MC Question 25
The following scenario relates to questions 21–25.
Corfe Co is a business which manufactures computer laptop batteries and it has developed a new battery which has a longer usage time than batteries currently available in laptops. The selling price of the battery is forecast to be $45.
The maximum production capacity of Corfe Co is 262,500 units. The company’s management accountant is currently preparing an annual flexible budget and has collected the following information so far:
| Production (units) | 185,000 | 200,000 | 225,000 |
|---|---|---|---|
| $ | $ | $ | |
| Material costs | 740,000 | 800,000 | 900,000 |
| Labour costs | 1,017,500 | 1,100,000 | 1,237,500 |
| Fixed costs | 750,000 | 750,000 | 750,000 |
In addition to the above costs, the management accountant estimates that for each increment of 50,000 units produced, one supervisor will need to be employed. A supervisor’s annual salary is $35,000.
The production manager does not understand why the flexible budgets have been produced as he has always used a fixed budget previously.
25. The management accountant intends to use a spreadsheet for the flexible budget in order to analyse performance of the new battery.
Which of the following statements are benefits regarding the use of spreadsheets for budgeting?
(1) The user can change input variables and a new version of the budget can be quickly produced
(2) Errors in a formula can be easily traced and data can be difficult to corrupt in a spreadsheet
(3) A spreadsheet can take account of qualitative factors to allow decisions to be fully evaluated
(4) Managers can carry out sensitivity analysis more easily on a budget model which is held in a spreadsheet
A 1, 3 and 4
B 1, 2 and 4
C 1 and 4 only
D 2 and 3