# Budgeting

### Comments

1. says

Sir, with respect to open tuition chapter 10 page 46 – December 2014 examinations on Risk and Incertainty – example 1.

Can you please tell me how to calculate the answer for “C” that is what is the most John would be willing to pay in order to obtain perfect knowledge of the demand. Also

What is the most he would be willing to pay without perfect information

Thank you

2. says

Hi John,

with the flexing of the budget. Are fixed overheads always left as per the original budget or only in this instance as they wanted us to produce it based on a marginal costing approach? Just simply for clarification.

Thank you.

Chris.

• says

Yes – fixed overheads stay fixed.

(Just so you don’t get confused later, when I go through basis (F2) variance analysis in a later chapter, I do flex fixed overheads because as you will see, I am trying to explain the logic of what we need to do when there is absorption costing.
However, if you are just asked to flex a budget (forgetting variances) then you do keep fixed overheads fixed and only flex the sales and the variable costs.)

• says

Sorry, but I don’t know which \$18,500 you are referring to!
(I assume you have looked at the answer in the Course Notes as well?)

3. says

When preparing a flexed budget we adjust it according to the actual activity level & the reason is because we are using it for control purposes. Do we not need to adjust the budget for factors other than the activity level, such as inflation & government policies. Eg : if we budgeted on 5% inflation, but actually it was 10%, even if the activity level is the same material costs will be higher. This increased cost would be beyond the control of manager so his performance shouldn’t be evaluated on that basis, right?

• says

Budgets are often adjusted for all the factors you have listed.

However a flexed budget is specifically adjusting just for the level of activity.

(You will see when you get to variance analysis proper how we can separate factors over which the operational manager has control from other factors.)

4. says

Really thanks , I passed all 6 papers with opentuition ,really really thanks

5. says

Thanks sir may God bless you and give you successful life same prayers whole open tuition team

• says

Of course it is!! That is why is says F5 above of it

There is always a question on budgeting in Paper F5.

6. says

Dear Sir

I just have quick question that stems from an example question I encountered on budgeting in the Kaplan exam kit.

The question is in three parts: a (5 marks), b (10 marks) and c (5 marks) and is purely written. I understand that it may not be completely representative of an exam question, but, in answering such a question, if I put down some points in a seemingly sensible attempt to answer say part a, but the actual answer in the back of the book includes those points for part of the answer to say part b, would the examiner still give me the marks for those points?

Cheers

A

PS Hope that makes some kind of sense.

• says

You might get some credit, but only some.

(a) and (b) would have been asking for different things and so given answers to (b) as part of the answer to (a) would suggest that you had misunderstood what was being asked.

7. says

Hi Sir, for the example 2 in this lecture, we used a marginal costing approach, in the exam should we expect the examiner to ask use to use an absorption costing approach as well? Thanks and needless to say awesome lecture 😀

8. says

on rolling budgets,when an additional month is updated,do the figures for the other 11 months if its a 12 month period also change if need be ?

9. says

May I know if the question like decision tree come out on Jun 2013, may I know
It will come out this December 2013 exam?

• says

Which conflicting objective are you referring to?

• says

Conflicting objective between organization and departmental, reconcile and resolve conflicting objective, and the implication. Kindly advice. Thank you!

• says

I do not know where you are quoting that from – it is not from the syllabus.
There are many potential conflicts. You are going to have to be more specific about your problem.

You have asked under the heading ‘budgeting’ but I am still not sure what you are asking of me.

10. says

Hi John, I have 2 questions about pratice question 9 Judi:
1. I don’t understand what does it mean by skilled worker turnover is non-existent and semi-skilled worker turnover rate is quite high. Do you mean that skilled workers are pernament staff and the company has to pay whatever they have job to do or not, and semi-skilled workers are changing from time to time?
2. in the answer notes, variable overheads: I don’t understand where is this from : 5hr/batch @ \$4/hr=320

Thank you very much!

• says

The relevance of the turnover of the workers is that because the skilled workers are not leaving and being replaced, they will learn and the learning effect will apply to their time.
However, since the semi-skilled workers keep leaving and then being replaced, we assume that they are not there long enough to learn and so their time per unit will stay unchanged.

With regard to the variable overheads, since the semi-skilled workers are not getting faster – their time stays at 5 hours a batch. The overheads for that part of labour will be 16 batches x 5 hours a batch x \$4 per hour.
(Sorry – the figure is correct, but the workings could have been typed better!)

• says

Thanks John, but why do you include this semi-skilled labour into the overhead section not labour section?

• says

It is included in the labour ‘section’

The reason it is also included in overheads is because the overheads are charged on the basis of the labour hours.

11. says

Hi … why we didnt copy the direct figures of costs given for actual production of 12000 units i.e labour cost in question is 28500 and we took 30000…why not the sameee 28500?

• says

Did you watch the whole lecture?

Because we did copy the actual costs (28500 etc) in the ‘actual’ column!!!

The flexed budget was rewriting the original budget for the actual level of production and sales, so that we had something sensible to compare the actual costs with in order to check whether we were over or under spending.

• says

yeah! sorry! i got confused at flexed budget and paused the lecture to ask my doubt but as soon as i continued i almost understood there was actual budget for that but thanks alot for making things clear about flexed budget 😀

12. says

Hello John, I have a question about practice question 7 light plc (d) material purchase budgets: as we have calculated the production budget on (b) which are 900, 2000 and 450 respectively, certainly we should purchase the material based on the production: plastic usage 19650m+20%closing inventory 3930m.
I don’t understand the answer in the notes, why do you go back to calculate the purchase based on sale volume again, not actual production volume? Thank you.

• says

The purchases have not been based on the sales volume.
Only the closing inventory has been based on the sales because the question says that we wish to have enough inventory of raw materials to be able to copy with 20% of the demand (the sales demand).
So……the inventory has been calculated as being enough to cope with 20% of sales.
Then the usage has been adjusted for the inventory in order to arrive at the purchases.

13. says

Sir. Two topics: Methods of budgeting (incremental & zero-based) and behavioral aspects of budgeting (participation + target setting & motivation + responsibility accounting + management by objectives) are covered in the notes but not talked about in the lecture. What kind of questions are expected for these topics? I’m sure they must be part of syllabus..

• says

Yes – they are in the syllabus. Our Course Notes only include topics that are in the syllabus.

However our lectures do not cover every topic. Some topics are left for you to read yourself in the Course Notes and/or your Study Text.

Questions on the topics you mentioned are always writing parts of questions (not calculations) and you can see how they are asked by looking at past exam questions and questions in your Revision/Exam Kit.

• says

Thank the admin! Behavioral aspects are mostly covered in F2. The methods of budgeting are something new. Worth practicing from the text as well as the books. In my opinion

• says

the exam question books* or kits