Page 154 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 7: Budgeting

Prepare a budget for production of: Notes

(a) 8,000 units
(b) 6,000 units
(c) Calculate the cost per unit at both levels.

Assume that administration expenses are fixed for all level of production.
6. From the following information relating to 2008 and conditions expected to prevail in 2009,
prepare a budget for 2009.
State the assumption you have made, 2008 actuals
Sales 1,00,000 (40,000 units)
Raw materials 53,000

Wages 11,000
Variable overheads 16,000
Fixed overheads 10,000
2009 prospects

Sales 1,50,000 (60,000 units)
Raw Materials 5 per cent price increase
Wages 10 per cent increase in wage rates
5 per cent increase in productivity

Additional plant One lathe `25,000
One drill `,12,000
7. “Budgetary control is a system which uses budgets as a means of planning and controlling
all aspects of producing and/or selling commodities and services.” Comment.
8. If the current year production is not equivalent to the current year sales, why does the
closing stock arise in the business?

9. What do you think are the causes behind an unfavorable fixed overhead budget variance?
10. “Zero-base budgeting is a planning, resource allocation and control tool.” Explain and
what are its advantages?

Answers: Self Assessment

1. Budgeting 2. management goals
3. sales 4. internal

5. Materials/Purchase 6. Sales Overhead
7. preparation, control 8. Variable sales
9. True 10. False
11. True 12. control
13. Budgetary control 14. quantitative

15. Budgetary control 16. Future

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