Module Overview:

In the previous modules, you have learned about financial reporting, where you use accounting information for external reporting to communicate the earnings and financial position of the business to external users. You also learned about management accounting that deals with using accounting information to analyze and communicate financial results to internal management for decision-making purposes.As a manager, you need to be forward-looking. Reviewing past financial information of your company is not enough because you need to be able to forecast future financial conditions or operating results. This requires planning various activities of your business.

In this module, you will learn about forecasting, budgeting, and strategic management accounting (SMA) that broadens the concept of management accounting. You will explore how to use accounting information to create a strategic business plan and develop strategies to achieve a sustainable competitive advantage using SMA concepts.

Budget represents an estimate of future costs and revenues and provides you with a plan to utilize labor and material resources. In this module, you will explore the various types of forecasting and budgeting techniques.

Module Readings and Assignment:  

Complete the following readings early in the module: 

•Read the online lectures for the Module  

•From the textbook, Accounting for Managers: Interpreting Accounting Information for Decision Making, 5th, read the following chapters: 

◦Chapter 16: Budgeting 

◾Chapter 16 textbook Microsoft PowerPoint slides  

◦Chapter 17: Budgetary Control 

◾Chapter 17 textbook Microsoft PowerPoint slides 

 ◦Chapter 18: Strategic Management Accounting 

◾Chapter 18 textbook Microsoft PowerPoint slides

Assignment: OAES Entry

Instructions:   

“Save” your response to each question by changing the color to the answer to RED as you work through the assignment

Question 1 (3 points)

Q16-1: Zero based budgeting is a technique where a department:

Answer Options: Choose One

is required to make a case for its budget as if its activities were new

prepares a budget after taking into account current expenditure and an allowance for the next period’s expenditur

the difference between budget and actual results will be zero

prepares budgets on the basis of no increase in unit costs from the previous period.

Question 2 (3 points)  

Q16-2: A company’s annual sales budget is for 120,000 units, spread equally through the year. It needs to have one and three quarter’s month stock at the end of each month. If opening stock is 12,000 units, the number of units to be produced in the first month of the budget year is:

Answer Options:Choose One

12,000          

13,000          

10,500          

15,500

Question 3 (4 points)

Q16-3: The standard costs for a manufacturing business are £12 per unit for direct materials, £8 per unit for direct labour and £5 per unit for manufacturing overhead. The sales projection is for 5,000 units, 3,500 units need to be in stock at the end of the period and 1,500 units are in stock at the beginning of the period. The production budget will show costs for that period of:

Answer Options: Choose One

£125,000          

£150,000          

£140,000          

£175,000

Question 4 (4 points)

Q16-4: Receivable increase by £15,000 and payables increase by £11,000. The effect on cash flow of the Statement of Cash Flow is a (an):

Answer Options: Choose One

decrease of £26,000          

decrease of £4,000          

increase of £26,000          

increase of £4,000

Question 5 (4 points)

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?

Answer Options: Choose One

None of the above          

18,000          

49,000         

 66,000          

52,000

Question 6 (4 points)

Q 17-1: The method of adjusting the budget to reflect the actual volume of sales is called

Answer Options:Choose One

programme budgeting          

activity-based budgeting          

incremental budgeting          

flexible budgeting

Question 7 (4 points)

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. The expense variance is:  @

                                    Budget for the year to date   Actual for the year to date   Variance

Materials    170,000    164,000    6,000 Fav     

Labour    130,000    133,000    3,000 Adv     

Total    300,000    297,000    3,000 Fav

Answer Options: Choose One

£6,000 adverse          

£6,000 favourable          

£3,000 adverse          

£3,000 favourable

Question 8 (3 points)

Q17-3a: Higher prices from material suppliers will be reflected in the:

Answer Options: Choose One

labour rate variance          

labour efficiency variance          

material usage variance          

material price variance

Question 9 (3 points)

Q17-3b: Poor quality materials that require greater skill to work will be reflected in the

Answer Options: Choose  One

labour rate variance          

material usage variance          

labour efficiency variance          

material price variance

Question 10 (4 points)

Q18-1: A concern with recognising all the costs of a product or service from the design stage through to its abandonment can be described as a process of:

Answer Options: Choose One

throughput costing          

life cycle costing          

Kaizen costing          

target costing

Question 11 

Question 11 (4 points)  

Q18-2: Trans PLC estimates that a new product will sell in sufficient quantities to justify its manufacture at a selling price of £175. The company needs to invest £5 million to produce a quantity of 10,000 of these new products per year and requires a return on that investment of 12% per annum. The current prediction is that the product will cost £140 to manufacture. To achieve the target selling price and target rate of return, the product needs to be re-engineered to reduce its cost of manufacture by:

Answer Options: Choose One 

£35          

£25          

£60          

£40

Question 12 (10 points) 

Q18-3: SkinTan’s top five customers generate sales revenue of £950,000 per annum. Each generates a different gross margin as a consequence of price negotiations that have been carried out over several years. Because of their location, each customer incurs different distribution expenses. Sales commissions are paid at the rate of 6% on all sales. Fixed costs are customer specific, covering salaries of sales and office staff who service each customer. The following table shows the information for each of the top customers for the previous year.

Sales                250,000               250,000               200,000               150,000        100,000       

Gross margin %     30%                    25%                    21%                   37%                    39%     

Distribution expenses                  30,000                  14,000                  25,000                  12,000                    6,000     

Fixed costs                  30,000                  25,000                  16,000                  15,000                  10,000

Carry out a customer profitability analysis in relation to SkinTan’s top customers. Then match the customer with the profitability.

Answer Options: Choose & Match

Customer C   12345  

Customer A   12345  

Customer E   12345  

Customer D   12345  

Customer B    12345

 1. 0  

2. 8,500  

3. -11,000  

4. 19,500  

5. 17,000