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TP makes wedding cakes that are sold to specialist retail outlets which decorate the cakes according to the customers' specific requirements. The standard cost per unit of its most popular cake is as follows:

The general market prices at the time of purchase for Ingredient A and Ingredient B were $23 per kg and $20 per kg respectively.
TP operates a JIT purchasing system for ingredients and a JIT production system; therefore, there was no inventory during the period.
Prepare a statement which reconciles the flexed budget material cost and the actual material cost. Your statement should include the material price planning variances, and the operational variances including material price, material mix and material yield.
What was the material price planning variance for ingredient A?

• A. The Material price planning variance - Ingredient A was $71 000 F
• B. The Material price planning variance - Ingredient A was $75 000 F
• C. The Material price planning variance - Ingredient A was $72 000 F
• D. The Material price planning variance - Ingredient A was $73 000 F

A company's budget for the next period shows that it would breakeven at sales revenue of $800,000 and fixed costs of $320,000.
The sales revenue needed to achieve a profit of $200,000 in the next period would be:

• A. $1,390,000
• B. $1,950,000
• C. $1,780,000
• D. $1,300,000
• E. $1,400,000

A decision maker that makes decisions using the minimax regret criterion would be classified as:

• A. Risk averse
• B. Risk neutral
• C. Risk spreading
• D. Risk seeking

A company sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an after sales service to its customers. The after sales service includes planned maintenance of the machine and repairs in the event of a machine breakdown. Service department customers are charged an amount per copy that differs depending on the size of the machine.
The company's existing costing system uses a single overhead rate, based on total sales revenue from copy charges, to charge the cost of the Service Department's support activities to each size of machine. The Service Manager has suggested that the copy charge should more accurately reflect the costs involved. The company's accountant has decided to implement an activity-based costing system and has obtained the following information about the support activities of the service department:

Calculate the annual profit per machine for each of the three sizes of machine, using the current basis for charging the costs of support activities to machines.

• A. The profit per machine for the medium machine was: $1350
• B. The profit per machine for the medium machine was: $1376
• C. The profit per machine for the medium machine was: $1250
• D. The profit per machine for the medium machine was: $1276

'Public sector organizations are often judged by their economy, efficiency and effectiveness. Consequently, they should use an approach to budgeting other than incremental budgeting.' Required:
Explain ONE advantage and TWO disadvantages of public sector organizations using incremental budgeting.
Select all true statements.

• A. The incremental approach encourages managers in public sector organizations to look at the efficiency and effectiveness of activities undertaken.
• B. Public sector organizations tend to be fairly complex and in many cases outputs cannot be measured in monetary terms therefore the link between inputs and outputs is difficult to establish. An incremental approach can therefore provide a cost effective approach to budgeting.
• C. An incremental; approach is not as easy and fast to implement than other forms of budgeting approaches e.g. zero based budgeting.
• D. The incremental approach means that budget holders in public sector organizations will be encouraged to use up this year's budget will be as high as possible.
• E. The main advantage of incremental budgeting is that the cost of past activities becomes fixed and any inefficiencies or wastage is perpetuated.
• F. Under an incremental approach to budgeting, existing operations and the current budgeted allowance for these existing activities are taken as the base level for preparing the budget.