An incremental budget is one that:

‘Budgetary slack’ occurs where business managers:

Fuller Benjamin Limited manufactures weighing machines for use in industry. Each machine requires 8 kg of metal. The company’s production director estimates that January production will be 760 completed machines, and that production of completed machines in February will rise to 800. Inventory of metal at the beginning of January is lower than usual: only 2060 kg of metal is in inventory. Normally, however, the company’s policy is to have in inventory at the beginning of each month sufficient raw material for 50% of the month’s production. Assuming that this policy is followed in respect of inventory at the end of January, how much metal will be purchased during January?

Bridge Products Limited uses a rolling budget system. The company’s directors are currently preparing a sales and production budget for the month of November 20X7, which is just over one year away. They decide to budget sales for November 20X7 at 6200 units, with a budget of 5200 for December 20X7. The company’s policy is to hold closing inventory of finished goods at 60% of the next following month’s sales level.

What is the production budget in units for November 20X7?

Sellwell & Proffitt Limited manufactures shelving brackets. Prime cost of each bracket is 98p. For the year ending 31 August 20X6 the company’s directors estimate that production overheads will be incurred of £168 750. The total production estimated for the year is 200 000 brackets. Sales for the year are also estimated to be 200 000 brackets. Each bracket sells for £3.15. Administrative and selling costs for the year are budgeted at £185 000. The company uses percentage of prime cost as its overhead recovery rate.

What is the budget overhead recovery rate for the year ending 31 August 20X6 (to one decimal place)?

Sellwell & Proffitt Limited manufactures shelving brackets. Prime cost of each bracket is 98p. For the year ending 31 August 20X6 the company’s directors estimate that production overheads will be incurred of £168 750. The total production estimated for the year is 200 000 brackets. Sales for the year are also estimated to be 200 000 brackets. Each bracket sells for £3.15. Administrative and selling costs for the year are budgeted at £185 000. The company uses percentage of prime cost as its overhead recovery rate.

What is the budget profit or loss for the year?

Bertrand sells goods entirely on credit. In respect of sales in any given month, he expects 50% to be paid for in the next following month, 40% in the month after that, and 10% in the month after that. (So, for example, 50% of sales made on credit in January would be received in February, 40% in March and 10% in April).

Budget data relating to 5 months of Bertrand’s sales are as follows:

May......................£352 000
June.....................£53 500
July......................£57 800
August..................£56 000
September.............£49 000

How much should Bertrand include as forecast sales receipts in September?

Billy runs a wholesale business, with 90% of his sales made on credit. In respect of credit sales made in any given month, he expects 80% to be paid for in the next following month and 20% in the month after that. (So, for example, 80% of sales made on credit in May would be received in June and 20% in July).

Budget data relating to 4 months of Billy’s total sales (i.e. including both sales for cash and credit sales) are as follows:

July 20X4...............£61 600
August 20X4...........£62 000
September 20X4.....£68 000
October 20X4.........£63 500

How much should Billy include in his cash flow forecast for sales receipts in the month of October 20X4?

Carlos is a financial services adviser. His budget for the 20X8 financial year estimated that he would sell 95 insurance policies at an average commission of £450 each. His business expenses were budgeted as follows:

Car expenses....................... £4750
Office and admin. costs.........£6620

Reviewing the actual out-turn for the year, Carlos finds that he sold more insurance policies than expected (103) but the average commission earned on each was only 90% of his target figure. He spent £950 more than budget on car expenses, and £75 less than budget on office and admin. costs.

What is the difference between Carlos’ budget and actual net profit for 20X8?

Bakersfield Limited purchases some of its goods on credit and some for cash. On average, in any given month, the company would expect 20% of its purchases of goods to be paid for in cash. 60% of the purchases on credit would be paid for in the next following month, and 40% in the month after that.

Purchases of goods are budgeted as follows for a four month period:

September...........£126 000
October...............£135 000
November............£128 500
December............£121 500

How much cash will the company budget to spend on purchases of goods in December?