QUESTION 4: BUDGETING

Part I: Flexed Budget

Daniliuc Ltd is based in North Habour and produces a singled machined part used extensively in boat building and repairs. At the start of the business, the owners have not thought much about using sophisticated costs methods. With increased competition more recently, the business has considered employing a system of flexible budgeting to effectively provide a better understanding of their budgets and variances. 

These figures are based on a budget of 1,000 parts in a month. Products are broadly made to order so you can assume that minimal inventory is held. 

Additional information:

• Actual selling price for the machined part was increased by 10%.

• Wages costs for the month of June used the new rate of $22 per hour.

Required

a. Prepare a flexed budget and a variance analysis for Daniliuc Ltd for the month of June 2020, using the table below. Show all workings.   

b. For each of the variances identified in part a) above, provide a reason to explain each variance.

Part II: Cash Budgets

Cash budget is a key budget as it reflects most economic aspects of a business, and for some businesses, it reflects their whole business. 

Byrnes Limited has prepared a cash budget for the year and has encountered significant cash deficit. They have approached you for advice on how to address a cash deficit. You are required to identify and explain two ways that Byrnes may employ to address cash deficits in their budget.

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