GH manufactures a product using skilled labour and high quality materials. The company operates a standard costing system and a just-in-time (JIT) purchasing and production system. The standard selling price and variable costs for one unit of the product are as follows:

Prepare a statement that reconciles the budgeted contribution with the actual contribution for October. Your statement should show the variances in as much detail as possible.
What was the actual contribution for October?

• A. $ 1,324,000
• B. $ 1,594,000
• C. $ 1,198,000
• D. $ 1,494,000
• E. $ 1,414,000

'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. 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.
• B. Each decision package is evaluated. Its costs are compared to its benefits and net present values or other measures calculated.
• C. 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.
• D. Some of these packages will be inclusive and will require operations to select the best solution to the issue involved.
• E. In a public sector body, for example, decision packages will relate to very disparate activities.
• F. 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.
• G. In a public sector body, for example, decision packages will relate profit making activities.
• H. 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.
• I. Some of these packages will be mutually inclusive and will require management to select the best solution to the issue involved.

A company produces trays of pre-prepared meals that are sold to restaurants and food retailers. Three varieties of meals are sold: economy, premium and deluxe.


Discuss the benefits of flexible budgeting for planning and control purposes.
Select all the true statements.

• A. The fixed budget however provides more insight into actual performance.
• B. Reporting against a fixed budget tells management nothing about the efficiency of operations.
• C. If sales volumes were well above budget, adverse variable cost variances will probably be reported, against the fixed budget, since more variable costs have to be incurred to support the higher level of activity.
• D. If actual sales revenue is compared to a fixed budget it is possible to tell whether a favourable sales variance is due to an increase in units sold or an increase in sales price.
• E. If a flexible budget is prepared then the budget variances calculated will provide a better indication of performance since actual results will be compared against an appropriate benchmark.
• F. A fixed budget will provide meaningful control information when actual activity differs from budget and variable costs are significant.

A company produces a product that requires two materials, Material A and Material B. Details of the material quantities and costs for August are given in the table below.

Budgeted and actual output of the product for August was 12,000 units.
The material mix variance for August is:

• A. $ 1, 540 Favourable
• B. $ 1, 540 Adverse
• C. $ 1, 288 Favourable
• D. $ 1, 540 Adverse

A medium-sized manufacturing company, which operates in the electronics industry, has employed a firm of consultants to carry out a review of the company's planning and control systems. The company presently uses a traditional incremental budgeting system and the inventory management system is based on economic order quantities (EOQ) and reorder levels. The company's normal production patterns have changed significantly over the previous few years as a result of increasing demand for customized products. This has resulted in shorter production runs and difficulties with production and resource planning. The consultants have recommended the implementation of activity based budgeting and a manufacturing resource planning system to improve planning and resource management.
What are the benefits for the company that could occur following the introduction of an activity based budgeting system?
Select ALL the correct answers.

• A. Activity based techniques including activity based budgeting focus on the outputs of a process rather than the input to the process. This approach provides a clear framework for understanding the link between costs and the level of activity. It allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.
• B. The approach under an Activity based Budgeting System is to make arbitrary cuts in order to meet overall financial targets.
• C. Activity Based Budgeting Systems present costs under functional headings i.e. the emphasis is on the nature of the cost. The weakness if this approach is that it gives little indication of the link between the level of activity and the cost incurred.
• D. Under a traditional incremental budgeting system the focus is on existing resources and operations.
  Adjustments are then made for changes in activity and price which results in past inefficiencies being perpetuated. Under an activity based budgeting system, only resources that are needed to perform activities required to meet the budgeted production and sales volumes are included.
• E. Under an activity based budgeting system, resource allocation is linked to the strategic plan and is prepared after considering alternative strategies. This approach ensures that new activities that are required to meet the company's strategic objectives are included in the budget.