LaiACCT500/Fall16 (answers to seminar 6)

ADA University School of Business

ACCT 500, Managerial Accounting, Fall Semester 2016
Solutions to Seminar 6 Budgeting

1.(a)
Part a June July Aug Sept Total
Receipts
Cash receipts 8,460 8,190 8,955 10,800 36,405
-------- -------- -------- --------- ---------
TOTAL RECEIPTS 8,460 8,190 8,955 10,800 36,405

Payments
Payment to suppliers -2,350 -2,275 -2,487.5 -7,112.5
Delivery payments -940 -910 -995 -1,200 -4,045
Store deposit -14,000 -14,000
Shop fittings -15,200 -15,200
Rent -1,800 -1,800 -1,800 -1,800 -7,200
Salary -3,050 -3,050 -3,050 -3,050 -12,200
Advertising -2,500 -1,800 -2,000 -3,000 -9,300
Utility bills -1,120 -1,120
-------- -------- -------- -------- ---------
- - -
TOTAL PAYMENTS -37,490 -9,910 11,240 11,537.5 70,177.5
-
Net cash flow -29,030 -1,720 -2,285 -737.5 33,772.5
Opening Balance 34,000 4,970 3,250 965 34,000
-------- -------- -------- -------- ---------
Closing Balance 4,970 3,250 965 227.5 227.5

1.(b)
Any three of the following points:
(i). To aid the planning of actual operations:
o by forcing managers to consider how conditions might change and what
steps should be taken now.
o by encouraging managers to consider problems before they arise.
(ii). To co-ordinate the activities of the organization:
o by compelling managers to examine relationships between their own
operation and those of other departments.

LaiACCT500/Fall16 (answers to seminar 6)

1
(iii). To communicate plans to various responsibility centre managers:
o everyone in the organization should have a clear understanding of the
part they are expected to play in achieving the annual budget.
o by ensuring appropriate individuals are made accountable for
implementing the budget.
(iv). To motivate managers to strive to achieve the budget goals:
o by focusing on participation.
o by providing a challenge/target.
(v). To control activities:
o by comparison of actual with budget (attention directing/management by
exception).
(vi) To evaluate the performance of managers:
o by providing a means of informing managers of how well they are
performing in meeting targets they have previously set.
(vii) To allocate resources to most desirable activities.
(viii) To provide authority for expenditure.
(ix) To manage the cash surplus and cash shortages better (avoiding the need for
raising expensive short term cash).

2.
January February March April
Sales () 34,830 31,455 33,480
Expenses ()
Rent (3,833) (3,833) (3,833)
Staff salary (8,200) (8,200) (8,200)
and insurance
costs
Variable costs - (19,350) (17,475) (18,600)
Net cash flow 22,797 72 3,972
Balance b/f 11,400 34,197 34,269
Balance c/f 34,197 34,269 38,241

3.
incremental budgeting is an approach which takes the current budget as the base for
the preparation of the nextperiod budget. The base is then adjusted for expected changes
in price, volumes and product mix to arrive at the new budget.
incremental form of budgeting has the major drawback that all past inefficiencies and
waste inherent in the current way of doing things is perpetuated.
Under ZBB, each years budgets for existing activities start from base zero; that is as if
the activities were being undertaken for the first time.
ZBB compels the budget makers to justify activities and prioritize before decisions
relating to the amount of resources to be allocated to each activity are made. A
cost/benefit approach evaluates whether the activity is worthwhile.
LaiACCT500/Fall16 (answers to seminar 6)
4.(a):

2
 September October November December
Sales () 34,830 52,920 33,480
Expenses ()
Shop deposit (30,000)
Rent (3,400) (3,400) (3,400)
Staff salary (4,650) (4,650) (4,650)
and insurance
costs
Utility bills (1,360)
Advertising (860)
Purchases - (48,750) (18,600) (9,750)
Net cash flow (3,220) (4,740) 5,470
Balance b/f 12,800 9,580 4,840
Balance c/f 9,580 4,840 10,310
4.(b) As provided in 1(a) above and in the lecture handouts.

5.(a)
Jun Jul Aug Total
SALES 140,000 245,000 315,000 700,000

Cash Budget for Jones

Ltd
Jun Jul Aug Total
Receipts
Deposit 28,000 49,000 63,000 140,000
after one month 42,000 73,500 115,500
after two months 70,000 70,000
TOTAL RECEIPTS 28,000 91,000 206,500 325,500

Payments
Salaries 21,333 21,333 21,333 63,999
Computer components 84,000 147,000 231,000
Rent (deposit) 20,000 20,000
Rent ongoing 3,000 3,000 3,000 9,000
Marketing 9,000 4000 4,000 17,000
Admin o/h 680 1700 1700 4,080
TOTAL PAYMENTS 54,013 114,033 177,033 345,079

Net cash flow -26,013 -23,033 29,467 -19,579

Opening Balance 30,000 3,987 -19,046 30,000
Closing Balance 3,987 -19,046 10,421 10,421
LaiACCT500/Fall16 (answers to seminar 6)

5.(b)

3
There is a shortfall of 19,047 in July. The company has a number of options in
dealing with this cash shortfall:
(a).Arrange a bank overdraft for say 20,000
(b) Have a tighter sales collection policy
(c) Negotiate either a lower rent deposit or negotiate deferring all or some of it to
August

6.(a):
June July August Sept Total
Receipts
At time of signing
contract 1,020 1,830 2,250 2,040 7,140
One month later 2,380 4,270 5,250 11,900
-------- -------- --------- --------- ---------
TOTAL RECEIPTS 1,020 4,210 6,520 7,290 19,040

Payments
-
Lease premium -25,000 25,000
Rent -1,600 -1,600 -1,600 -1,600 -6,400
Salary -1,500 -1,500 -1,500 -1,500 -6,000
Advertising -2,500 -1,800 -4,300
Utility bills -720 -720
Business rates -4,200 -4,200
-------- -------- --------- -------- ---------
-
TOTAL PAYMENTS -28,100 -5,600 -9,820 -3,100 46,620

-
Net cash flow -27,080 -1,390 -3,300 4,190 27,580
Opening Balance 30,000 2,920 1,530 -1,770 30,000
---------- --------- --------- -------- ---------
Closing Balance 2,920 1,530 -1,770 2,420 2,420

LaiACCT500/Fall16 (answers to seminar 6)

6.b

4
 incremental budgeting is an approach which takes the current budget as the base for
the preparation of the nextperiod budget. The base is then adjusted for expected changes
in price, volumes and product mix to arrive at the new budget.
incremental form of budgeting has the major drawback that all past inefficiencies and
waste inherent in the current way of doing things is perpetuated.
Under ZBB, each years budgets for existing activities start from base zero; that is as if
the activities were being undertaken for the first time.
ZBB compels the budget makers to justify activities and prioritize before decisions
relating to the amount of resources to be allocated to each activity are made. A
cost/benefit approach evaluates whether the activity is worthwhile.