A budget is a spending plan based on income and expenses. In other words, it’s an estimate of how much money you’ll make and spend over a certain period of time, such as a month or year. Budgets Questions and Answers
Budgets Questions and Answers | Accounting Grade 12
Worked example 1
Prepare the debtors’ collection schedule for July, August and September 2011 from the information below:
- 60% of total sales are for cash.
- Debtors are expected to pay as follows:
- 50% in the same month as the credit sale transactions subject to a 10% discount
- 30% in the month following the credit sales transaction month
- 17% in the second month following the credit sale transaction month
- 3% is expected to be written off
(This 3% is written off as a bad debt and will not form part of the debtors’ collection schedule as no cash will be received from bad debts.)
- Total sales:
- Actual
–– June 2011 R160 000 - Budgeted
–– July 2011 R150 000
–– August 2011 R180 000
–– September 2011 R200 000
- Actual
ACTUAL SALES:
These are sales that have taken place in the months before the budget period.
A portion of the credit sales may be collected in the budget period.
BUDGETED SALES:
These are the estimated sales for the budget period.
Answer to worked example 1 (see page 64)
| Credit sales | July | August | September | ||||
| June 2011 | R64 000 | 30% | 19 200 | 17% | 10 880 | ||
| July 2011 | R60 000 | 50% − 10% | 27 000 | 30% | 18 000 | 17% | 10 200 |
| Aug 2011 | R72 000 | 50% − 10% | 32 400 | 30% | 21 600 | ||
| Sep 2011 | R80 000 | 50% − 10% | 36 000 | ||||
| R46 200 | R61 280 | R67 800 | |||||
First calculate 50% of the credit sales and then subtract the 10% discount from this figure [50% − 10% is not 40%].
Explanations
| Step 1 | Step 2 | Step 3 |
| Calculate and enter credit sales. Cash sales = 60% Credit sales = 40% | Insert % to be collected in each month. | Do the calculations to work out the amount of credit sales collected in each month. |
| June: R160 000 × 40% = R64 000 July: R150 000 × 40% = R60 000 August: R180 000 × 40% = R72 000 Sept: R200 000 × 40% = R80 000 | See answer above. | June credit sales: No calculation as they are not part of this collection period July: R64 000 × 30% = R19 200 August: R64 000 × 17% = R10 880 July credit sales: July: R60 000 × 50% = R30 000 R30 000 − 10% = R27 000 August: R60 000 × 30% = R18 000 Sept: R60 000 × 17% = R10 200 August credit sales: August: R72 000 × 50% = R36 000 R36 000 − 10% = R32 400 Sept: R72 000 × 30% = R21 600 September credit sales: Sept: R80 000 × 50% = R40 000 R40 000 − 10% = R36 000 |
Worked example 2
Example adapted from March 2010 NSC question paper – see FEB/MARCH 2010 Paper 1 at:
http://www.education.gov.za/Examinations/PastExamPapers/AccountingPapers2010/tabid/507/Default.aspx
You are provided with the Projected Income Statement and additional information relating to Helen’s Hair Stylists for the period April to June 2010. The business is owned by Helen Davids. Helen has also prepared a cash budget for the same time period. The financial year-end is 31 March.
Required
Answer the questions that follow.
Information
Helen’s hair stylists
Projected Income Statement for April to June 2010
| APRIL | MAY | JUNE | |
| R | R | R | |
| Sales of hair products | 8 7500 | 105 000 | 122 500 |
| Cost of sales | 50 000 | 60 000 | 70 000 |
| Gross profit | 37 500 | 45 000 | 52 500 |
| Other operating income | 122 000 | 122 000 | 162 000 |
| Fee income from customers | 120 000 | 120 000 | 160 000 |
| Sundry income | 2 000 | 2 000 | 2 000 |
| OPERATING EXPENSES | 95 350 | 120 072 | 127 372 |
| Salary of hairdressing assistants | 25 500 | 25 500 | 34 000 |
| Wages of cleaner | 3 400 | 3 672 | 3 672 |
| Rent of premises | 24 600 | 30 750 | 30 750 |
| Consumable stores | 14 400 | 14 400 | 19 200 |
| Water & electricity | 6 000 | 6 000 | 7 000 |
| Telephone | 2 200 | 2 200 | 2 200 |
| Advertising | 8 000 | 15 000 | 8 000 |
| Motor vehicle expenses | 1 400 | 5 600 | 5 600 |
| Repairs & maintenance of equipment | 3 500 | 3 500 | 3 500 |
| Sundry expenses | 2 300 | 2 300 | 2 300 |
| Depreciation on vehicle | 2 000 | 9 100 | 9 100 |
| Depreciation on equipment | 2 050 | 2 050 | 2 050 |
| OPERATING PROFIT | 64 150 | 46 928 | 87 128 |
| Interest income | 3 315 | 0 | 0 |
| 67 465 | 46 928 | 87 128 | |
| Interest on loan | 750 | 625 | 500 |
| NET PROFIT | 66 715 | 46 303 | 86 628 |
Depreciation and bad debts will be included in the projected income statement but NOT on the cash budget because they are non-cash items (i.e. they do not affect the cash flow of the business).
Additional information
- Line of business:
Helen gave up her job to start this business in 2004. She invested her life savings of R800 000 in this business. The business styles hair for its customers. They also sell hair products to the public. - Employees:
Helen employs three hair stylists. She has planned to expand the business by employing a fourth stylist from 1 June 2010. She also employs a cleaner. - Business premises rented:
The rent is calculated on a fixed amount per square metre. She currently rents 60 square metres, but will increase this floor space as from 1 May 2010 due to expansion. - Fixed deposit:
The fixed deposit of R468 000 is for 12 months and will mature on the 30 April 2010.
Questions
Refer to the Projected Income Statement to identify/calculate the following:
- The monthly salary paid to each hair stylist. (2)
- The % increase in wages that the cleaner will receive during the projected period. (2)
- The % interest rate on the fixed deposit. (4)
- The rental per square metre, and the number of additional square metres she will rent from 1 May 2010. (4)
- As the internal auditor you compare the following projected figures to the actual figures at the end of April. Provide four comments that you would include in your internal auditor’s report in respect of scenarios A, B and C below.
Projected April 2010 Actual April 2010 A Telephone 2 200 4 150 B Water & electricity 6 000 4 900 C Fee income 120 000 136 800
Answers to worked example 2 (see page 78)
- Calculation of monthly salary paid to each hair stylist: [2]
R25 500 ÷ 3 = R8 50033 or R34 000 ÷ 4 = R8 500
Explanation to help you understand how to get to the answer above:- There are 3 hairstylists in April and May and 4 hairstylists in June.
- Therefore divide salary (April or May) by 3 hairstylists (R25 500 ÷ 3 = R8 500)
- OR Divide salary (June) by 4 hairstylists (R34 000 ÷ 4 = R8 500)
- Calculation of the % increase in wages that the cleaner will receive during the projected period: [2]
272 ÷ 3 400 × 100 = 8%
Explanation to help you understand how to get to the answer above:- Calculate the increase in wages by deducting the wage of May from wage
of April (R3 672 – R3 400 = R272) - Calculate the % increase (R272 ÷ R3 400 × 100 = 8%)
- Calculate the increase in wages by deducting the wage of May from wage
- Calculation of % interest rate on the fixed deposit: [4]
3 315 ÷ 468 000 × 12 months × 100 = 8,5% OR
3 315 × 12 months = R39 780
39 780 × 100 = 8,5%
468 000
Explanation to help you understand how to get to the answer above:
Interest on fixed deposit = R3 315 (interest income in Projected Income Statement)
Fixed deposit = R468 000 (see information no. 4)
3 315 × 100 × 12 (months)
468 000 1
= 8,5% - Calculation of rental per square metre: [2]
24 600 ÷ 60 = R410
Explanation to help you understand how to get to the answer above:
Rent expense for April = R24 600 (see Projected Income Statement)
R24 600 is the amount paid for 60 square metres.
To calculate rental per square metre you have to divide the total rent by 60
R24 600 ÷ 60 = R410
Calculation of the number of additional square metres she will rent from 1 May 2010: [2]
30 750 ÷ 410 = 75 sq metres or 60 × 30 750 ÷ 24 600 = 75 sq metres
Increase = 75 – 60 = 15 sq metres 33
Explanation to help you understand how to get to the answer above:
Rent expense for May = R30 750 (see Projected Income Statement)
R30 750 ÷ R410 = 75 square metres
75 – 60 (original square metres) = 15 additional square metres
(For internal control purposes it is important to compare actual with budgeted figures. In this way possible problems relating to expenses or income can be corrected.) - Provide four comments that you would include in your internal auditor’s report in respect of scenarios A, B and C above. [8]
- Comment on telephone:
The telephone costs are higher than the expected amount by R1 950. - Comment on water & electricity:
The water & electricity costs are R1 100 less than the expected amount. - Comment on fee income & consumable stores:
There was a good increase in fee income of R16 800
(R136 800 – R120 000) which shows that the business is popular with its customers.
The consumable stores (e.g. shampoos, conditioners) increased slightly by R720 (R15 120 – R14 400) because the business had more customers.
- Comment on telephone:
When commenting on actual figures use the following steps:
- Compare actual with budgeted figures and state whether the actual figure is more or less than the budgeted figure.
- Decide and state whether the expense or income item has been well controlled or not (within budget or not).