MODULE CODE: AFU08607

MODULE NAME: PERFORMANCE MANAGEMENT

QUALIFICATION: HIGHER DIPLOMA (NTA LEVEL 8) IN ACCOUNTANCY
TUTORIAL QUESTIONS TOPIC 2: BUDGETARY PLANNING AND CONTROL

QUESTION ONE:
st
The budgeted statement of financial position of ABC Company as of 1 March 2022 is as follows:
ASSETS

Non-current Assets Cost Depreciation to date Net

Land and buildings 500,000 - 500,000
Machinery and equipment 124,000 84,500 39,500
Motor vehicles 42,000 16,400 25,600
666,000 100,900 565,100

Current Assets
Stock of raw materials (100 units) 4,320
Stock of finished goods (110 units) (valued at marginal cost) 10,450
Debtors (January Tshs. 7,680 February 10,400) 18,080
Cash at bank 6,790
39,640
Total Assets 604,740

LIABILITIES
Current Liabilities
Creditors (raw materials) 3,900
Total liabilities 3,900
Net Assets 600,840
EQUITY
Ordinary share capital (fully paid) Tshs. 1 shares 500,000
Share premium 60,000
Retained earnings 40,840
600,840
The estimates for the next four-month period are as follows:
March April May June
Sales (units) 80 84 96 94
Production (units) 70 75 90 90
Purchases of raw materials (units) 80 80 85 85
Wages and variable overheads at Tshs. 65 per unit 4,550 4,875 5,850 5,850
Fixed overheads 1,200 1,200 1,200 1,200

1
The company intends to sell each unit for Tshs. 219 and has estimated that it will have to pay
Tshs. 45 per unit for raw materials. One unit of raw materials is needed for each unit of finished
product.
All sales and purchases of raw materials are on credit. Debtors are allowed two months’ credit
and suppliers of raw materials are paid after one month’s credit. The wages, variable overheads
and fixed overheads are paid in the month in which they are incurred.
Cash from a loan secured on the land and buildings of Tshs. 120,000 at an Interest rate of 7.5 per
cent is due to be received on 1st May. Machinery costing Tshs. 112,000 will be received in May
and paid for in June.

The loan interest is payable half yearly from September onwards. An interim dividend to 31
March of Tshs.12,500 will be paid in June. Depreciation for the four months, including that on
the new machinery is:
Machinery and equipment 15,733
Motor vehicles 3,500

The company uses the FIFO method of stock valuation. Ignore taxation.
Required:
a] Calculate and present the raw materials budget and finished goods budget in terms of
units for each month from March to June inclusive.
b] Calculate the corresponding sales budgets, the production cost budgets and
the budgeted closing debtors, creditors and stocks in terms of value.
c] Prepare and present a cash budget for each of the four months
d] Advice the company about possible ways in which it can improve its cash
Management
e] Prepare a master budget (i.e., statement of financial performance/statement of profit or
loss for four months to 30th June 2022, and budgeted statement of financial position as at
30th June 2022).

QUESTION TWO:
Selemala limited was established in Keko in 1994 and currently manufactures two types of
bookcase (medium and large) for the Tanzania and Kenya markets. The company uses variable
costing to value production and inventory, and prepares its budgets in advance for each quarter.
The accountant has provided a range of information for the next quarter to 31 December 2021 as
follows:

Projected sales for the next four months:

October November December January
TZS TZS TZS TZS
Medium bookcases 495,000 369,000 540,000 432,000
Large bookcases 525,000 362,000 525,000 437,500

Medium bookcases sell for TZS 90 each and large bookcases sell for TZS 125 each.

2
The standard cost card for each of the bookcases is shown below:
Medium Large
TZS TZS
Direct material
-Birch plywood sheets ( @ TZS 24 per sheet) 36.00 48.00
-Wooden dowels ( @ TZS 0.10 each) 2.80 3.60
Direct labour (@ TZS 16.40 per hour) 20.50 28.70
Variable overhead ( @ TZS 6 per direct labour hour) 7.50 10.50
Total 66.80 90.80

The cost of the plywood sheets and wooden dowels has not changed in the past two years
and is not expected to change until March 2022. Additionally, the direct labour and
variable overhead rates above are applicable for the period from 1 June 2021 to 30 May
2022.

The company estimates that at 1 October 2021 inventory levels will be:
Medium bookcases 1,500
Large bookcases 1,100
Birch plywood sheet 2,000
Wooden dowels 5,000

To ensure that it maintains sufficient inventory of each type of bookcase company policy
is to hold 20% of the next month’s unit sales in closing inventory.

For the plywood sheets and wooden dowels the company intends to double inventory
held at 1 October 2021 and maintain this level of closing inventory each month until 31
March 2021.

Required:
(a) Prepare a production budget in units for the quarter ending 31 December 2021.
(b) Prepare materials purchase budget (in units and TZS) for each material for the quarter
ending 31 December 2021.
(c) Prepare a labour cost budget (in hours and TZS) for the quarter ending 31 December
2021.
(d) Prepare a variable production overhead cost budget for the quarter ending 31
December 2021.
(e) Prepare a budgeted income statement for the quarter ending 31 December 2021,
based on the results you have obtained in (a) to (d) above.

3
QUESTION THREE:
Lau-phones style Limited commenced trading twelve months ago and as a result of a very
successful year is seeking bank finance to expand. The company imports a specialised mobile
phone case from an overseas supplier and currently sells it in a limited range of stores in Kenya
and the Tanzania. The case is unique in that it comprises a high quality, durable resin and can be
adjusted to fit either of the two leading smart phones in the market. Additional bank funding
would allow the company to extend its retailer network in the Tanzania with the possibility of
establishing outlets in other parts of Africa. However, to consider an application for finance, the
bank requires Lau-phones Style limited to prepare a cash budget, forecasting its receipts and
payments for the next six months commencing on 1 May2015. The company has provided the
following information:

1. Each case will cost TZS 6.20 to purchase from the overseas supplier and the company
has agreed to pay 50% of all purchases in cash with the remainder paid in the month
after purchase.

2. Lau-phones Style limited will sell the case to retail customers for TZS 11.25 and
projects the following sales (in units) for the next six months:

May June July August September October November

10,000 12,000 15,000 15,000 16,000 18,000 18,000

3. To encourage prompt payments from customers, effective from 1 May 2015, the
company has decided to give a discount for cash payment. Lau-phones Style limited
expects that 20% of all customers will avail of this offer and will receive a discount of
5%. Of the remaining monies receivable, the company expects to receive 50% one
month after the month of sale, 45% two months after the month of sale and the
remainder will be bad debts.

4. To ensure that sales opportunities are not missed, the company will hold inventory at
the end of each month amounting to 10% of the following month’s projected sales. At
1 May 2015, the company expects to have1,000 cases in inventory.

5. Salary and wage costs per month are expected to be TZS 19,000 for the first two
months and to increase by TZS 2,000 per month for each of the next four months, as
the company hires new staff.

4
 6. Administration costs are projected to be TZS 82,200 for the year, including
depreciation of TZS 9,900.

7. The company has decided to purchase additional computer equipment to support its
sales staff. Laptops and printers costing TZS 16,200 will be purchased and paid for in
October.

8. At 1 May 2015, Lau-phones Style limited projects that it will have the following
balances:

Bank overdraft TZS 2,960

Accounts receivable (all amounts to be received in may 2015) TZS 30,980
Account payable (due in may 2015) TZS 25,100

Required:
(a) Prepare a cash budget for Lau-phones Style limited, on a monthly basis, for the
six month period commencing 1st May 2015, clearly showing the closing cash
balance at the end of each month.
(b) Outline TWO benefits of cash budgets.
(c) Explain the following terms:
(i) flexible budget
(ii) Zero based budgeting

QUESTION FOUR:
Riziki loves to bake and has decided to start her own business in Mwenge. She has developed a
delicious low calorie cupcake recipe and has created two varieties: Vanilla Cream and Chocolate
Swirl. Riziki hopes to commence production in September 2016 and has conducted some market
research to assess the interest in, and demand for, her products. She has TZS 5,000 of savings to
use for the business, but will require additional bank funding to get the business started. Riziki
has prepared the following information relating to her business:

1. Estimated sales demand

Cupcakes September October November December January February
Vanilla cream 1,000 1,500 1,600 1,800 2,000 2,000
Chocolate 1,500 1,650 1,800 2,200 2,100 2,230
swirl

Riziki has obtained orders from a hotel that specialises in arranging conferences and
events. She also has orders from local restaurants and coffee shops. She estimates that

5
 30% of her customers will pay cash immediately and has agreed to give one month’s
credit to the remaining customers.

2. The Vanilla Cream cupcakes will have a selling price of TZS 1.80 each while the
Chocolate Swirl cupcakes will sell for TZS 1.95 each for the first three months but
she intends to increase these prices by 10% after that time.

3. The cupcakes are made using the same basic ingredients but with a different topping.
Riziki has calculated that for each variety of cupcake, the basic ingredient cost is 20%
of the selling price while the cost of the topping is 8% of the selling price. In line with
the selling price increase of 10% noted at 2 above, Riziki also expects an increase in
the cost of ingredients of 10% after the first three months of operations.

4. In terms of paying for ingredients and toppings, Riziki has negotiated that she will get
one month’s credit from the ingredient suppliers but must pay cash immediately for
topping purchases.

5. Some months ago, Riziki successfully applied for a grant from the local enterprise
Board. She will receive TZS 5,100 in total, to be paid in two equal instalments,
September 2016 and January 2017.

6. To start production, Riziki will need to purchase some kitchen equipment in

September costing TZS 4,500. The equipment is expected to last for four years and
have no scrap value at the end of that time.

7. Riziki has located suitable premises, which have been approved by the food safety
authority, and which will cost TZS 1,200 per month to rent. The landlord requires one
month’s rent as a deposit, and this must be paid with the first month’s rent.

8. Other operating costs including power, packaging, insurance, administration expenses

and depreciation of kitchen equipment are expected to be TZS 4,005 for the year.
Additionally, Riziki will employ two staff in the business and will pay wages of TZS
1,320 each per month. The relevant costs are paid in the month in which they are
incurred.

Required:
(a) Prepare a cash budget for Riziki’s business, on a monthly basis, for the six month
period commencing 1 September 2016, clearly showing the closing cash balance
at the end of each month.
(b) Explain Zero Based Budgeting (ZBB) and outline TWO benefits of ZBB over
traditional budgeting methods.

6
QUESTION FIVE:
You are a trainee Certified Public Accountant in the firm of Common-sense consultancy. Your
firm has recently started advising a number of Tanzanian start-up manufacturing companies. The
partner in charge of these clients has commented that “the firms have spent time and energy
developing their strategy but don’t seem to realise the importance of preparing budgets”. You
have been asked to draft a clear and concise briefing note that will be circulated to the start-up
companies on the subject of budgeting.
Required:
Draft a briefing note that:
(i) Explains the main purposes of budgeting.
(ii) Explain the importance of budgeting in an organization.
(iii) Discuss the steps involved in the planning process.
(iv) Outlines the functional budgets that are typically prepared for a manufacturing company.
Note: consider format and Presentation

QUESTION SIX:
The management accountant of Mazoezi Ltd is finding it difficult to cope with increasing
demands for information and has asked for your help. You have been asked to prepare variance
analysis information for the March board meeting. You have been provided with budgeted and
actual information as shown below.

Budgeted information for the month of March:

Production in units 25,000
Direct material (250,000 Kgs) TZS 362,500
Direct labour (87,000 hours) TZS 1,089,375
Variable production overheads TZS 271,250
Actual results achieved for the month of March:
Production in units 27,000
Direct material (250,000 KGs) TZS 394,875
Direct labour (87,000 hours) TZS 1,190,700
Variable production overheads TZS 306,180

Notes:
1. Actual fixed production overheads for March amounted to TZS 172,400.
2. Budgeted fixed production overhead is TZS 175,000 per month.
3. Variable production overheads are applied to products based on budgeted labour
hours.

7
 Required:
Prepare a cost statement showing the original budget, flexed budget and actual results.

QUESTION SEVEN:
Zidogo CO was formed five years ago in Mtwara and produces a range of health products and
supplements for the Tanzania and Uganda markets. The management accountant is busy
preparing budgets for the period from January to March 2019 and is currently compiling
pertinent information relating to one of the company’s newest products: Zido.

Zido is a refreshing eye spray mist based on two key organic ingredients: mineral water and
green tea extract. There is a simple manufacturing process and the product is manufactured in a
250ml size for everyday use. Details relating to this product are shown below.

1. Projected sales for the first quarter of 2019 are as follows:

January February March
Sales in units (250ml bottles) 4,300 4,380 5,020

The selling price of Zido is TZS 3.10 per bottle.

2. At 1 January 2019, the company expects to have an opening inventory of 980 bottles
of Zido.

3. The costs incurred to produce one 250ml bottle of Zido are shown in the table below:

TZS
Material
Mineral water (225ml) 0.18
Green tea extract (25ml) 0.30
Recycled plastic 250ml bottle 0.10
Labour (0.06hr “ TZS 10 per hour) 0.60
Variable production overhead 0.40
1.58

The company has arranged to purchase top quality mineral water at a cost of TZS
0.80 per litre and green tea extract at a cost of TZS 12.00 per litre. These prices have
been fixed from 2018-2020.

4. At 1 January 2019, the company expects to have 2,000 litres of mineral water and
1,000 litres of green tea extract in inventory. It also expects to have 1,000 250ml
plastic bottles in inventory.

8
 5. Projected closing inventory levels for the finished product and raw materials are as
follows:

End January End February End March

ZIDO (250ml bottles) 1,000 1,500 2,000
Mineral water (litres) 2,108 3,010 4,108
Green tea extract (litres) 1,000 1,000 2,000
Recycled plastic bottles 1,000 1,500 2,000
Required:
(a) For the first three months of 2019:
(i) Prepare a sales budget (in units and TZS).
(ii) Prepare a production budget in units.
(iii)Prepare a materials budget (in units and TZS) for each material.
(iv) Prepare a labour cost budget.
(v) Prepare a variable production overhead cost budget.
(b) Prepare a budgeted income statement for the first quarter of 2019 based on your
calculations in (i) to (v) above.
(c) Briefly outline TWO reasons why a company should prepare budgets.

QUESTION EIGHT:
You work for the accounting firm of Tenga and Mushi have recently been approached by Ms
Amina Badi, a client, for advice regarding some aspects of budgeting. Last week, Amina
attended a networking business event and when discussing the annual budgeting process, some
of the attendees mentioned incremental budgeting and zero base budgeting. The behavioural
effects of the budgeting process were also mentioned. As Amina has only recently been involved
with the annual budgeting process, she is unsure about what these terms mean and has asked you
for information.
Required:
Prepare a memorandum for Ms Amina Badi that:
(a) Outlines incremental budgeting including advantages and disadvantages.
(b) Explains zero based budgeting including advantages and disadvantages.
(c) Explains Activity Based budgeting including its advantages and disadvantages.
(d) Explains participatory budgeting including its advantages and disadvantages.
(e) Discusses behavioural issues that may arise as part of the annual budgeting process

9
QUESTION NINE:

(Tshs.)

(Tshs.)

(Tshs.)

(Tshs.)

10