CH is a building supplies company that sells products to trade and private customers.
Budget data for each of the six months to March are given below:

80% of the value of credit sales is received in the month after sale, 10% two months after sale and 8% three months after sale. The balance is written off as a bad debt.
75% of the value of credit purchases is paid in the month after purchase and the remaining 25% is paid two months after purchase.
All other operating costs are paid in the month they are incurred.
CH has placed an order for four new forklift trucks that will cost $25,000 each. The scheduled payment date is in February.
The cash balance at 1 January is estimated to be $15,000.
Prepare a cash budget for each of the THREE months of January, February and March.
Select All the correct answers.

• A. The total receipts in January will be $245 000
• B. Total payments in March will be $323 000
• C. The total receipts in January will be $320 000
• D. The total payments in February will be $405 000

TP makes wedding cakes that are sold to specialist retail outlets which decorate the cakes according to the customers' specific requirements. The standard cost per unit of its most popular cake is as follows:

The general market prices at the time of purchase for Ingredient A and Ingredient B were $23 per kg and $20 per kg respectively.
TP operates a JIT purchasing system for ingredients and a JIT production system; therefore, there was no inventory during the period.
Prepare a statement which reconciles the flexed budget material cost and the actual material cost. Your statement should include the material price planning variances, and the operational variances including material price, material mix and material yield.
What was the material price planning variance for ingredient A?

• A. The Material price planning variance - Ingredient A was $71 000 F
• B. The Material price planning variance - Ingredient A was $72 000 F
• C. The Material price planning variance - Ingredient A was $73 000 F
• D. The Material price planning variance - Ingredient A was $75 000 F

'A zero-based budgeting system involves establishing decision packages that are then ranked in order of their relative importance in meeting the organization's objectives'.
Which of the following is true regarding he difficulties that a not-for-profit organization may experience when trying to rank decision packages.
Select ALL true statements.

• A. Some of these packages will be inclusive and will require operations to select the best solution to the issue involved.
• B. The activities that are being proposed in a budget are described in decision packages. There will often be more than one decision package proposed for an activity.
• C. Some of these packages will be mutually inclusive and will require management to select the best solution to the issue involved.
• D. In a public sector body, for example, decision packages will relate profit making activities.
• E. The activities that are being proposed in a budget are described in variable packages. There will often be more less than one decision package proposed for an activity.
• F. In a public sector body, for example, decision packages will relate to very disparate activities.
• G. Each decision package is evaluated. Its costs are compared to its benefits and net present values or other measures calculated.
• H. Management may decide to reject packages even though the activity was done last year. In this way the organization is said to be starting from a zero base with each package given due consideration.
• I. Management may decide to accept packages even though the activity was done last year. In this way the organization is said to be starting from a 100% cost base with each package given due consideration.

A flexible budget is a budget that is:

• A. changed in response to changes in costs
• B. set prior to the control period and not subsequently changed in response to changes in activity period has expired
• C. continuously updated by adding a further accounting period when the earliest accounting period has expired
• D. changed in response to changes in the level of activity

TP makes wedding cakes that are sold to specialist retail outlets which decorate the cakes according to the customers' specific requirements. The standard cost per unit of its most popular cake is as follows:

The general market prices at the time of purchase for Ingredient A and Ingredient B were $23 per kg and $20 per kg respectively. TP operates a JIT purchasing system for ingredients and a JIT production system; therefore, there was no inventory during the period.
Discuss the usefulness of the planning and operational variances calculated for TP's management.
Select ALL the TRUE statements.

• A. The purchasing manager's performance can't be compared with the adjusted standards that reflect the conditions the manager actually operated under during the reporting period.
• B. Where a revision of standards is required due to environmental changes that were not foreseeable at the time the budget was prepared, the planning variances are controllable.
• C. If planning and operational variances are not distinguished, there is potential for dysfunctional behavior especially where the manager has been operating efficiently and performance is being judged by factors outside the manager's control. In the case of TP it became evident during the period that the prevailing market prices for materials were significantly less than those set during the budget process.
• D. The use of planning and operational variances will enable TP's management to draw a distinction between variances caused by factors extraneous to the business and planning errors (planning variances) and variances caused by factors that are within the control of management (operational variances).
• E. Standards that failed to anticipate known market trends when they were set will reflect faulty standard setting.