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David answered on
Dec 27 2021
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...