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Budgetary control

Unit: Management accounting

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April 2025

 3 Questions
Question 4b
​ ​ ​​Jiko Moto Ltd. wishes to set a flexible budget for the sale of gas cookers. The production cost incurred and the number of gas cookers produced during six months of financial year 2024/2025 were as follows:


Month
Production cost 
Sh.
Number of gas cookers
1
10,473,000
1,200
2
11,322,600
1,400
3
10,623,800
1,250
4
10,802,200
1,300
5
10,247,600
1,150
6
10,954,800
1,350

The monthly total and monthly average figures for the six month of the financial year 2024/2025 is as follows:

Production cost
Sh.
Number of gas cookers
Monthly total
65,424,000
7,650
Monthly average
10,904,000
1,275

Required: 
Using High-Low analysis, devise a cost estimation equation in the form Y = a + bx and estimate the: 

(i) Variable production cost per gas cooker. 

(ii) Fixed production cost per month.


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Question 2b(ii)
​ ​​Beehive Enterprises has provided the following extract of the trial balance as at 1 March 2025:

Debits
Sh.
Credits
Sh.
Cash
60,000
Accounts receivable
195,000
Allowance for bad debts
24,000
Inventory
120,000
Accounts payable
90,000

Additional information:
1
Purchases are payable within 10 days. Assume that one-third (1/3) of the purchase of any month are due and paid for in the following month. 
2
The unit cost of the inventory purchased is Sh.10. At the end of each month, the firm’s policy is to have an inventory equal to 50% of the following month’s unit sales. 
3
Sales terms include a 1% discount if payment is made by the end of the calendar month in which the sale took place. Past experiences indicate that 60% of the billings will be collected during the month of the sale, 30% in the following calendar month, 6% in the next following calendar month and 4% will be uncollectible.
4
The following data relates to sales: 
Sh.
Selling price per unit
150
January 2025 actual sales revenue
150,000
February 2025 actual sales revenue
450,000
March 2025 actual sales revenue
360,000
April estimated sales revenue 
270,000
Total sales expected in the fiscal year
4,500,000
5
The firm’s fiscal year begins on 1 January of every year.
6
Exclusive of bad debts, the total budgeted selling and general administrative expenses for the fiscal year are estimated at Sh.705,000 of which Sh.210,000 is fixed expense (inclusive of Sh.90,000 annual depreciation charge).
7
Fixed expenses are incurred uniformly throughout the year
8
The balance of the selling and general administrative expenses varies with sales. Expenses are paid as incurred.

Required:
 A cash budget for the month of April 2025.


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Question 2b(i)
​​A budget is a planning and control tool expressed in monetary terms. The budget is prepared to perform certain functions. 

With reference to the above statement, discuss FOUR functions of budgetary control and planning.


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December 2024

 2 Questions
Question 4a
​​The effectiveness of an organisation’s budgetary control system relies significantly on having a well-designed budget that allocates resources efficiently and monitors expenditures consistently. 

Required: 
With reference to the above statement, discuss FOUR conditions for an effective budgetary control system.


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Question 4c
​ ​ ​​Alto Ltd. manufactures a single product branded “PQ”. The following data relates to its operations for the month of October 2024:

Budget
Units
Actual
Units
Sales
30,000
29,000
Production
30,000
30,000

Sh.“000” 

Sh.“000” 
Sales
420,000
411,800
Direct materials 
120,000
123,000
Direct labour
150,000
144,000
Fixed overheads
67,500
70,000
Net income
82,500
74,800

Required: 
A flexible budget for the month of October 2024 for the actual sales of 29,000 units. 


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April 2024

 2 Questions
Question 5c
​ ​ ​ ​​The following information relates to the projected activities of Detrix Ltd., a local manufacturing company for the year 2024:

Wages
Sh.“000”
Materials purchased
Sh.“000”
Overhead cost
Sh.“000”
Sales
Sh.“000”
January
18,000
60,000
30,000
90,000
February
24,000
90,000
36,000
120,000
March
30,000
75,000
48,000
180,000
April
27,000
105,000
42,000
150,000
May
36,000
90,000
54,000
210,000
June
30,000
75,000
48,000
180,000
July
27,000
75,000
42,000
150,000
August
27,000
90,000
42,000
150,000

Additional information: 
1. It is expected that cash balance on 30 April 2024 will be Sh.66,000,000. 

2. Wages are paid within the month they are incurred. 

3. Creditors for raw materials are paid three months after receipt. 

4. Debtors are expected to pay two months after delivery. 

5. Included in the overhead figure is Sh.6,000,000 per month which represents depreciation. 

6. There is a one-month delay in paying the overhead expenses. 

7. 20% of the monthly sales are on cash basis.

8. A commission of 5% is paid to agents on all the sales on credit, but this is not paid until the month following the sales to which it relates. This expense is not included in the overhead figure. 

9. The company intends to repay a loan of Sh.75,000,000 on 31 May 2024. 

10. A delivery is expected in the month of June 2024 of a new machine costing Sh.135,000,000 of which Sh.45,000,000 will be paid in each of the following months. 

11. The company has an overdraft facility with banks. 

Required:

A cash budget for the months of May, June and July 2024.


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Question 5b
​ ​​A flexible budget is known to be more appropriate for control purposes than a fixed budget. 

Required: 
(i) By distinguishing between a “fixed budget” and a “flexible budget”, explain whether you agree or disagree with the above statement. 

(ii) Outline THREE benefits of budgetary control system in an organisation.


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December 2023

 2 Questions
Question 1a
​​Discuss THREE essential features of a budget.


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Question 4b
​ ​​Motomoto Ltd. operates standard costing system. The following budgeted information relates to its only product:

Quantity
Unit price (Sh.)
Standard cost per unit (Sh.)
Direct material A
3 kilograms
140
420
Direct material B 
2 kilograms
250
500
Direct labour
2 hours 
105
110
Fixed overheads
...270...
Standard cost per unit
1,300  

Budgeted production amounted to 800 units at a unit price of Sh.1,300.

Actual production data for the month of November 2023:

Quantity
Sh.
Sales revenue
850 units
1,326,000
Direct material A
2,410 kilograms
(325,350)
Direct material B
1,000 kilograms
(270,000)
Direct labour
890 hours
(97,900)
Fixed overheads
(229,500)
Net profit
403,250
Actual output amounted to 850 units.

Additional information: 
  1. Budgeted fixed overheads for its product is based on budgeted output of 800 units per month. 
  2. Standard selling price was budgeted as Sh.1,600 per unit. 
  3. There was no opening or closing inventory of direct material. 

Required: 
Flexible budget profit statement.


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August 2023

 1 Questions
Question 2a
​​Explain FOUR reasons for budgeting in a business.


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April 2023

 1 Questions
Question 3c
​ ​ ​ ​​Relei Ltd. is currently following a centralised material storage system. The company is in the process of preparing its cash budget for the second-quarter of the year 2023 and has availed the following data:

Month
Sales

Sh.“000”
Material
Purchases
Sh.“000”
Production
overheads
Sh.“000”
Selling
overheads
Sh.“000”
Salaries and
wages
Sh.“000”
January
144,000
50,000
12,000
11,000
20,000
February
200,000
62,000
12,300
12,400
24,000
March
180,000
50,500
13,000
15,500
20,000
April
150,000
60,600
17,500
18,900
36,000
May
205,000
74,000
17,700
22,000
40,000
June
208,000
76,800
16,400
23,200
48,000

Additional information: 
  1. Cash sales are 60% of the total sales. The remaining sales are collected equally during the following two months. 
  2. Assets are to be acquired in the month of April 2023 and May 2023. Therefore, provisions should be made for payment of Sh.16,000,000 and Sh.65,000,000 for the same. 
  3. An application has been made to the bank for the grant of a loan of Sh.45,000,000 and it is hoped that the loan will be received in the month of May 2023. 
  4. Creditors for materials purchased are granted one-month credit after month of purchase. 
  5. Monthly production overheads include depreciation of Sh.5,000,000 per month. 
  6. Selling overheads are paid one month after the month in which the overhead occurred. 
  7. Salaries commission at 3% on sales is paid to the salesmen each month. 
  8. Salaries and wages are paid monthly at the end of the month.
  9. An advance tax of Sh.20,000,000 is due in April 2023. 
  10. The cash balance as at 1 April 2023 is estimated as Sh.144,500,000. 
Required: 
A cash budget for the second quarter of the year commencing 1 April 2022 to 30 June 2023.


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December 2022

 1 Questions
Question 1a
​​Outline SIX benefits that would accrue to an organisation that encourages employees to participate in budget preparation.


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August 2022

 1 Questions
Question 2a
​​Distinguish between “flexible budget” and “activity based costing” as used in management accounting.


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April 2022

 1 Questions
Question 5a
​ ​​ Smart products Ltd. operates standard costing and budgetary control system. 

The following is the company's standard cost card:

Sh.
Direct materials
120
Direct labour 
60
Variable overheads
20
Fixed overheads 
30
Standard cost per unit
230
Standard profit per unit
20
Standard selling price per unit
250

Additional information: 
  1. Each unit requires 3 kgs of material which cost Sh.40 per kg and 45 minutes of direct labour at a rate of Sh.80 per hour. 
  2. Variable overheads are recovered on direct labour hour basis. 
  3. Fixed overhead are absorbed on annual production budget of 180,000 units. 
  4. For the year to 31 March 2022, 120,000 units had been manufactured and sold. Contrary to the managements expectation, the company's profit and loss statement reflected a loss of Sh.1,380,000 instead of the expected profit of Sh.3,6000,000 as provided below: 

(Sh.000)
(Sh.000)
Sales (120,000 units)
22,800
Production cost:
Direct materials (100,000kgs)
12,000
Direct labour (52,000 hours)
3,900
Variable overheads
2,880
Fixed overheads
5,400
24,180
Profit (loss)
(1,380)

Required: 
(i) Budgeted profit and loss account for the year ended 31 March 2022. 

(ii) Flexible budget for the production achieved.


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December 2021

 2 Questions
Question 4b
​ ​​You are in charge of making forecasts and preparing budgets for Kondele Ltd. You have been supplied with the following cost and revenue forecast and details of payments: 

Forecast for revenue and costs for half year 2022
January
Sh."000"
February
Sh."000"
March
Sh."000"
April
Sh."000"
May
Sh."000"
June
Sh."000"
Direct material purchases
112,000
100,000
135,000
90,000
67,000
79,000
Wages
90,000
80,000
100,000
72,000
54,000
63,000

Overheads
Production
34,000
32,000
40,000
45,000
36,000
40,000
Administrative
22,000
20,000
27,000
24,000
25,000
27,000
Selling and distribution
13,000
11,000
18,000
13,000 
11,000
16,000

Sales

360,000

350,000

440,000

350,000

360,000

360,000

Additional information:
  1. Cash balance on 1 April 2022 is expected to be Sh.90 million.
  2. Period of credit allowed by suppliers averages two months.
  3. Debentures worth Sh.125 million are expected to be issued in May 2022 and the amount will be received in the same month.
  4. A new machine will be installed in March 2022 at a cost of Sh. 150 million and payment is expected in May 2022.
  5. Sales commission of 3% is payable after one month of sale.
  6. A dividend of Sh.100 million is to be paid in June 2022.
  7. There is a delay of one month in the payment of overheads andd wages.
  8. Twenty percent of the debtors pay cash, receiving a cash discount of 4% and seventy per cent of debtors pay within one month and receive 2.5% discount while the remaining debtors pay within two months without a discount.  

Required: 
A cash budget on a monthly basis for the months of April 2022 to June 2022.


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Question 4a
​​Outline six benefits that might accrue to an organisation as a result of preparing budgets.


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September 2021

 1 Questions
Question 4b
​​MK Enterprises produces and sells two products branded "M" and "K" which are used as raw materials in production of wall paint. The cost accountant has provided the following monthly data for budgeting purposes:

Product
M
K
Sales level (units)
2,000
1,500
Opening stock (units)
100
200
Materials required:
          Exe (kgs)
2
3
          Zed (litres)
1
4
Labour hours required:
          Skilled labour (hours)
4
2
          Semi-skilled labour (hours)
2
5

Additional information:
1
Material costs are as follows:
Exe per kg
- Sh.100
Zed per litre
- Sh.70
2
Labour costs are as follows
Skilled labour per hour
- Sh.120
Semi-skilled labour per hour 
- Sh.80
3
Closing stock of materials and finished goods will be sufficient to meet 10% of demand.
4
Opening stocks for material Exe was 300kgs and for material Zed was 1,000 litres.

Required: 
Prepare the following budgets: 
(i) .  Production budget in units. 

(ii).  Materials usage budget in kilograms and litres.

(iii). Materials purchases budget in kilograms, litres and shillings. 

(iv). Labour budget in hours and shillings. 


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May 2021

 1 Questions
Question 2b
​​ZigZag Ltd. prepared the following budget for the first five months of the year 2020:

Month
Sales budget (Units)
January
February
March
April
May
10,800
15,600
12,200
10,400
   9,800 

Additional information: 
1. Inventory of finished goods at the end of every month is to be equal to 25% of sales estimate for the next month. 

2. On 1 January 2020, there were 2,700 units of the product on hand. 

3. There is no work-in-progress at the end of any month. 

4. The selling price per unit was estimated to be Sh.450 per unit. 

5. Each unit of the product requires two types of materials in the following quantities: 
              Material A: 4 Kgs. 
              Material B: 5 Kgs. 

6. The closing stock of materials is equal to half of the requirements of the next month's production. 

Required: 
For the months of February, March and April 2020, prepare: 
(i).   Sales budget. 

(ii).  Production budget.

(iii). Materials usage budget in units.


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November 2020

 1 Questions
Question 2a
​​Discuss four objectives of budgetary control system in an organisation.


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November 2019

 1 Questions
Question 5b
​​Solhut Ltd. manufactures a product branded "PQ" which is sold at Sh.800 per unit. The variable costs per unit of product "PQ" are provided below:

Sh.
Direct materials: M₁ 
 (2 Kgs at Sh.20 each)
40
Direct materials: M₂
 (3 Kgs at Sh.20 each)
60
Labour
(2 hours at Sh.35 each)
70
Variable overheads at Sh.40 per hour 80

The management of Solhut Ltd. have estimated that for the first six months of the year ending 30 June 2020, the following quantities will be sold on credit:

Month
Quantity (Units)
January
3,920
February
2,940
March
3,430		April
4,410
May
4,900
June
4,410

Additional information:
1. Customers will be allowed one month's credit. 

2. The closing inventory for each month is equal to 10% of the next month's sales of product "PQ". 

3. Production takes place in the month of sale. 

4. Materials are purchased one month before use and are paid for two months after purchase. 

5. Labour and variable overheads are paid for in the month of production. 

6. Fixed overhead per month are expected to be Sh.300,000 and includes depreciation of Sh.35,000. The fixed overheads are payable in the month in which they are incurred.

7. The opening cash balance as at 1 February 2020, is expected to be Sh.2,500,000. 

Required: 
For the months of February 2020 to April 2020, prepare: 
(i) Production budget in units. 

(ii) Cash budget. 
 


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May 2019

 1 Questions
Question 5a
​​ Limu Processing Company Ltd. manufactures a standard product branded "LM". Currently, it is operating on a normal activity level of 70% with an output of 6,300 units. 

The sales director believes that a realistic forecast for the next budget period would be at an activity level of 50%. 

The following data relates to the forecasted costs of the product for different levels of activity:

60%
Sh.
70%
Sh.
80%
Sh.
Direct materials
151,200
176,400
201,600
Direct wages
64,800
75,600
86,400
Production overheads
150,400
164,800
179,200
Administration overheads
126,000
126,000
126,000
Selling and distribution overheads
169,200
176,400
183,600
Total cost
661.600
719,200
776,800

Profit is 20% of selling price.

Required: 
(i) Flexible budget based on a 50% level of activity. 

(ii) State three problems which might arise from such a change in the level of activity.


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November 2018

 2 Questions
Question 1a
​​ "A budgetary control system could prove successful only when certain conditions and essentials exist".
With reference to the above statement, highlight six conditions and essentials for an effective budgetary system


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Question 5b
​​Summarise four functions of a budget committee.


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May 2018

 1 Questions
Question 3b
​​Better Designs Ltd. manufactures a single product using a single grade of labour. Its sales budget and finished goods inventory budget for the third quarter of the year 2018 are as follows:

Units
Sales
7,000
Opening inventories finished goods
500
Closing inventories finished goods
700

Additional information: 
1 The goods are inspected only when production work is completed and it is budgeted that 10% of finished work will be scrapped. 

2. Standard direct labour hours per unit is 3. 

3. The budgeted productivity ratio for the direct labour is only 80% (which means that labour is working at 80% efficiency).
 
4. The company employs 18 direct employees who are expected to average 1,440 working hours each for the quarter. 

Required: 
(i) Production budget for the quarter.

(ii) Direct labour budget. 

(iii) Calculate the shortfall in direct labour hours.


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November 2017

 1 Questions
Question 5a
​​Megspa Ltd. manufactures a single product branded "Wye". 

The following data relates to its operations for the month of October 2017:

Budget
Units
Actual
Units
Sales
60,000
58,000
Production
60,000
60,000
Sh.
Sh.
Sales
840,000
823,600
Direct materials
240,000
246,000
Direct labour
300,000
288,000
Fixed overheads
135,000
140,000
Net income
165,000
149,600

Required: 
A flexed budget for the month of October 2017 for the actual sales of 58,000 units.


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May 2017

 1 Questions
Question 5b
​ ​​Maramat Ltd. manufactures a single product branded "PQ" 
The budgeted safes for the month of June 2017 amount to 10,000 units at a selling price of Sh.2,000 per unit.

 Additional information:
1
 One unit of "PQ" requires two components namely; X and Y as follows:
Component
Number
Unit.cost.of.each.component
Sh.
X
Y
5
3
20
10
2
Stocks at the beginning of the month are budgeted as follows:
  • 4,000 units of finished goods at a unit cost of Sh.1,050
  • Component X: 16,000 units at a unit cost of Sh.20
  • Component Y: 9,600 units at a unit cost of Sh.10
3
Production cost of each unit requires the following labour hours:
Component
Number
Labour.rate.per.hour
Sh.
Production
4
100
Finishing
2
140
4
Factory overhead is absorbed into unit cost on the basis of direct labour hours. The budgeted overhead for the month is Sh.1,920,000.
5
Administration, selling and distribution overheads for the month are budgeted at Sh.5,500,000.
6
The company plans a reduction of 50% in quantity of finished goods at the end of the month and an increase of 25% in the quantity of each input component.

Required: 
For the month of June 2017: 

(i) Sales budget. 

(ii) Production quantity budget. 

(iii) Material usage budget. 

(iv) Material purchase budget. 

(v) Direct labour budget. 

(vi) Budgeted profit and loss account.


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November 2016

 3 Questions
Question 2a
​​ In the context of a Just-In-Time (JIT) inventory system, explain the following terms: 

(i) Backflush costing. 

(ii) Batch sizes of one unit.


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Question 3b
​​Describe four functions of a budget committee.


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Question 4
​ ​ ​​Pwani Ltd. operates a chemical process which produces four different products namely; A, B, C and D from the input of one raw material. Budget information for the forthcoming financial year is as follows:

Sh."000"
Raw materials cost
268
Initial processing cost
464

Product

A
B
C
D
Output.in.litres

400,000
90,000
5,000
9,000
Sales
Sh."000"
768
232
32
240
Additional.processing.costs
Sh."000"
160
128
-
8

Additional information:
  • The company's policy is to apportion the costs prior to the split-off point on a method based on net sales value 
  • The current intention is to sell product C without further processing but to process the other three products after the split-off. 
  • The alternative strategy would be to sell all the four products at the split-off point without further processing. If this was to be done, the selling prices obtainable would be as follows: 
Product
A
B
C
D
Price.per.litre.(Sh.)
1.28
1.60
6.40
20.00  

Required: 

(a) Budgeted profit statement showing the profit or loss for each product and in total if the current intention is adopted. 

(b) Determine the profit or loss by product and in total ifthe alternative strategy was to be adopted. 

(c) Recommend what should be done and why assuming there is no more profitable alternative use for the plant.


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May 2016

 1 Questions
Question 4
​ ​ ​ ​ ​​Mark Ltd. operates a budgetary control system. The following is the company's income forecast for the four months period ending 31 August 2016:


2016


Sales
Cost of sales
Gross margin 
Selling and administration expenses:
     Selling expenses
     Administration expenses
....Total.selling.and.administration.expenses
Net operating income
May
Sh."000"
45,000
(21,000)
24,000

7,000
5,500
12,500
11,500
June
Sh."000"
55,000
(28,000)
27,000

8,400
5,900
14,300
12,700
July
Sh."000"
75,000
(42,000)
33,000

11,200
6,900
18,100
14,900
August
Sh."000"
50,000
(22,000)
28,000

7,300
5,200
12,500
15,500

Additional information: 

  1. Administration expenses include depreciation of Sh.1,800,000 each month. 
  2. 20% of the sales are on cash basis. 
  3. Credit sales are collected over a 3-month period with 20% collected in the month of sale. 65% in the month following the month of sale. and 15% in the second month following sale. 
  4. Sales for the months of March 2016 and April 2016 totalled Sh.27 million and Sh.33 million respectively 
  5. Inventory purchases are paid for within 15 days. Therefore. 50% of a month's inventory purchase are paid for in the month of purchase and the remaining 50% paid for in the following month. Accounts payable for inventory purchases as at 30 April 2016 totaled Sh.11.1 million. 
  6. The company maintains its ending inventory levels at 25% of the cost of the merchandise to be sold in the following month. The merchandise inventory as at 30 April 2016 amounted to Sh.5.25 million. 
  7. Land costing Sh.4.3 million will be purchased in May 2016. 
  8. Dividends of Sh.1.3 million will be declared and paid in July 2016. 
  9. The cash balance on 30 April 2016 amounted to Sh.8.4 million and the company must maintain a cash balance of at least this amount at the end of each month. In case of any deficit, a bank overdraft is obtained. 

Required: 

For the three months ending 31 July 2016. prepare: 

(a) Debtors collection schedule. 

(b) Creditors payment schedule. 

(c) Cash budget. 


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November 2015

 1 Questions
Question 2a
​​Describe four advantages of budgetary control in an organisation.


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Pilot September 2015

 1 Questions
Question 2a
​​ Explain six requirements of an effective budgetary control system.


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