XY, a not-for-profit charity organization which is funded by public donations, is concerned that it is not making the best use of its available funds. It has carried out a review of its budgeting system and is considering
replacing the current system with a zero-based budgeting system.
Select ALL the potential advantages AND disadvantages for the charity of a zero-based budgeting system.

• A. In an organization like a charity, the decision packages are not very disparate and difficult t compare.
• B. It discourages a questioning approach by focusing attention not only on the cost of the activity but on the benefits it provides. The charity managers will not articulate the benefits encouraging them to think clearly about the activities.
• C. In applying traditional budgeting, 'activities' may result in functional departments rather than cross functional activities and thus distract attention from the real cost-reduction issues.
• D. It avoids the complacency inherent in the traditional incremental approach where it is assumed that future activities will be very similar to current ones.
• E. Preparation of the decision packages will normally require the environment of many employees. This environment may produce useful ideas and promote job satisfaction.
• F. The creation of decision packages and their subsequent ranking by top management is very time consuming and costly. The charity will need to assess whether the benefits of the system outweigh the costs involved.

CH is a building supplies company that sells products to trade and private customers.
Budget data for each of the six months to March are given below:

80% of the value of credit sales is received in the month after sale, 10% two months after sale and 8% three months after sale. The balance is written off as a bad debt.
75% of the value of credit purchases is paid in the month after purchase and the remaining 25% is paid two months after purchase.
All other operating costs are paid in the month they are incurred.
CH has placed an order for four new forklift trucks that will cost $25,000 each. The scheduled payment date is in February.
The cash balance at 1 January is estimated to be $15,000.
Prepare a cash budget for each of the THREE months of January, February and March.
Select All the correct answers.

• A. Total payments in March will be $323 000
• B. The total receipts in January will be $245 000
• C. The total receipts in January will be $320 000
• D. The total payments in February will be $405 000

TP makes wedding cakes that are sold to specialist retail outlets which decorate the cakes according to the customers' specific requirements. The standard cost per unit of its most popular cake is as follows:

The general market prices at the time of purchase for Ingredient A and Ingredient B were $23 per kg and $20 per kg respectively. TP operates a JIT purchasing system for ingredients and a JIT production system; therefore, there was no inventory during the period.
What was the material yield variance?

• A. The material yield variance was $175 500 A
• B. The material yield variance was $155 000 A
• C. The material yield variance was $155 500 A
• D. The material yield variance was $98 500 A
• E. The material yield variance was $175 000 A

QR uses an activity based budgeting (ABB) system to budget product costs. It manufactures two products, product Q and product R. The budget details for these two products for the forthcoming period are as follows:

The total budgeted cost of setting up the machines is $74,400.
Select TWO potential benefits of using an activity based budgeting system.

• A. Activity based budgeting is useful for the review of quality systems utilization.
• B. Activity based budgeting provides a clear framework for understanding the link between turnover and the level of activity.
• C. Activity based budgeting allows the identification of value added and non-value added activity and ensures that any budget cuts are made to non-value added activities.
• D. Activity based budgeting allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.

Explain THREE benefits that organizations gain from using budgetary planning and control systems.
Select ALL the true statements.

• A. The budget provides an external benchmark against which performance against which performance can be evaluated.
• B. The budget acts as a variable mechanism, with actual results being compared with budget.
• C. Another benefit of budgeting is to set targets to motivate managers and optimize their performance.
• D. The budget is a useful device of influencing an operator's thoughts and motivating operators to perform in line with the organization's marketing budget.
• E. The budget ensures actions of different parts of the organization are coordinated are reconciled otherwise managers take actions for the benefit of their own part of organization that may not benefit the organization as a whole.
• F. It provides a standard which managers may be motivated to achieve. It can also encourage inefficiency
  and conflict between managers particularly if the budget is imposed from above, whereby it may act as a threat rather than as a challenge.
• G. Budgeting forces an organization's management to look ahead and set performance targets.