of fruits: Strawberry, Banana, Orange and
Kiwi. The prices per 6 litre container are as follows: Strawberry $7.00, Banana $5.50,
Orange $6.25 and Kiwi $4.50. Expected purchases for January were 1,400
Strawberry, 1,200 Banana, 1,100 Orange and 1,320 Kiwi.
Required: Prepare a Purchase Budget in dollars and units for January showing
expected purchases by product and in total.
Solution:
Strawberr
y
Banan
a
Orang
e
Kiwi Total
Purchase Units 1400 1200 1100 1320 5020
Price $ 7 5.5 6.25 4.5
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T-1.8.1
Purchase $ 9800 6600 6875 5940 29215
3. Purchase Budget by Period
Igloo Ice cream Co has the following purchase figures for the quarter ended
December, 2013
Macadamia nuts Chocolate chips Chocolate
October $18,000 $36,000 $12,000
November 20,000 44,000 8,000
December 29,500 52,000 24,000
$67,500 $132,000 $44,000
Purchases are expected to increase next year, especially in December. The
increases expected are:
Macadamia nuts: 4.0% in October, 7.0% in November and 14.0% in December
Chocolate chips: 2.0% in October, 3.0% in November and 8.0% in December
Chocolate: 1.5% in October, 4.0% in November and 5.0% in December
Required: Prepare a purchases budget for Igloo Ice cream Co for the December
quarter 2013.
Solution:
Macadamia
nuts
Chocolate
chips
Chocolate
October $18,720 $36,720 $12,180
November $21,400 $45,320 $8,320
December $33,630 $56,160 $25,200
Total $73,750 $138,200 $45,700
4. Purchase Budget by Area
The following data is provided for Rivers Retail.
Jan Feb March April
Budgeted
Sales $
9,600 9,000 7,500 9,000
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T-1.8.1
Closing inventory is budgeted at 200% of the following month’s expected cost of
sales requirements. All items sell for $60, which is a 50% mark-up on cost.
Required: Prepare a purchases budget for the Rivers Retail for the three months to
31 March.
Solution:
Jan Feb March Total April
Budgeted sales $ 9600 9000 7500 26100 9000
Budgeted cost of sales $ 4800 4500 3750 13050 4500
+Closing Inventory $ 9000 7500 9000
= Available $ 13800 12000 12750 38550
- Opening Inventory $ 0 9000 7500 9000
= Required Purchases $ 13800 3000 5250 22050
Required Purchases Units 460 100 175 735
5. Cost of goods sold budget
From the following information, provided by Dymocks Books store, prepare cost of
goods sold budget and a budgeted trading statement for the three months ending 30
September.
Budgeted purchases: $35,000
Inventory Balances: 01/07 (actual) 40,000
30/09 (budgeted) 30,000
Budgeted Sales: 250,000
Solution:
Accounting & Budgeting, Assessment No. 1 Page 32
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T-1.8.1
Dymocks Books store Cost of goods sold budget for the three months ending 30
September
Inventory 01/07 40000
+ Budgeted purchases 35000
75000
- Budgeted inventory 30/09 30000
= Budgeted cost of goods sold 45000
Budgeted Trading statement for the three months ending 30 September
Budgeted sales 250000
- Budgeted cost of goods sold 45000
= Budgeted Gross Profit 205000
Task 10 - Budgeting (5 Marks)
1. The following have been made available by Sans Sarsi Manufacturing to
enable the preparation of appropriate budgets for the year ended 30 June.
Product Expected Sales
Units
Sale Price per
unit
Material Required
kg
A B
X 79,000 $4.00 2 4
Y 40,000 $5.50 4
Z 102,000 $1.60 2
Required inventory levels (in units) of finished product and raw materials are:
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T-1.8.1
Beginning Inventory Ending Inventory
ProductX 5,000 6,000
ProductY 4,000 4,000
ProductZ 10,000 8,000
Item A 10,000 12,000
Item B 12,000 15,000
Raw material A and B can be purchased for 40 cents per kg and 20 cents per kg
respectively. Product X, Y and Z are manufactured in batches of 1,000 units and
require 50, 125 and 20 direct labour hours respectively per batch.
Labour is charged at $12.00 per hour. Variable factory overhead is costed at $8.00
per direct labour hour.
Additionally, fixed factory overhead of $60,000 is allocated one-third to each product.
Required: Prepare for the year ended 30 June
a) A sales budget, by product and in total (1 Mark)
b) A production budget (in units), by product (1 Mark)
c) A raw materials cost budget, by product and in total (1 Mark)
d) A materials purchases budget (in kg and $), by item and in total ( 0.50 Mark)
e) A direct labour cost budget, by product and in total ( 0.50 Mark)
f) A factory overhead budget, by product and in total ( 0.50 Mark)
g) A cost of production budget, by product and in total ( 0.50 Mark)
Solution: Sans Sarsi Manufacturing
a) Sales Budget for the Year Ending 30 June
Product X Y Z Total
Expected Sales Units 79,000 40,000 102,000 221,000
Sale Price per unit $ $4.00 $5.50 $1.60
Budgeted Sales $ $316,000.00 $220,000.0
0
$163,200.00 $699,200.00
b) Production Budget for the Year ending 30 June
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T-1.8.1
Product X Y Z
Budgeted Sales Units $316,000.00 $220,000.00 $163,200.00
+ Closing Inventory Units 6,000 4,000 8,000
- Opening Inventory Units 5,000 4,000 10,000
Budgeted Production Units $317,000.00 $220,000.00 $161,200.00
c) Raw Material Cost Budget for the Year ending 30 June
Product X Y Z Total
Budgeted production
Units
$317,000.0
0
$220,000.00 $161,200.00 $698,200.00
Material required for
production
Item A kg 2 4 6.00
Item B kg 4 2 6.00
Budgeted Raw Material Cost $ X Y Z Total
Item A @ $0.40 per kg 0.8 1.6 $2.40
+ Item B @ $0.20 per kg 0.8 0.4 $1.20
= Budgeted Raw Material Cost
$
1.6 1.6 0.4 $3.60
d) Material Purchases Budget for the year ending 30 June
Material A B Total
Material required for Production
kg
X 634000.00 1268000.00
Y 880000.00 0.00
Z 0.00 322400.00
Total 1514000.00 1590400.00
+ Closing Inventory kg 12,000 15,000
1526000.00 1605400.00
- Opening Inventory kg 10,000 12,000
Required purchases kg 1516000.00 1593400.00
Purchase Cost per kg $ $2.40 $1.20
= Required Purchases $ $3,638,400.00 $1,912,080.00 $5,550,480.00
e) Direct Labour cost budget for the year ending 30 June
Product X Y Z Total
Budgeted production $317,000.0 $220,000.00 $161,200.00
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T-1.8.1
Units 0
No of production
batches/1000
317.00 220.00 161.20
Direct labour hours per
batch
50 125 20
Budgeted direct labour
hours
15850 27500 3224
= Budgeted direct labour
cost @ $12 per DLH ($)
$190,200.0
0
$330,000.00 $38,688.00 $558,888.00
f) Factory overhead budget for the year ending 30 June
Product X Y Z Total
Budgeted Direct labour Hours 15850 27500 3224
Budgeted variable overhead @$8 per DLH
($)
126800 220000 2579
2
372592
Budgeted fixed overhead 20000 20000 2000
0
60000
Budgeted factory overhead
146800 240000 4579
2
432592
g) Cost of production / Manufacturing budget for the year ending 30 June
Product X Y Z Total
$ $ $ $
Budgeted Raw Material
cost
$507,200.0
0
$352,000.0
0
$64,480.00 $923,680.00
+ Budgeted direct labour
cost
$190,200.0
0
$330,000.0
0
$38,688.00 $558,888.00
Budgeted prime cost
$697,400.0
0
$682,000.0
0
$103,168.0
0
$1,482,568.0
0
Budgeted factory
overhead:
Variable 126800 220000 25792 $372,592.00
Fixed 20000 20000 20000 $60,000.00
Budgeted cost of
production
$844,200.0
0
$922,000.0
0
$148,960.0
0
$1,915,160.0
0
Task 11 - Budgeting (5 Marks)
Accounting & Budgeting, Assessment No. 1 Page 36
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T-1.8.1
Instruction for student:
1. Budgeted Income Statement (2.50 Marks)
The budget department of MNM Pty Manufacturing Co. has compiled the following
estimates for the 2012/103 year:
$
Sales Budget:
Estimated Sales 430,000
Production Budget:
Raw Materials 100,000
Direct Labour 150,000
Factory Overhead 30,000
Selling and Administration Expenses:
Fixed 50,000
Variable 10% of Sales
Inventories
Finished Goods: 01/07/2012 actual 45,000
Finished Goods: 30/06/2013 budgeted 50,000
Required: Prepare a projected Income Statement for the year ending 30 June.
Include a supporting schedule showing the calculation of COGS.
Solution: Budgeted Income Statement
MNM Pty Manufacturing Co. Budgeted Income Statement for the year ending 30
June 2013
$
Sales 430,000
Less Cost of Goods Sold:
Opening Inventory 45,000
Plus cost of goods manufactured:
Raw materials 100,000
Direct labour 150,000
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T-1.8.1
Factory overhead 30,000
Goods available for sale 325,000
Less closing inventory 50,000
Cost of goods sold 275,000
Gross Profit 155,000
Less Selling and Administration
expenses
Fixed 50,000
Variable 43000
Net Profit 62,000
2. Budgeted Balance Sheet (2.50 Marks)
Patrick Stuart provides the following Balance sheets and additional information:
Patrick Stuart’s Balance Sheet as at 30 June 2012
$ $ $
Current Assets
Bank 8,500
Accounts receivable 14,000
Inventories 12,500
Prepayments 1,200 36,200
Non-Current Assets
Vehicles 54,000
Less Accumulated Depreciation
Vehicles
(19,400)
34,600
Equipment 28,000
Less Accumulated Depreciation
Equipment
(11,200)
16,800 51,400
Total Assets 87,600
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T-1.8.1
Current Liabilities
Accounts payable 15,000
Accrued expenses 850 15,850
Non-Current Liabilities
Bank Loan 37,000 37,000
Total Liabilities 52,850
Net Assets 34,750
Owner’s Equity
Capital 01/07/2011 25,400
Net Profit 51,350 76,750
Drawings (42000) 34,750
Projections for the year ended 30 June, 2013 are:
 Sales (all credit): $322,000
 Cost of Goods Sold: 55% of sales
 Marketing expenses: 5% of sales&Interest on loan: $1,500
 Administrative expenses (incurred): $54,000
 Depreciation on equipment: $6,200
 Depreciation on motor vehicles: 20% of cost
Other information:
 Expected receipts from accounts receivable $320,500
 Accounts payable to be reduced 5% and Inventory to be increased by 10%
 Accruals balance 30/06/2013 $1,100
 Drawings by the proprietor to amount to $45,000
 The bank loan to be reduced by $5,000
 Prepayments balance 30/06/2013 $1,300
 Purchases of new equipment $2,500
Solution: Budgeted Income Statement and Balance Sheet
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T-1.8.1
$
Sales (credit) 322000
Less Cost of Goods Sold: 177100
Opening Inventory 12,500
Purchases 178350
Goods available for sale 190,850
Less closing inventory 13750
Gross Profit 144900
Less Expenses
Marketing 16100
Administration 54000
Financial 1500
Net Profit 73300
General Ledger:
Accounts Receivable
Opening Balance $ 14,000 Bank (Receipts) $ 320,500
Sales $ 322,000 Closing Balance $
$336,000 $336,000
Accounts Payable
Bank (Payments) 179,100 Opening
Balance
15,000
Closing Balance 14250 Purchases 178350
193,350 193,350
Cash Expenses
Opening Bal. Prepaid 1,200 Opening Bal.
Accrued
850
Payments 73,150 Profit & Loss 73300
Closing Bal Accrual 1100 Closing Bal.
Prepaid
1300
75450 75450
Vehicle
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T-1.8.1
Opening Balance 54,000 Closing
Balance
54,000
54,000 54,000
Accumulated Depreciation – Vehicle
Closing Balance 26,320 Opening
Balance
19,400
Depreciation 6920
26,320 26,320
Equipment
Opening Balance 28,000 Closing
Balance
30,500
Bank 2500
30,500 30,500
Accumulated Depreciation – Equipment
Closing Balance 17,400 Opening
Balance
11,200
Depreciation 6200
17,400 17,400
Cash at Bank
Opening Balance 8,500 Accounts
payable
179,100
Accounts Receivable $320,500 Marketing
expense
16100
Administratio
n expense
54000
Loan interest 1500
Loan 5000
Equipment 2500
Drawings 45000
Closing
Balance
25,800
329,000 329,000
Budgeted Balance Sheet as at 30 June 2013
$ $ $
Current Assets
Bank 25,800
Accounts receivable $15,500
Inventories 13750
Accounting & Budgeting, Assessment No. 1 Page 41
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T-1.8.1
Prepayments 1300 56,350
Non-Current Assets
Vehicles 54,000
Less Accumulated Depreciation
Vehicles
-26,320
27,680
Equipment 30,500
Less Accumulated Depreciation
Equipment
-17,400
13,100
Others 3,920
Total Assets 101,050
Current Liabilities
Accounts payable 14250
Accrued expenses 1100 15350
Non-Current Liabilities
Bank Loan 32000 32000
Total Liabilities 47350
Net Assets 53,700 53,700
Owner’s Equity
Capital 01/07/2012 25,400
Net Profit 73300 98,700
Drawings -45000 53,700
Task 12- Budgeting (5 Marks)
1. Flexible Budgeting for Service Operations (2 Marks)
The following information relates to the budget of operations for the coming year for
D & D Design Co.
Average Charge out Rate per Hour $50
Variable Costs per Charge out Hour
Labour costs $19
Other Variable costs (telephone calls) 1 $20
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Fixed Costs per annum
Rent Office $19,000
Other Fixed Costs (telephone rental & Insurance) $6,000 $25,000
Required: Based on the information above, prepare an Income Statement Budget
using flexible techniques, assuming the company has chargeable hours of:
a) 10,000 hours and
b) 15,000 hours.
Solution: G& G Design Co.
Income Statement Flexible Budget Forecasts – Levels
of Activity
Chargeable Hours 10000 15000
Rate per Hour $50 $50
Total Revenue $500,000 $750,000
Less Variable Costs
Labour Costs $190,000 $285,000
Other Variable Costs $10,000.00 $15,000.00
Total Variable Cost $200,000 $300,000
Fixed Costs
Rent Office $19,000 $19,000
Other $6,000 $6,000
Total Fixed Cost $25,000 $25,000
Total Costs (Variable +
Fixed)
$225,000 $325,000
Net Income $275,000 $425,000
2. Flexible Budgeting for Trading Operations (2 Marks)
Franklin Bicycle Shop sells new and used bicycles as well as bicycle accessories.
Each year in December, the accountant for the business sets budget schedules
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T-1.8.1
detailing financial expectations for the coming year, based
on information provided by management.
The following estimates have been provided for the business:
Sales:
Pessimistic Forecast Most Likely Forecast Optimistic Forecast
$400,000 $520,000 $600,000
Costs and expenses, classified according to their behaviour in relation to sales as
either Variable or Fixed:
Variable Costs
Cost of Sales: 60% of sales revenue
Freight Costs: 2% of sales revenue
Sales Commissions: 3% of sales revenue
Sales Discounts: 5% of sales revenue
Fixed Costs
Salaries & Wages: $40,000
Sales Promotion Expenses: $43,000
Required: Prepare a detailed Income Statement budget using flexible budgeting
techniques.
Solution:
Franklin’s Bicycle Shop
Income Statement – Flexible Budget Forecasts
Expected Sales
Pessimistic
Forecast $
Most Likely
Forecast $
Optimistic
Forecast $
Sales $400,000 $520,000 $600,000
Less Variable Costs % of
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T-1.8.1
sales
Cost of Sales 60% $240,000 $312,000 $360,000
Freight Costs 2% $8,000 $10,400 $12,000
Sales Commissions 3% $12,000 $15,600 $18,000
Sales Discounts 5% $20,000 $26,000 $30,000
$280,000 $364,000 $420,000
Fixed Cost
Salaries & Wages 40000 40000 40000
Sales Promotion
Expenses
43000 43000 43000
83000 83000 83000
Total Costs $363,000 $447,000 $503,000
(Variable + Fixed)
Net Income $37,000 $73,000 $97,000
3. Determine manufacturing cost using Flexible Budgets (1 Mark)
At a production level of 40,000 units, Pran Pty Ltd had the following manufacturing
costs:
Prime costs (Direct Material plus Direct Labour $340,000
Variable Factory Overhead $100,000
Fixed Factory Overhead $60,000
Required: What is the expected total cost of production if 50,000 units are produced?
Solution:
Cost per Unit 40,000
Units
50,000 Units
Prime Cost $8.50 $340,000 $425,000.00
Variable Overhead $2.50 $100,000 $125,000.00
Fixed Cost $1.50 $60,000 $75,000.00
Expected Costs $12.50 $500,000 $625,000.00
MARKINGRUBRIC FOR ALL TASKS (for trainer use only)
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The assessor needs to use judgment in providing marks for the
tasks based on learner performance.
(Accounting and Budgeting Assessment 01)
TASK NO. MARK
ALLOCATED
MARK
RECEIVED
Task 1 Accounting: Fixing Trial Balance 2.5 / 2.5
Task 2 Accounting: Prepare Financial Statements 2.5 / 2.5
Task 3 Accounting: Prepare Cashflow Statement 2.5 / 2.5
Task 4 Accounting: Financial Statement Analysis 5 / 5
Task 5 Accounting: Written Response 5 / 5
Task 6 Accounting: Partnership & Financial Statements 7.5 / 7.5
Task 7 Budgeting: Written Response 5 / 5
Task 8 Budgeting: Sales Budget 10 / 10
Task 9 Budgeting: Purchase Budget 5 / 5
Task 10 Budgeting: Manufacturing Budget 5 / 5
Task 11 Budgeting: Budgeted Income Statement 5 / 5
Task 12 Budgeting: Flexible Budgets 5 / 5
TOTAL 60 / 60
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