M5 OAES Assigned Questions Read the Success on the OAES document for full instru

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M5 OAES Assigned Questions

Read the Success on the OAES document for full instructions about how to use this system.

Assigned questions for Module 5 are:

Q16-5: Randy Airplanes Ltd is a privately owned business. It has budgeted for profits (after deducting depreciation of £41,000) of £150,000. Debtors are expected to increase by £20,000, inventory is planned to increase by £5,000 and creditors should increase by £8,000. Capital expenditure is planned of £50,000, income tax of £35,000 has to be paid and loan repayments are due totaling £25,000. What is the forecast cash position of Randy’s at the end of the budget year, assuming a current bank overdraft of £15,000?

Q17-1: What are a flexible, incremental, and activity-based budget? Please explain each.

Q17-2: A company has budgeted for materials of £170,000 but the actual costs are £164,000. The company has also budgeted for labour of £130,000 with actual costs being £133,000. What is the expense variance and is it favorable or adverse?

Q17-3a: How do increases/decreases in costs and/or prices effect each of the variances in standard costing?

Q17-3b: How do increases/decreases in production labor effect each of the variances in standard costing?

Explanation / Answer

Flexible Budget –

A flexible budget is a budget that adjusts or flexes for changes in the volume of activity. The flexible budget is more sophisticated and useful than a static budget, which remains at one amount regardless of the volume of activity.

Incremental Budget –

An incremental budget is a budget prepared using a previous period's budget or actual performance as a basis with incremental amounts added for the new budget period. The allocation of resources is based upon allocations from the previous period.

Activity-based Budget –

Activity-based budgeting is a method of budgeting in which the activities that incur costs in every functional area of an organization are recorded and their relationships are defined and analyzed. Activity-based budgets do not simply adjust prior budgets to account for inflation or business development.

Calculation of variance -

Expenses variance –

Expenses variance is the difference between budgeted expenses and actual expenses.

When an actual expense is more than budgeted expenses, it is adverse variance; it affects increase in cost and reduction in profit.

When an actual expense is less than budgeted expenses, it is favorable variance; it affects reduction in cost and increase in profit.

Randy Airplanes Ltd Calculation of forecast cash position - Sr. No. Particulars Amount £ Amount £ 1 Opening Balance / Current Bank Overdraft -15000 Current position is overdraft hence shown as negative figure 2 Receipts / Cash inflow Cash profit for the year 191000 Increase in Sundry Creditors 8000 Sub-Total 199000 3 Payments / Cash outflow Increase in Sundry Debtors 20000 Increase in Inventory 5000 Capital Expenses 50000 Income Tax 35000 Repayment of loan 25000 Sub-Total 135000 4 Closing Balance / forecast Bank Overdraft ( 1 + 2 - 3 ) 64000 Forecast position is positive figure, i.e. Regular Bank Balance

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