A Level

2 Cost and management accounting

44 Budgeting and budgetary

control
Additional questions
Question 1
Selena is to start business on 1 May selling rice cookers. She believes that she will sell
300 cookers in May and that her monthly sales will increase by 20 per cent on the
previous month’s budgeted sales until the end of the year.
Inventory is to be maintained at ten per cent of the following month’s budgeted
sales.
Note
● A 20 per cent increase in sales in July would result in August sales of 518.4
rice cookers. It is impossible to sell 0.4 of a cooker! So sales for August will be
predicted to be 519 rice cookers.
● Likewise, inventory held at 31 July could not be 51.84 cookers – Selena has to
keep whole cookers as inventory! Closing inventory at 31 July is therefore 52 rice
cookers.
Required
Prepare a purchases budget for the three months ending 31 July.

Question 2
The budgeted sales for Cerne Ltd are predicted to be:

February March April May

$ $ $ $
Budgeted sales 60 000 70 000 80 000 90 000

● Twenty per cent of all budgeted sales are expected to be for cash.
● Credit customers are allowed and will take one month’s credit.
Required
Prepare a trade receivables budget for the three months ending 31 May.

Question 3
The following information is available for Zhang Ltd:

May June July August

$ $ $ $
Budgeted purchases 15 000 20 000 25 000 30 000

● Five per cent of all purchases are for cash; the remainder are purchased on credit.
● Suppliers offering credit terms will be paid in the month following the purchase of
goods.

Cambridge International AS and A Level Accounting Student’s CD © Ian Harrison 2015 1

44 Budgeting and budgetary control

Required
Prepare a trade payables budget for the three months ending 31 August.

Question 4
Hovig is to start in business in January with a gift of $8000 from his uncle. He
provides the following forecast information for his first three months of trading:

January February March

$ $ $

Purchases 6 000 7 000 8 000

Sales 8 000 15 000 20 000

Hovig will pay for purchases in the month they are made.
Forty per cent of sales are for cash; the remainder are expected to be paid in the
month following sale.
Hovig will rent his premises for $3000 per payable each 3 months. The first
payment is due on 1 January.
Assistants’ wages will amount to $4000 per calendar month.
Other expenses are expected to be $1500 per calendar month payable in the
month after they are incurred.
Required
a Prepare a cash budget for the three months ending 31 March.
b Comment on the results of your cash budget.

Question 5
The following budgeted information relates to Rajpoot Ltd for the three months
ending 31 October.
The cash balance at 1 August is expected to be $2100.

August September October

$ $ $
Cash sales 90 963 106 125 116 230
Payments to trade payables 29 650 35 050 38 400
Payments for wages 19 100 28 000 21 500
Rent and local taxes 2 800 2 800 2 800
Other expenses 5 700 5 500 5 300
Payment for purchase of machine 84 000
Depreciation on machine 700 700

Required
Prepare a cash budget for each of the three months ending 31 October.

Question 6
The following budgeted information is available for Hsiao Ltd:

January February March April

$ $ $ $
Credit sales 21 000 28 000 30 000 31 000
Cash purchases 8 000 12 000 9 000 10 000
Cash expenses 21 000 20 000 22 000 18 000
Cash purchase of office machinery 24 000
Depreciation of office machinery 200 200 200

2 Cambridge International AS and A Level Accounting Student’s CD © Ian Harrison 2015

 Additional questions

It is expected that the cash balance at 1 February will be $3200.

Trade receivables are expected to settle their debts one month after sales have
taken place.
Required
Prepare a cash budget for each of the three months ending 30 April.

Question 7
Tommy Chan supplies the following budgeted information relating to his business:

August September October November December

$ $ $ $ $
Sales 23 000 24 000 29 000 34 000 43 000
Purchases 12 000 13 000 15 000 24 000 35 000
Wages 4 500 4 500 4 500 6 000 6 500
Rent 400 400 450
Other expenses 1 750 1 850 3 400 1 600 980
Depreciation of office equipment 450 450 450 450 450

It is expected that:
● the cash balance at 1 October will be $670

● inventory at 1 October will be $7000

● inventory at 31 December will be $8000

● ten per cent of all sales will be on credit

● ten per cent of purchases will be for cash

● debtors will settle their debts in the month following sale

● creditors will be paid two months after purchase

● rent is payable every two months in advance

● wages and other expenses will be paid as incurred.

Required
Prepare:
a a cash budget for each of the three months ending 31 December.
b a budgeted income statement for the three months ending 31 December.

Question 8
The following information is available for Wong plc, for the year ending 31
December:

Budget Actual
Level of production (units) 5000 4900
$ $
Variable costs – direct materials 85 000 90 000
direct labour 120 000 116 000
variable overheads 50 000 52 000
255 000 258 000
Fixed costs 140 000 142 000
Total costs 395 000 400 000

Required
a Prepare a flexed operating statement for the year ending 31 December.
b Calculate any variances revealed by the flexed budget.

Cambridge International AS and A Level Accounting Student’s CD © Ian Harrison 2015 3