Page 317 - F2 - MA Integrated Workbook STUDENT 2018-19

Budgeting

Test your understanding 6

A flexible budget is:

A a budget which, by recognising different cost behaviour patterns, is
designed to change as the volume of activity changes

B a budget for a defined period of time which includes planned revenues,
expenses, assets, liabilities and cash flow

C a budget which is prepared for a period of one year which is reviewed
monthly, whereby each time actual results are reported, further forecast
period is added and the intermediate period forecasts are updated

D a budget of semi-variable production costs only

Test your understanding 7

ASD operates a system of flexible budgets. The flexed budgets for
expenditure for the first two quarters of year 3 are given below.

Assuming the cost structures in quarters 1 and 2 continue, complete the
statement of the budget cost allowances for quarter 3, when production was
15,000 units.

Quarter 1 Quarter 2 Quarter 3

Units 10,000 13,000 15,000
$ $ $

Direct materials 130,000 169,000
Direct labour 74,000 96,200

Production overhead 88,000 109,000

Administration overhead 26,000 26,000
Total budget cost allowance 347,700 421,700

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