A medium-sized manufacturing company, which operates in the electronics industry, has employed a firm of consultants to carry out a review of the company's planning and control systems. The company presently uses a traditional incremental budgeting system and the inventory management system is based on economic order quantities (EOQ) and reorder levels. The company's normal production patterns have changed significantly over the previous few years as a result of increasing demand for customized products. This has resulted in shorter production runs and difficulties with production and resource planning.
The consultants have recommended the implementation of activity based budgeting and a manufacturing resource planning system to improve planning and resource management.
Select ALL the benefits for the company that could occur following the introduction of an activity based budgeting system.

• A. The approach under an activity based system is to make arbitrary cuts in order to meet overall financial targets.
• B. Under an activity based budgeting system, resource allocation is linked to the strategic plan is prepared after considering alternative strategies. This approach ensures that new activities that are required to meet the company's strategic objectives are included in the budget.
• C. Activity based budgeting allows the identification of value added and non-value added activities and ensures that cuts are made to non-value added activities. ABB is also useful for review of capacity utilization.
• D. Under an activity based budgeting system the focus is on existing resources and operations.
  Adjustments are then made for changes in activity and price which results in past inefficiencies being perpetuated. Under a traditional budgeting system, only resources that are needed to perform activities required to meet the budgeted production and sales volumes are included.
• E. Activity based techniques including activity based budgeting focus on the outputs of a process rather than the input to the process. This approach provides a clear framework for understanding the link between costs and the level of activity. It allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.
• F. ABB systems present costs under functional headings i.e. the emphasis is on the nature of the cost.
  The weakness of this approach is that it gives little indication of the link between the level of activity and the cost incurred.

A manager has not yet used all oh his budget. He is worried that his budget maybe reduced next year if he is not seen to have needed all the funds. He decides to spend the remaining £1,580 on another team building exercise as well as a catered lunch for his department.
This example falls under which behavioural aspect of budgetary control?

• A. Budget negotiation
• B. Irrational spending
• C. Motivation
• D. Short term focus

Explain THREE benefits that organizations gain from using budgetary planning and control systems.
Select ALL the true statements.

• A. Budgeting forces an organization's management to look ahead and set performance targets.
• B. The budget ensures actions of different parts of the organization are coordinated are reconciled otherwise managers take actions for the benefit of their own part of organization that may not benefit the organization as a whole.
• C. It provides a standard which managers may be motivated to achieve. It can also encourage inefficiency and conflict between managers particularly if the budget is imposed from above, whereby it may act as a threat rather than as a challenge.
• D. The budget acts as a variable mechanism, with actual results being compared with budget.
• E. Another benefit of budgeting is to set targets to motivate managers and optimize their performance.
• F. The budget provides an external benchmark against which performance against which performance can be evaluated.
• G. The budget is a useful device of influencing an operator's thoughts and motivating operators to perform in line with the organization's marketing budget.

A company makes a product using two materials, X and Y.
The standard materials required for one unit of the product are:

What is the direct material mix variance for Material X, using the individual valuation basis?

• A. $640A
• B. $480F
• C. $160A
• D. $300F

A healthcare company specializes in hip, knee and shoulder replacement operations, known as surgical procedures. As well as providing these surgical procedures the company offers pre operation and post operation in-patient care, in a fully equipped hospital, for those patients who will be undergoing the surgical procedures.
Surgeons are paid a fixed fee for each surgical procedure they perform and an additional amount for any follow-up consultations. Post procedure follow-up consultations are only undertaken if there are any complications in relation to the surgical procedure. There is no additional fee charged to patients for any follow up consultations. All other staff are paid annual salaries.
The company's existing costing system uses a single overhead rate, based on revenue, to charge the costs of support activities to the procedures. Concern has been raised about the inaccuracy of procedure costs and the company's accountant has initiated a project to implement an activity-based costing (ABC) system. The project team has collected the following data on each of the procedures.

Calculate the profit per procedure for each of the three procedures using activity-based costing.
What was the profit for the knee procedure, using ABC costing?

• A. $2305
• B. $1808
• C. $2466
• D. $781