Read the Success on the OAES document for full instructions about how to use thi

Question

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

Assigned questions for Module 4 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?

Explanation / Answer

Q16-5

Q17-1

Flexible budget: It is a budget which is prepared at different levels of activity with variable and semi-variable cost being adjusted at various levels of activity.

Incremental budget: It is a budget which is prepared making a base of the previous period's budget and accounting for the incremental amounts for the new budget period.

Activity-based budget: It is a budget under which costs are related with activities, and at each expected activity level the budgeted expenditures are compiled and allocated.

Q17-2:

Expense variance = Direct material cost variance + Direct labor cost variance

= (170000 - 164000) + (130000 - 133000)

= £3000 Favorable

Net income $150000 Add depreciation 41000 Less increase in debtors (20000) Less increase in inventory (5000) Add increase in creditors 8000 Less increase in capital expenditures (50000) Less Income tax (35000) Less loan repayment (25000) Less current bank overdraft (15000) Forecast cash position at the end of the budget year $49000

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