Costing and Estimating Group Assignment

Topic: Budgeting
Weight: 20%
Due Date: 1 October 2018

QUUESTION 1 20 Marks
Quail Limited is a retail distributor for computer hardware, related software and support
services. The management accountant has prepared sales budgets for the first semester of
20X8. These are presented below:

Month Total sales

January R550 000
February R500 000
March R480 000
April R400 000
May R425 000
June R600 000

Cash sales amount to 25% of the total sales. Collections of the credit sales are as follows:

 40% in the month of sale and is subject to a 4% discount

 30% one month after the month of sale
 28% two months after the month of sale and
 The remainder is uncollectible.

Quail Limited’s inventory requirements are equal to 30% of the next month’s sales. The
purchases’ terms of payment require a down payment of 45% and the balance is
payable 30 days thereafter. July’s total sales are expected to be R620 000. Quail
Limited had a bank overdraft of R150 000 on 1 May 20X8.

Required
Prepare a cash budget for Quail Limited by month for May and June 20X8. Show all your
calculations.
QUESTION 2 18 Marks

The following information for July and August were extracted from the costing records of Venus
CC:
July August
Production and sales (units) 12 000 10 000
R R
Costs:
Direct material 270 000 225 000
Direct labour 360 000 300 000
Factory overhead 360 000 331 500
Marketing expenses 93 000 87 000
Administrative expenses 153 000 144 000

At the beginning of September it was estimated that production for that month would be either 13
000 or 14 000 units.

REQUIRED
1. Draw up the flexible budget for September based on
13 000 and 14 000 units. (13)
2. At the end of September the cost records revealed that the following costs/expenses were
incurred in producing and selling
13 500 units:
R
Direct material 302 400
Direct labour 400 500
Factory overhead 425 250
Marketing expenses 108 450
Administrative expenses 180 900
Draw up a variance analysis report for September and indicate next to each variance whether it is
favourable or unfavourable. (5)
QUESTION 3 20 Marks
The following information for January and February were extracted from the costing records of
Creative (Pty.) Ltd:

January February
Production and sales (units) 24 000 20 000
R R
Costs:
Direct material 360 000 300 000
Direct labour 480 000 400 000
Factory overhead 480 000 442 000
Marketing expenses 124 000 116 000
Administrative expenses 204 000 192 000

At the beginning of March it was estimated that production for that month could either be 25 000
units or 28 000 units.

At the end of March the cost records revealed that the following costs/expenses were incurred in
producing and selling 27 000 units:
R
Direct material 403 200
Direct labour 534 000
Factory overhead 567 000
Marketing expenses 144 600
Administrative expenses 241 200

REQUIRED

1. Analyse the behaviour of each cost/expense item by using the

high-low method (express variable costs on a per unit basis).
2. Draw up a flexible budget for March based on acitivity levels
of 25 000 and 28 000 units.
3. Draw up a variance report of total cost for March, showing
total variances.