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Dear john,
I have some doubts in past papers ,
1.Dec 2016 they ask to prepare rolling budget for four months is it relevant for march exam should i really need to practice those questions.
2. SEP 2016
A profit centre manager claims that the poor performance of her division is entirely due to factors outside her control. She has submitted the following table along with notes from a market expert, which she believes explains the cause of the poor performance:
Category Budget this year Actual this year Actual last year Market expert notes.
Sales volume (units) 500 300 400 The entire market has decreased by 25% compared to last year. The product will be obsolete in four years
Sales revenue $50,000 $28,500 $40,000 Rivalry in the market saw selling prices fall by 10%
Total material cost $10,000 $6,500 $8,000 As demand for the raw materials is decreasing, suppliers lowered their prices by 5%After adjusting for the external factors outside the manager’s control, in which category/categories is there evidence of poor performance?
Sales price and material cost
Sales price only
Sales volume and sales price
Material cost onlyI really have no idea how to answer this question i cant able to get any clues relating to this topic.
3. SEP 2016
Corfe Co is a business which manufactures computer laptop batteries and it has developed a new battery which has a longer usage time than batteries currently available in laptops. The selling price of the battery is forecast to be $45.
The maximum production capacity of Corfe Co is 262,500 units. The company’s management accountant is currently preparing an annual flexible budget and has collected the following information so far:
Production (units) 185,000 200,000 225,000
$ $ $
Material costs 740,000 800,000 900,000
Labour costs 1,017,500 1,100,000 1,237,500
Fixed costs 750,000 750,000 750,000In addition to the above costs, the management accountant estimates that for each increment of 50,000 units produced, one supervisor will need to be employed. A supervisor’s annual salary is $35,000.
The production manager does not understand why the flexible budgets have been produced as he has always used a fixed budget previously
In the first month of production of the new battery, actual sales were 18,000 units and the sales revenue achieved
was $702,000. The budgeted sales units were 17,300.Based on this information, which of the following statements is true?
A When the budget is flexed, the sales variance will include both the sales volume and sales price variances
B When the budget is flexed, the sales variance will only include the sales volume variance
C When the budget is flexed, the sales variance will only include the sales price variance
D When the budget is flexed, the sales variance will include the sales mix and quantity variances and the sales price varianceI Can guess the answer but i dont get the concept behind it .
please help me to solve this .Thank you
1. Yes – you need to practice rolling budgets.
2. Sales volume: the market has fallen by 25% since last year and therefore the division would expect to sell 25% less that last year which would be 300. They have sold 300 and so the manager has done OK.
Sales revenue: Last year the division has a selfing price of 40,000/400 = $100 per unit. Prices have fallen by 10% and so they would expect to sell of only $90 this year. The selling price this year is 28,500 / 300 = $95, and so the manager has done well.
Material cost: Last year the cost was 8,000/400 = 20 per unit. Suppliers have dropped their prices by 5% so they should only be paying 19 per unit this year. They are actually paying 6,500 / 300 = $21.67 per unit, so the manager has done badly.
3. Flexing a budget is rewriting the budget for the actual sales volume. Therefore when comparing the actual with the flexed budget the only sales variance will be the sales price variance.
I do suggest that you watch my free lectures on these topics.
Hi John, with regards to point 2 in your response, why do you compare actual results with last year instead of budget this year?
Because the information in the question tells you what has changed since last year.
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