ACCA PM Syllabus D. Budgeting And Control - Types of Budgetary Systems - Past Papers ^{2 / 10}

A budget is a quantified plan of action for a forthcoming period. Budgets can be prepared using a variety of different approaches.

Which of the following statements regarding approaches to budgeting are correct?
(1) Incremental budgeting builds previous inefficiencies into the budget whereas zero-based budgeting encourages employees to avoid wasteful expenditure

(2) Beyond budgeting uses adaptive management processes and plans on a rolling basis

(3) Activity-based budgeting ensures that the budget is continually updated by adding a new budget period once the most recent budget period has ended

(4) Flexible budgeting recognises different cost behaviour patterns and so takes into account the organisation’s overall strategy during the budget process

A. (1) and (2) only
B. (1), (2) and (4)
C. (3) and (4)
D. (1) and (3)

Chair Co has in development several new products. One of them is a new type of luxury car seat. The estimated labour time for the first unit is 12 hours but a learning curve of 75% is expected to apply for the first eight units produced. The cost of labour is $15 per hour.

The cost of materials and other variable overheads is expected to total $230 per unit. Chair Co plans on pricing the seat by adding a 50% mark-up to the total variable cost per seat, with the labour cost being based on the incremental time taken to produce the 8th unit.

Chair Co has also developed a new type of office chair and management is trying to formulate a budget for this product. They have decided to match the production level to demand, however, demand for this chair is uncertain.

Management have collected the following information:

The selling price per unit is $25. The variable cost per unit is $8 for any production level up to 25,000 units. If the production level is higher than 25,000 units, then the variable cost per unit will decrease by 10% and this reduction will apply to all the units produced at that level.

Total fixed costs are estimated to be $75,000.

Using probabilistic budgeting, what is the expected budgeted contribution of the product?

A. $282,000
B. $357,000
C. $287,600
D. $362,600

Lesting Regional Authority (LRA) is responsible for the provision of a wide range of services in the Lesting region, which is based in the south of the country ‘Alaia’. These services include, amongst other things, responsibility for residents’ welfare, schools, housing, hospitals, roads and waste management.

Over recent months the Lesting region experienced the hottest temperatures on record, resulting in several forest fires, which caused damage to several schools and some local roads. Unfortunately, these hot temperatures were then followed by flooding, which left a number of residents without homes and saw higher than usual numbers of admissions to hospitals due to the outbreak of disease. These hospitals were full and some patients were treated in tents. Residents have been complaining for some years that a new hospital is needed in the area.

Prior to these events, the LRA was proudly leading the way in a new approach to waste management, with the
introduction of its new ‘Waste Recycling Scheme.’ Two years ago, it began phase 1 of the scheme and half of its residents were issued with different coloured waste bins for different types of waste. The final phase was due to begin in one month’s time. The cost of providing the new waste bins is significant but LRA’s focus has always been on the long-term savings both to the environment and in terms of reduced waste disposal costs.

The LRA is about to begin preparing its budget for the coming financial year, which starts in one month’s time. Over recent years, zero-based budgeting (ZBB) has been introduced at a number of regional authorities in Alaia and, given the demand on resources which LRA faces this year, it is considering whether now would be a good time to introduce it.

Required:
(a) Describe the main steps involved in preparing a zero-based budget. (3 marks)

(c) Outline THREE potential benefits of introducing zero-based budgeting at the LRA. (3 marks)

What is the name given to a budget which has been prepared by building on a previous period’s budgeted or actual figures?

A. Incremental budget
B. Flexible budget
C. Zero based budget
D. Functional budget

X Co uses rolling budgeting, updating its budgets on a quarterly basis. After carrying out the last quarter’s update to the cash budget, it projected a forecast cash deficit of $400,000 at the end of the year. Consequently, the planned purchase of new capital equipment has been postponed.

Which of the following types of control is the sales manager’s actions an example of?

A. Feedforward control
B. Negative feedback control
C. Positive feedback control
D. Double loop feedback control

The following statements have been made about zero based budgeting:
(1) Employees will focus on eliminating wasteful expenditure
(2) Short-term benefits could be emphasised over long-term benefits

Which of the above statements is/are true?

A. 1 only
B. 2 only
C. Neither 1 nor 2
D. Both 1 and 2