ACCA PM Syllabus D. Budgeting And Control - Flexed Budgets - Past Papers ^{4 / 10}

A profit centre manager claims that the poor performance of her division is entirely due to factors outside her control.

She has submitted the following table along with notes from a market expert, which she believes explains the cause of the poor performance:

After adjusting for the external factors outside the manager’s control, in which category/categories is there evidence of poor performance?

A    Material cost only
B    Sales volume and sales price
C    Sales price and material cost
D    Sales price only

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:

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.

21. Assuming the budgeted figures are correct, what would the flexed total production cost be if production is 80% of maximum capacity?

A    $2,735,000
B    $2,770,000
C    $2,885,000
D    $2,920,000

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:

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.

23. In the first month of production of the new battery, actual sales were 18,000 units and the sales revenue achieved
was $702,000. The budgeted sales units were 17,300.

Based on this information, which of the following statements is true?

A    When the budget is flexed, the sales variance will include both the sales volume and sales price variances
B    When the budget is flexed, the sales variance will only include the sales volume variance
C    When the budget is flexed, the sales variance will only include the sales price variance
D    When the budget is flexed, the sales variance will include the sales mix and quantity variances and the sales price variance

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:

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.

24. Which of the following statements relating to the preparation of a flexible budget for the new battery are true?

(1) The budget could be time-consuming to produce as splitting out semi-variable costs may not be straightforward
(2) The range of output over which assumptions about how costs will behave could be difficult to determine
(3) The flexible budget will give managers more opportunity to include budgetary slack than a fixed budget
(4) The budget will encourage all activities and their value to the organisation to be reviewed and assessed

A    1 and 2 only
B    1, 2 and 3
C    1 and 4
D    2, 3 and 4