Final Examination Practice Re-Sit - AC 601 Accounting and Budget Processes October 2012 - Marking
Guide
AC 601 – Accounting and Budget Processes
AUGUST 2012 Intake
Final Examination Practice Re-sit – Marking Guide
SECTION 1:
Concepts
Question 1:
a.
i.
Static Budgets – are prepared for a single level of activity eg. Sales, production or
servicing hours.
ii.
Continuous Budgets – these do not stop at the end of a financial year, but continue into
the forthcoming year.
iii.
Zero-based Budgets – These budgets are not based on the previous year’s results but
are prepared each year from scratch.
2 marks each
b.


Revenue budgets:
incorporate all income received from services rendered.
Purchase budgets:
purchases necessary to satisfy demand either from customers or
production departments.
 Operating budgets:
Gross Profit, Less: Expenses , Net profit
 Manufactures budgets: Selling price per unit, less cost of Production (Raw Materials cost per
unit, Labour costs per unit, Variable overhead costs per unit, Total costs of Production per unit =
Gross Profit per unit
 Flexible budgets:
How costs will change should their levels of sales and/or production
change (need to separate fixed costs from variable costs).
 Performance reports: Budgets compared to actual results. Determine positive or negative
variances. For an income report, a positive variance when compared to budget will be
favourable, whereas for an expenditure report a positive variance against budget will be
unfavourable.
i.
See above
(½ mark each) 3 marks
ii.
See above
(½ mark each) 3 marks
iii.
Evaluate comments for rational, analytical thinking
3 marks
SECTION 2 : BUDGETING
TOTAL 25 Marks
Question 2 : Cash Payments Budget with GST
(10 marks)
1
Regent International Education Group
Final Examination Practice Re-Sit - AC 601 Accounting and Budget Processes October 2012 - Marking
Guide
(Allocate- layout in correct columns: 2, method: 5, accuracy: 2, other 1) 10 marks total
Question 3 : Revenue Budget for a Manufacturing Concern
(8 Marks)
Solution
Calculation
Litres of adhesive transferred from Second Ltd. to First Ltd:
(July and August: Previous year + 10%, September: previous year + 15%)
July
August
September
25000 + (25000 x 0.10 =) 2500 = 27500
30000 + (30000 x 0.10 =) 3000 = 33000
20000 + (20000 x 0.15 =) 3000 = 23000
3 marks
Therefore sales budget:
Second Ltd.
Sales budget for July – September (current year)
July
Litres adhesive
Selling price per litre
Total sales
August
September
27500
33000
23000
$20
$20
$21
$55000 $660000
$483000
(Allocate - layout in correct columns: 1, method: 3, accuracy: 1)
5 marks
2
Regent International Education Group
Final Examination Practice Re-Sit - AC 601 Accounting and Budget Processes October 2012 - Marking
Guide
SECTION 2: FINANCIAL ANALYSIS
Question 4 : Ratio analysis of financial statement
TOTAL 16 Marks
(7 marks)
a. Acid test ratios. Student must correctly select data to use in formula.
i.
ABC Ltd. ($60,000 + $10,000 + $40,000) / $65,000 = 1.7
XYZ Ltd. (20,000 + 51,000 + 9,000) / (30,000 + 75,000) = 0.762
½ mark each
ii.
ABC Ltd:
XYZ Ltd:
Yes, Acid test ration >1
No, Acid test ratio <1
1 mark each
b. ROE
Return on equity (ROE) is a measure of profitability that calculates how many dollars of profit a company
generates with each dollar of shareholders' equity. Earnings before interest and tax/Total Equity x 100
A publically listed transport company reported the following results for year ended 30 June 2012:
Total assets
Total liabilities
Net profit
Shareholders’ equity
i.
$2,342,000
$1,383,000
$242,000
$1,111,000
242000/1111000 = ~0.22 (22%)
½ mark
ii.
Return on equity: an excellent return in current environment
½ mark
Because? – assess answers provided based on application of common sense and students
awareness of environment, e.g. better bank interest, higher than most public companies,
low risk as transport sector is generally stable and not speculative etc.
3 marks
Question 5:
Variance analysis
VARIANCE ANALYSIS REPORT
3
Regent International Education Group
Final Examination Practice Re-Sit - AC 601 Accounting and Budget Processes October 2012 - Marking
Guide
QUARTER 1
YEAR-TO-DATE
BUDGET
VARIANCE
ACTUAL
VARIANCE
BUDGET
ACTUAL
Sales
10,000
9,000
-10%
10,000
9,000
-10%
Dues
1,000
800
-20%
1,000
800
-20%
Fund Raisers
4,000
2,000
-50%
4,000
2,000
-50%
$11,800
-21.3%
$15,000
$11,800
-21.3%
REVENUES
TOTAL REVENUE: $15,000
EXPENSES
Cost of Goods
4,000
3,500
12.5%
4,000
3,500
12.5%
Payroll
2,000
2,100
-5%
2,000
2,100
-5%
Insurance
150
160
-6.7%
150
160
-6.7%
Supplies
1,000
940
6%
1,000
940
6%
Miscellaneous
100
125
-8%
100
125
-8%
$6,825
5.8%
$7,250
$6,825
5.8%
$4,975
-36%
$7,750
$4,975
-36%
TOTAL EXPENSES: $7,250
NET INCOME/
LOSS
$7,750
i. Some variances may be regarded as favourable while other are not. Identify which could be
regarded as favourable and which are unfavourable.
Should note +ve & -ve symbols for revenue and expense and briefly explain to show
understanding
4
Regent International Education Group
Final Examination Practice Re-Sit - AC 601 Accounting and Budget Processes October 2012 - Marking
Guide
1 mark
ii. The organisation’s policies require a written explanation for all variances of +/- 10% or $100.
Identify all the line items that will require a written explanation.
See highlighted
2 marks
iii. Using your life experience and understanding:
a) Provide an explanation for the items identified.
Comments on flooding, illness, delays in fund raising leading to lower income but also leads
to lower costs for supplies etc. but higher for payroll (clean up etc.). Also consider other
explanations based on scenario provided.
2 marks
b) Suggest remedial actions that may assist in aligning actual to budgeted amounts,
thereby reducing variances.
As iii. a). Look for evidence of understanding, analysis – common sense. E.g. risk
planning to reduce impact of natural events, illness, improved communication especially
for delayed fund raising etc.
4 marks
5
Regent International Education Group