Learning
Objectives:
After this
studying chapter, you should be able to:
·
explain the concept of budgetary control
·
explain the objectives of budgetary control
·
explain the budgetary control process
·
explain the concept of Flexible Budgeting and
Fixed Budgeting
·
explain the concept of Zero Based Budgeting
and Incremental Budgeting
·
explain the concept of Planning Programming
and Budgeting Systems.
INTRODUCTION
Budgetary control encompasses the
systems of budgeting, standard costing and other control techniques that
ultimately aim at positioning the organisation to achieve its objectives. There
is no point in developing budgets if no control steps will be instituted to
achieve the set budgets, hence the need for budgetary control.
Section
One: Introduction to Budgetary Control
1.1
The Meaning of Budgetary Control
Budgetary control is the whole system of control established in
organisations to plan the activities of the activities of the organisation and
take steps to achieve the set plans. The control system begins with the
determination of standards, the formulation of budgets, comparing actual
results with standard performance to determine variances and analyzing the
variances. Material variances are then investigated and corrective action
taken.
1.2
Objectives of budgetary control
The purpose of budgetary control is outlined below: 1. To aid the
planning of annual operations
necessary corrections is in progress.
Thanks.
2.
To coordinate the activities of the various
parts of the organization and to ensure that the parts are in synchrony or
harmony with each other.
3.
To communicate plans to the various
responsibility center managers.
4.
To control activities
5.
To motivate employees to achieve targets
6.
To evaluate the performance of managers
1.3
The budgetary Control process involves the
following processes:
1.
Establishment of the budgets for various
budget centres. A budget centre is a clearly defined part of an organization
for the purpose of operating a budget system.
2.
Creation of Control periods. A budget period
is the period for which a budget is prepared and over which such control
aspects take place. The following factors influence what control period will be
in use:
Ø
The nature
and size of the business
Ø
The part of the business for which the budget
is being prepared
Ø
The basis of control
Ø
The velocity of operations etc.
3.
Keeping records of Actual results through the
financial accounting system
4.
Comparing the actual results with the budget
5.
Variance Analysis and Reporting on the
variances analysed
6.
Investigation and reporting on the causes of
variances
1.4
Fixed and Flexible Budgeting
1.4.1
Fixed budgeting is a method of budgeting where
the budget is developed for a given level of activity set at the time of
developing the budget. For example
the direct material cost budget for
Department X is set to ¢100,000.00 for the
planned production level of 50,000 units
of the product.
1.4.2
Flexible budgeting is a method of budgeting
where the budget is developed for different and alternative production levels.
It is also an adjustment of an original budget which has not been achieved to
the actual level of activity. Thus in the above example if the actual
production is 55,000 units, the budget of 100,000 will not be realistic, it
must therefore be adjusted to a level of
necessary corrections is in progress.
Thanks.
production of 55,000 units which have been achieved.
Alternatively, at the time of developing the budget, production levels 45,000
50,000 and 55,0000 units are considered and the budget developed for each of
those activity levels.
The flexible budgeting approach is based on cost behavior patterns
with respect to activity level.
In this regard cost may be classified
as:
·
Fixed cost
·
Variable cost and or
·
Semi-variable or semi-fixed cost
To flex a
budget only the variable cost and the semi-variable cost is varied to the
actual activity level.
Illustrative example 12.1
A company
manufactures a single product and has produced the following flexed budget for
the year:
|
|
|
Level
of activity
|
|
|
|
70%
|
80%
|
90%
|
|
|
¢
|
¢
|
¢
|
|
Direct
Material
|
17,780
|
20,320
|
22,860
|
|
Direct
labour
|
44,800
|
51,200
|
57,600
|
|
Production
Overheads
|
30,500
|
32,000
|
33,500
|
|
Administration
Overheads
|
17,000
|
17,000
|
17,000
|
|
Total
cost
|
110,800
|
120,000
|
130,960
|
You are
required to
(i)
Prepare a budget flexed at 45% level of
activity.
(ii)
What drawbacks can be expected from a
budgetary control system?
(20 marks)
necessary corrections is in progress.
Thanks.
SOLUTION
From the flexed budgets provided and using
the method of High and low method of forecasting, we can segregate the fixed
cost from the variable cost as follows:
|
|
Percentage of
|
Direct Material
|
|
|
Activity level
|
cost
|
|
|
%
|
¢
|
|
High
activity level
|
90
|
22,860
|
|
Low
activity
|
70
|
17,780
|
|
Change
in activity level and cost
|
20
|
5,080
|
Variable material cost per percentage of activity level = 5,080
20
= ¢254 per 1% of activity
Using the
High activity level, we have the following:
|
Total
direct material cost at 90%
|
= 22,860
|
||
|
Variable
material cost at 90% (254 x 90)
|
=
22,860
|
||
|
Fixed
cost
|
|
nil
|
|
What we have just done is to test
whether there is any fixed cost component in direct materials. We observe that
there is none. It will be the same with direct labour since all of direct
labour is variable. You can test this to see.
Variable
labour cost per activity level = 57,600- 44,800
90
–70
=
¢640 per percentage of activity level.
The whole of the administrative
overheads is fixed since it remains at the same amount for each of the activity
levels. It is therefore only with respect to the production overheads that we
have to separate fixed overheads from the variable overheads.
Using the
High and Low method, we have the following:
necessary corrections is in progress.
Thanks.
|
|
Percentage of
|
Direct Material
|
|
|
Activity level
|
cost
|
|
|
%
|
¢
|
|
High
activity level
|
90
|
33,500
|
|
Low
activity
|
70
|
30,500
|
|
Change
in activity level and cost
|
20
|
3,000
|
Variable production overhead cost per percentage of activity level
= 3,000 20
= ¢150 per 1% of activity
Using the
High activity level, we have the following:
|
|
¢
|
|
Total
production overheads at 90%
|
= 33,500
|
|
Variable
production overheads 90% (254 x 90)
|
= 13,500
|
|
Fixed
production overhead cost
|
20,000
|
Please note that if we had used the low activity level, we would
have derived the same answer. Use the low activity to check if you will get the
same answer.
We can now
draw a flexible budget at 45% activity level as follows:
|
Activity level
|
|
45%
|
|
|
¢
|
¢
|
|
Direct
Material cost (254 x 45%)
|
|
11,430
|
|
Direct
Labour cost (649 x 45%)
|
|
28,800
|
|
Production
overhead:
|
|
|
|
Variable cost (150 x 45%)
|
6,750
|
|
|
Fixed cost
|
20,000
|
26,750
|
|
Adminstrative
overheads
|
|
17,000
|
|
Total
cost
|
|
83,980
|
necessary corrections is in progress.
Thanks.
The
following are examples of drawbacks from a budgetary control system:
·
It may be perceived as punitive rather than a
tool to enhance performance.
·
It usually meets resistance from management
·
Where behavioral considerations are not
carefully considered, budgetary systems stifle motivation and staff morale
·
The operation of a budgetary control system
involves some cost and time.
Section
Two: Budgetary Control Improvement Techniques
2.1
Zero –Base Budgeting
Zero-base budgeting is a formalized system of budgeting for the
activities of an enterprise as if each activity were being performed for the
first time that is from a zero base. Essentially, a number of alternative
levels of provision for each activity are identified, costed and evaluated in
terms of the benefits to be derived from them.
ZBB is based on the philosophy that management should be required
to justify existing activities in exactly the same way as new proposals. Thus
established activities will have to be compared with alternative applications
of resources that they would use during the budgetary planning period. Implicit
in Zero Base Budgeting is therefore the concept of opportunity cost.
In the practical application of ZBB however, managers do not have
to budget from zero, but can start from the current level of expenditure and
work downwards, asking what will happen if any particular aspect of current
expenditure and current operations were discontinued and removed from the
budget. This way a cost-benefit analysis is carried out on every aspect of the
budget and this encourages the selection of better alternatives.
Zero Base Budgeting applies activity based costing Principles.
necessary corrections is in progress.
Thanks.
2.1.1
Approach to Zero Based Budgeting:
a.
Managers within the organization are asked to
specify the decision units within their area of authority. A decision unit is a
program of work, capital expenditure programme or a program for a given
activity, which can be individually operated.
b.
Each of the decision units or separate
activities is described in a decision package. A decision package is a
document, which identifies and describes the specific activities in such a way
that management can evaluate and rank them in an order of priority against
other activities.
Decision packages are usually prepared by the managers of budget
centers, but to help them to construct their packages, managers should be given
a formalized set of assumptions by top management on items such as activity
levels for the coming year, wages increases projected for the coming year and
other similar management policy directions.
There are two types of decision packages:
i.
Mutually exclusive decision packages
ii.
Incremental decision packages
Mutually
Exclusive Decision Packages
These are a set of decision packages each of which contains an
alternative method of getting the same job done. Only one of the packages is
selected for implementation through cost-benefit analysis. Once one package is
selected all the other alternative packages are shelved or abandoned.
Incremental
Decision Packages
These are
decision packages that divide one aspect of work or activity into different
levels of efforts. The “base” of work that must be done to carry out the
activity, and the other packages
describe what additional work could be
done at what cost and for what benefits.
- Each activity in the decision package is evaluated and ranked using cost-benefit indices.
necessary corrections is in progress.
Thanks.
The ranking Process in ZBB
The ranking process provides managers with the technique to
allocate scarce resources between different activities. Minimum work
requirements and those activities that are essential to get a job done and work
that meets legal obligations will be given priority. For example in the
accounting department, such activities may be minimum requirements to operate
the payroll, purchase ledger, sales ledger and to maintain and publish a set of
accounts that meet the expectations of external auditors.
The ranking Process involves the
following steps:
i.
Cost center managers will be asked to rank the
packages of their own cost centers.
ii.
The manager of the next level up the hierarchy
of seniority will consolidate the rankings of all his subordinates into a
single ranking list for the group of cost centers using the rankings of each
cost center as a guide.
iii.
These consolidated rakings will pass in turn
one stage further up the management hierarchy for further consolidation. At
higher levels of consolidation the ranking process might be done by a committee
of managers rather than by an individual.
d.
Activities, which will cost more than they are
worth both in quantitative and qualitative terms, should be dropped.
e.
Resources in the budget are then allocated
according to availability of funds and the ranking of competing packages.
Junior managers can handle packages involving small expenditure but senior
managers must make decisions involving higher amounts. The ZBB process must
however run through the entire management structure
2.1.2
Advantages of Implementing Zero Base
Budgeting:
1.
It is possible to identify and remove
inefficient or obsolete operations.
2.
It adds a psychological impetus to employees
to avoid wasteful expenditure.
3.
It obliges an organization to look closely
into its cost behavior patterns in order to decide the effect of alternative
courses of action. It will for
necessary corrections is in progress.
Thanks.
example be necessary to identify fixed
cost, variable cost, and mixed
cost, step cost, directly attributed
cost etc.
4.
It provides a budgeting and planning tool for
management, which responds to changes in the business environment; obsolete
items of expenditure are identified and ceased.
5.
The documentation required makes a coordinated
in-depth knowledge
of an organization‟s operations
ava
6.
It should result in a more efficient
allocation of resources to activities and departments of the organization. The
organization thus gets value for money.
2.1.3
Disadvantages of Implementing Zero Based
Budgets:
1.
The volume of extra-paper work created by
decision packages is enormous and cumbersome.
2.
It emphasizes short-term benefits to the
detriment of long-term benefits.
3.
It encourages the false idea that all
decisions have to be made in the budgets. Management must be able to meet
unforeseen opportunities and threats at all times and must not feel restricted
from carrying out new ideas simply because they were not approved by a decision
package, cost benefit analysis and a ranking analysis.
4.
It calls for management skills in decision
analysis to construct decision packages, which the organization may not
possess.
5.
It might be difficult to sell to managers as a
useful technique because:
a.
Incremental costs and benefits of alternative
courses of action are hard to quantify accurately
b.
Employees or trade union representatives may
resist management ideas for changing the way in which work is done.
6.
There is the difficulty of the ranking process
-
Large volume of packages
-
Some items are difficult to rank
necessary corrections is in progress.
Thanks.
2.1.4
Practical Application of the Zero Based
Budgeting:
1.
Budgeting for discretionary items such as
advertising cost Research and Development cost, Training cost etc. The
priorities for spending money could be established by ranking activities and
the alternative levels of spending or services can be evaluated on an
incremental basis. For example, is it worth spending ¢20 million to increase
the members trained on one type of training course by 1.0%. If so, what
priority should this incremental spending on training be given when compared
with other potential training activities.
2.
Rationalization measures- under austere
economic conditions we rationalize to ensure that the most important activities
receive scarce resources. Rationalization is a vehicle for cutting back on
production and activity level and cutting cost. The need for service
departments to operate above a minimum level or the need for having a
particular department at all can be questioned and Zero Base Budgeting can be
used to make rationalized decisions when an organization is forced to make spending
cuts.
3.
Planning, programming and budgeting systems
(PPBS).
This is a technique of budgeting used in central and local
government planning. ZBB is well suited to government planning because of the
well known tendency for manned expenditure on long-term projects to climb above
budget, as additional expenditure are incurred due to planned changes and
inflation adds to cost over time.
2.2
Incremental Budgeting
This is a system of budgeting where the for preparing the current
period‟s budg may be influenced by factors such as inflation, expansion needs,
growth needs,
etc.
2.2.1
Merits of Incremental Budgeting:
1.
It is simple to apply in practice
2.
It is most suited to such costs as wages and
salaries etc.
3.
It is widely accepted and used.
necessary corrections is in progress.
Thanks.
2.2.2
Demerits of Incremental Budgeting:
2.
The budget perpetuates past inefficiencies
3.
The budget preparation process is not
sufficiently critical to diagnose the cost behavior of the enterprise.
4.
It does not lead to the optimal and efficient
allocation of budgetary resources.
2.2.3
Activity Based Costing Systems in Budgeting
(ABC):
An Activity Base Costing System is a system of managing cost by
controlling activities that drive cost or activities that cause cost to be
incurred. Examples of cost drivers include:
-
Machine set –up hours
-
Number of purchase orders raised
-
Number or part numbers maintained
-
Number
of suppliers‟ statemen
-
Number
of debtors‟ statements
-
Number of man hours worked
-
Quantity of materials input into a process
etc.
The
process of Activity Based Costing System
1.
Break the organization down into activities.
Activities are tasks that people or machines perform to provide a
product or a service. Examples of activities in a bank for example include the
following:
-
Processing deposits
-
Issuing credit cards
-
Setting up a loan account
-
Opening an account
-
Processing monthly statements
-
Evaluating projects for financing
-
Processing funds transfer
-
Processing
customers‟ withdra
2.
Create a cost center or cost pool for each activity
for the purpose of pooling together all the costs of each activity.
necessary corrections is in progress.
Thanks.
3.
Identify the factors that influence the cost
of a particular activity. These are the cost drivers; they are the events or
forces that are the significant determinants of the cost of the activities.
4.
Trace the cost of activities to products using
the most relevant cost driver as a basis of absorption.
2.2.4
Periodic or Continuous Budgets:
Periodic budget is a budget prepared for a defined time
horizon and is maintained for the said time frame, before a new budget
is prepared for the period following the end of this period. For example, the
budget is prepared for the period covering January to December of the year and
is maintained throughout the year for this period. Probably in December, a new
budget for the next year covering January to December is again prepared.
Continuous
budget is also termed rolling budget. It is a budget prepared for a
set time horizon and is continuously reviewed to cover the set
length of time at any
particular
point in time.
For example a budget that covers a six month period will be
reviewed monthly by including the month next following and deleting the
pervious or past month, so that the budget will always cover a six month
period.
2.3 Planning Programming and Budgeting Systems
Planning Programming and Budgeting Systems (PPBS) involve the
preparation of a long term corporate plan that clearly establishes the
objectives of the organisation. PPBS involve the stages outlined below.
STAGES OF PPBS
1.
Establish the overall objectives of the
organisation.
2.
Identify programmes that can achieve the
objectives set.
necessary corrections is in progress.
Thanks.
3.
Identify various alternative methods of
executing the programmes established. Evaluate these alternative methods to
arrive at the least cost methods or the optimal method of implementing the
various programmes.
4.
Select the best alternative course of action
for implementation.
5.
Implement the selected course of action.
6.
While implementation is in progress, monitor
the actual results and respond to variances that are discovered.
ADVANTAGES OF PPBS
1.
A basis is established for evaluating the
worthiness of programmes, activities and functions of the organisation.
2.
It provides information for the assessment of
the efficiency and effectiveness of programmes, activities and functions
carried out within the organisation.
3.
PPBS form a good basis for the allocation of
scarce resources.
DISADVANTAGES OF PPBS
1. There is a
difficulty in obtaining the relevant output information for the planning
process.
2. There is
the difficulty in clearly defining organizational objectives and stating them
in quantitative terms.
3. Sometimes,
there is difficulty in matching programme structure with organizational
structure.
SUMMARY
AND CONCLUSION
necessary corrections is in progress.
Thanks.
In this
chapter, we discussed budgetary control. The discussion was done in two
sections. The first section explained the meaning and objectives of budgetary
control. We then outlined the budgetary control process. We concluded section
one with a discussion on fixed and flexible budgeting. Section two explained
the concept of Zero Based Budgeting, Incremental budgeting and the concept of
Planning Programming and Budgeting Systems.
In
conclusion, budgetary control is intended to ensure that the whole budgeting
system is effective in cost control and cost reduction. This in turn will lead
to organizational success.
MULTIPLE-CHOICE
AND SHORT ANSWER QUESTIONS
1.
What does budgetary control seek NOT to do in
an organization?
A.
Planning of annual operations
B.
Controlling
company‟s activities
C.
Communicating plans to responsible manager
D.
Evaluating performance of managers
E.
Punishing lazy operators
2.
Define
a “Budget Centre”
A.
A centre where budgets are prepared
B.
A place where budgets are implemented
C.
A clearly defined part of an organization for
the purpose of operating a budget system
D.
An office where the budget committee holds its
meetings
E.
The centre where the performance of budgets is
controlled
3.
Flexible
budgeting is a
method of budgeti
A.
managers are allowed to operate without
stringent conditions
B.
budget is developed for different and
alternative production levels
C.
revisions are permitted on a monthly basis
D.
actual performance is worked back to the
budget
E.
the budget period is not fixed
4.
What
does “Incremental budgeting”
mean?
A.
Using a currentasthe period‟sbasisforpreparing
thebudgetsucceeding period‟sbudgetbymaking incremental adjustments as necessary
B.
Increasing the budget in line with actuals
C.
Preparing a budget by adding a flat rate
percentage increase on actuals
D.
Not allowing any figure to be unchanged but
increased from year to year
E.
Not allowing any figure to be reduced but
increased from year to year
5.
Responsibility accounting is a system where
A.
only responsible managers are involved in
budgeting and implementation
B. every manager is jointly and severally
responsible fo
C.
the company‟s
Chief Executive Officer
ha
D.
each manager is actively involved in drawing
up the budget for his own sphere of activity and is also responsible for
achieving the targets set
E.
responsibilities are shared between each
manager and his subordinates
6.
A method of budgeting where the budget is
developed for a given level of activity is known as ………………………
7.
A system of budgeting for the activities of an
enterprise as if each activity is being
performed for the
………………..firsttime is called
……
8.
A budget that is prepared for a set time
horizon and continuously reviewed to cover
the set length
of time at
any particular
9.
The
person responsible for
the overall coordination
of budgeting and
budgetary
control activities in
an organization is
cal
10.
A situation where the budget for a period is
changed substantially mid way into that period due to some unforeseen
circumstanc
SOLUTION
1.
E
2.
C
3.
B
4.
A
5.
D
6.
Fixed budget
7.
Zero-based budgeting
8.
Continuous/Rolling budget
9.
The Budget Officer
10.
Budget review
|
|
|
(2
Marks)
|
|
(2
Marks)
|
|
(2
Marks)
|
|
(2
Marks) (Total: 20 marks)
|
EXAMINATION
TYPE QUESTIONS
12.1
a. Outline six (6) objectives of a
Budgetary Control System and explain how a budgetary Control System can achieve
those objectives (12 Marks)
b. In the context of budgeting, explain the following terms: i.
Aspiration levels.
ii. Budgetary slacks.
iii Responsibility accounting. iv. Zero-based budgeting.
12.2
Budgeting is concerned with the
implementation of an approved programme within the long-range plan and capital
budget. A budget therefore translates the long-range plan and capital budget into
an annual operating plan of an organisation.
The budgeting process cannot therefore
be viewed as being purely concerned with the current year but must be
considered as an integrated part of the long-term planning process.
Required:
(a)
Identify four (4) major reasons for producing
budgets and two (2) possible limitations
|
|
of budgets.
|
(6 Marks)
|
|
(b)
|
Identify the stages involved in the
budgeting process.
|
(6 Marks)
|
|
(c)
|
Distinguish between Budgetary
Control and Standard Costing.
|
(4 Marks)
|
(d)
Identify four (4) areas which should be of
concern to management
in budget
behavioral implications. (4
Marks)
(Total: 20 Marks)
12.3
As a
management Accountant, you are required to:
(a)
Distinguish between cost control and cost
reduction,
(b)
Explain the two basic approaches to cost
reduction,
(c)
Itemize and briefly explain techniques,
methods and major difficulties of cost
reduction
programmes (20
Marks)
12.4
The
Managing Director of Ozone Ltd. recently attended a seminar on budgetary
control systems where he gained the impression that the introduction of such a
system offered
opportunities not only to improve control o staff motivation.
Unfortunately, he did not fully understand some of the points made at the
seminar and has approached you, the compan explanation.
Required
Provide
concise explanations to the following queries made by the Managing Director:-
1.
Traditional budgetary systems are based on
certain basic mechanisms for achieving control. What is the traditional basis
for achieving control?
(3marks)
2.
Many early management theorists believed that
employees were motivated solely by financial rewards. However, in recent years,
other writers such as Maslow have suggested that in certain circumstances the
offer of additional financial rewards may not provide much (if any) improvement
in motivation. Why does Maslow believe that in some circumstances the offer of
more money may not be particularly effective in motivating staff and workers?
(2 Marks)
3.
It has been suggested that „zero based
improving control and staff motivation.
a.
What
is meant by
the term „zero
base
b.
What are the advantages of „zero based budgeti
budgeting systems and how can it be
motivation. (10
Marks)
[Total: 15 Marks]
12.5
The
concept of control occupies an important place in systems theory and is a major
part of
functions
of the management accountant.
Required:
a.
List the basic elements of control and discuss
how these are implemented in an effective control system.
b.
Describe the safeguards which must be
incorporated in systems design to ensure the continued effectiveness of a
control system.
[Total: 20 Marks]
ICAG JAN. 1992
12.6
(a)
Explain the concept of Planning Programming
and Budgeting Systems as used in
budgetary
control (8
marks)
(b)
Outline three advantages and three
disadvantages of Planning Programming and
Budgeting
Systems as a system of budgeting. (12
marks)
(Total 20 marks)
12.7
A company operates a system of quarterly
rolling budgets. The budgets for the next three quarters have been prepared.
The figures below reflect the likely cost behaviour of each element of cost.
Quarter 4 is being developed based on these budgets and other information
available.
|
Budget Quarters 1 to 3
|
Q1
|
Q2
|
Q3
|
|
|
(000)
|
(000)
|
(000)
|
|
Activity:
|
|
|
|
|
Sales (units)
|
18
|
34
|
30
|
|
Production (units)
|
20
|
40
|
30
|
|
Costs:
|
¢000
|
¢000
|
¢000
|
|
Direct Materials cost
|
50
|
100
|
75
|
|
Production Labour
|
180
|
280
|
230
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factory overheads (excluding
indirect
|
|
|
|
|
|
Labour)
|
170
|
200
|
185
|
|
|
Administration
|
30
|
30
|
30
|
|
|
Selling and Distribution
|
29
|
37
|
35
|
In the current planning stage for quarter four, flexible budgets
are to be developed for low, most likely and high sales volumes (38,000,
44,000, and 50,000 units respectively). The company wishes to have a closing
stock (end of quarter four) equal to the opening stock of quarter one.
Management will therefore adjust the production levels to fall in line with
this policy.
Cost Structures as for quarters one to
three will apply to quarter four except that:
i.
Raw material prices are expected to rise by
10%.
ii.
Production labour rates will increase by 2.5%.
However, management have declared that all labour rate increases must be
matched by increased efficiency so that labour costs (both total fixed and
variable per unit) are unaltered.
iii.
A quarterly bonus payment of 50% of the
variable labour cost per unit, will apply for all production above 40,000
units.
iv.
Fixed factory overheads and fixed selling and
distribution expenses will rise by 5%.
The expected selling price per unit is
18. Stock is valued at full factory cost of 13 per
unit. This
has been established using absorption principles and bases on long run
cost and
capacity predictions. Small fluctuations in cost prices or volumes wil not
cause this unit cost to be amended.
Required:
(a)
Explain what is meant by a „rolling b be
claimed for this compared to the annual type style of budget.
(4 marks)
(b)
Summarize the variable cost per unit and the
total fixed cost for each cost heading that will apply to quarter four, for
production below 40,000 units.
(6 marks)
(c)
Prepare detailed flexed budget profit
statements for quarter four under the
separate assumptions
of low, most
likely and high
levels of sales
and
corresponding
production volumes. (8
marks)
ACCA June 1998
12.8
For many organisations in both the private and
public sectors, the annual budget is the basis of much internal management
information. When preparing and using budgets, however, management and the
accountant must be aware of their behavioral implications.
Required:
(a) Briefly discuss four purposes of
budgets. (8
marks)
(b)
Explain the behavioral factors which should be
borne in mind and the difficulties of applying them in the process of budgeting
and budgetary
control. (12
marks)
(Total 20 marks)
No comments:
Post a Comment