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Due date- 27 Reference list- Harvard Reference number- 15 Question 1 Total marks for Q2. (15 marks) Explain, using examples, why it is essential to create and use flexible budgets when evaluating past...

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Due date- 27
Reference list- Harvard
Reference number- 15
Question 1 Total marks for Q2. (15 marks)
  1. Explain, using examples, why it is essential to create and use flexible budgets when evaluating past performance of a profit centre which manufactures and sells a product. What might be the objective of such a performance evaluation?
3 marks
  1. When preparing a cash budget for a manufacturing business for the following year, there may be many other budgets that will need to be produced before the cash budget is completed.
List three (3) other budgets that must be prepared at the same time or before the cash budget is prepared, and for each one, explain the likely timing of cash flows that will occur and how this will impact a cash budget.
3 marks
  1. Explain what is meant by the ‘operating cycle’ for a manufacturing business and how this differs from the ‘cash cycle’. How does understanding all of the elements of the operating and cash cycle help in managing working capital efficiently? In you answer, explain the ratios and data we use to analyse the efficiency of managing working capital.
3 marks
  1. Accounting isn’t as important in the government organisations as it is in private enterprises, since the government does not have to worry about earning a profit. Do you agree? Explain.
3 marks
  1. What is the essential purpose of any costing system? Explain.
3 marks
Question 2 Total marks for Q4. (5 marks)
Wonder Products Pty Ltd builds beautiful things to order for customers. When quoting prices on jobs Wonder Products allocate manufacturing overheads on the basis of estimated machine hours to complete the job. They allocate administrative overhead costs on the basis of direct labour hours estimated to complete the job.
Below is a budget for the current year showing budget total figures.
Budget for the year
Direct labour costs for the year $537,600
Manufacturing overheads for the year 598,080
Administrative overheads for the year 695,520
Direct labour hours for the year 14,000
Total machine hours for the year 7,000
a) Calculate a manufacturing overheads allocation rate for Wonder Products.
1 mark
b) Calculate an administrative overhead allocation rate for Wonder Products.
1 mark
c) Bushy George has asked Wonder Products Pty Ltd to make an especially wonderful creation to his specifications that will require the following inputs:
Direct materials $19,000
Direct labour 750 hours
Machine usage 400 hours
Assuming a mark up of 40% on total costs, what price should be quoted to Bushy to build him this especially wonderful creation?
1 mark
d) Why is it so important to carefully allocate overhead expenses when quoting on jobs or when generally deciding on prices? Discuss problems that are encountered with overhead allocation methods and alternative approaches that might be taken.
1 mark
e) Why do companies use predetermined (budgeted) overhead allocation rates rather than using actual overhead costs in allocating overhead costs to units of product? Explain.
1 mark
Answered Same Day Dec 27, 2021

Solution

David answered on Dec 27 2021
116 Votes
Financial Accounting Assignment
Running Header: Financial Accounting Assignment
Title: Financial Accounting Assignment
Presented By:
Presented To:
Date: 24/09/2017
Question-1.a
Flexible Budget is a dynamic budget as the name indicates, can be prepared for any level of activity within a specific range. Unlike static budget which are prepared for a predetermined level of revenue volume, flexible budget enables management to prepare the budget of the expenses and other details based on the any sale volume. This is also called as variable budget as this budget uses the marginal costing concepts by identifying variable and fixed costs and prepare the budget around it.
While expenses classification into variable and fixed and other working relations are established in the beginning of the budgeting period. Actual variance analysis is undertaken after the completion of budget period and budget is finally prepared based on the actual revenue volume. In this way flexible budget helps to evaluate and understand the past performance of cost and profit centres. Please refer below for an example of flexible budget.
As can be seen below all the variable expenses have been budgeted for the sales volume achieved. Comparison has been done with the actual expense with budgeted expense.
    Actual Sales Volume (in Units)
    2000
    
    
    
    
    
    Budgeted
    Actual
    Variance
    Sales (Budgeted at 100 per unit)
     200,000
     215,000
     15,000
    
    
    
    
    Direct Material (2 packs per unit @ $10 each pack)
     40,000
     41,000
     (1,000)
    Direct Labour (3 hours per unit @ 15 per hour)
     90,000
     88,000
     2,000
    Other Direct expenses ($ 500 per 1000 units)
     1,000
     875
     125
    Prime Cost
     131,000
     129,875
     1,125
    Contribution
     69,000
     85,125
     13,875
    
    
    
    
    Fixed Expenses
    
    
    
    Salaries
     15,000
     15,250
     (250)
    Factory Rent
     25,000
     22,500
     2,500
    Office Rent
     7,500
     7,525
     (25)
    Other Material and consumables
     1,000
     1,150
     (150)
    Selling expenses
     6,500
     1,500
     5,000
    Total Fixed Expenses
     55,000
     47,925
     7,075
    Profit
     14,000
     37,200
     6,800
Sales volume at the budged selling price is $200,000, but the actual sales are $215,000 leading to favourable variance of $15,000 should have been due to selling at higher selling price than budgeted. Direct material has been budgeted at $40,000, but the actual material cost is $41,000, the reason for the increase could be due to increase in the material cost and/or excess consumption of the material. Direct labour has been budgeted at $90,000, but the actual labour cost is $88,000, the reason for the decrease could be due to decrease in wage rates and/or increased labour efficiency.
Question-1.
Cash budget is essentially a projection of cash inflow and cash outflows from the operating and non operating (Finance and capital) activities.
Operating part of cash budget cover cash inflows from the cash sales, receipts from the customers and cash outflows from payments to suppliers. It should also cover all the general, administration and selling expenses like salaries, rent, marketing and distribution expense, Income tax remittances and others.
Cash budget should also include the cash inflows and out flows from the financing operations like loan proceeds, interest payments and redemptions.
Cash budget should also include the cash inflows and out flows from the capital operations like purchase of assets, disposal of assets and etc.
Cash projections are generally prepared as the last item in the budget preparation exercise, as it requires any other aspects of budgets to be completed. Cash budgets are heavily depend on the Sales budget; cost of production budget & operating expenses budget; Capital expenditure and financing budget are simultaneously prepared.
Sales budget should cover the proportion of cash and credit Sales. Cash collection from cash sales are expected to receive on the transaction date. But timing of the receipts from the credit sales is another...
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