Accounting Business Reporting for Decision Making

410 Accounting: Business Reporting for Decision Making

purchases. No discount will be taken on these late payments. The business starts with no inven-

tories on 1 January.

Required

Determine the budgeted payments for purchases of materials for each of the first three months of

operations.

9.34    LO4, 7

Discuss the potential issues arising for an entity if it takes a budgetary approach in which budgetary

data are imposed on business unit managers by the CEO. Contrast this with an approach whereby

the budgetary data is developed in a more participatory environment.

9.35    LO4

Lineham Services is preparing a master budget for the coming year. At present senior management

are reviewing the inventory policies. Which budgets would policies concerning the level of

inventories affect? Why?

9.36    LO4

Kimona City has undertaken its budget planning for the coming accounting period.

Budget item Budget data

Sales 40 000 units; selling price $80

Cost of inventory Direct materials: 2 kilograms @ $5 per kilogram

Direct labour: 3 hours @ $12 per hour

Indirect manufacturing costs: $6 per direct labour hour

Raw materials inventory Beginning balance: 10 000 kilograms

Ending balance: 15 000 kilograms

Raw material cost $5 per kilogram

Selling and administration costs $200 000

Required

Prepare a budgeted statement of profit or loss for the coming accounting period.

9.37    LO4

Coconut Plantations Pty Limited produces and sells two types of coconut based products: soaps

and candles. The 2019 sales budget for the two products is as follows.

Quarter Soaps Candles

1

2

3

4

7 000

9 000

10 000

12 000

3 000

6 000

8 000

11 000

The beginning inventory on 1 January 2019 is expected to be 4200 units of Soaps and 1200 units

of Candles. Management desires an ending inventory each quarter equal to 60 per cent of the next

quarter’s sales. Sales in the first quarter of 2020 are expected to be 30 per cent higher than sales

in the same quarter in 2019.

Required

Prepare separate quarterly production budgets for each product for 2019.

Problems

 BASIC |   MODERATE |    CHALLENGING

9.38 Issues in budgetary slack   LO6, 7

Alette Renn is the newly appointed chief accountant at Aerospace Data Components (ADC), which

designs and manufactures data components for the aerospace and car industries. One of Alette’s

early tasks was to review the budgeting and planning system. From her initial enquiries, she found

the issue of ‘budgetary slack’ being mentioned by a number of managers.