PM — Performance Management

A public health department is switching from incremental budgeting to Zero-Based Budgeting (ZBB) for its community outreach programs.

Which of the following is a primary advantage of Zero-Based Budgeting in this context?

During a global semiconductor shortage, a consumer electronics company finds that it can sell as many smart home hubs as it can produce, but it cannot source enough microchips to meet production targets.

Which of the following statements regarding the 'Principal Budget Factor' (Limiting Factor) are correct in this scenario? (Select all that apply)

A subscription box service is preparing its cash budget for March.
Sales are budgeted as follows:

• January: $100,000
• February: $120,000
• March: $150,000

Customers pay as follows:

• 20% in the month of sale (cash sales)
• 50% in the month following sale
• 28% in the second month following sale
• 2% are bad debts (never collected)

Calculate the total cash receipts budgeted for March. (Enter number only, no commas or symbols)

A commercial spaceflight operator originally budgeted to launch 4 satellites, with total variable fuel costs of $8,000,000 and fixed operational costs of $12,000,000.

During the year, they actually launched 5 satellites. Actual total costs were $23,500,000.

What is the total budget variance when comparing actual results to a FLEXED budget?

A creative advertising agency uses a 'bottom-up' (participative) budgeting approach, allowing junior art directors to set their own departmental budgets.

Which of the following is a recognized behavioral DISADVANTAGE of this approach?

A 3D printing firm plans to produce 4,000 custom prototypes next month. Each prototype requires 0.5 kg of specialized resin.
The firm wants to increase its resin inventory. Opening inventory is 300 kg, and the target closing inventory is 800 kg.

Calculate the total kg of resin that needs to be PURCHASED next month. (Enter number only, no commas or symbols)

SECTION B - MULTI-TASK QUESTION 1 (BUDGETING)

Scenario: NovaTech Robotics is preparing its master budget for Quarter 1.
Data:

• Sales budget: 12,000 units.
• Opening finished goods inventory: 2,000 units. Target closing finished goods: 3,000 units.
• Each unit requires 4 microchips. Opening chip inventory: 5,000 chips. Target closing chip inventory: 7,000 chips. Chips cost $10 each.
• Cash sales are 30% of total sales revenue (Total revenue = $1,200,000). Credit sales are collected in the following quarter. Opening receivables (from Q4) to be collected in Q1 are $250,000.
• Fixed overheads are budgeted at $100,000. Variable overheads are $5 per unit produced.
• The company is currently limited by the number of skilled assembly hours available, not by sales demand.

Calculate the following 5 items:

1. Production budget (units)
2. Material purchases budget ($)
3. Total cash collections in Q1 ($)
4. Flexed budget allowance for total overheads based on actual production of 14,000 units ($)
5. Identify the Principal Budget Factor.

Select the option that correctly identifies all 5 answers.

An NGO is transitioning from incremental budgeting to zero-based budgeting (ZBB) for its community outreach programs.

Which TWO of the following are distinct advantages of zero-based budgeting in this context?

A cloud hosting company prepared a fixed budget for 5,000 server deployments, estimating total costs of $250,000 (comprising $100,000 fixed costs and $150,000 variable costs).
Actual deployments were 6,000.

What should be the total cost allowance in the flexible budget for control purposes?

An agricultural exporter has the following sales forecast:
January: $100,000
February: $120,000
March: $150,000

Customers pay 40% in the month of sale, 50% in the month following the sale, and 10% is written off as bad debts.

What are the expected cash receipts from sales in March?

A company manufactures three products. When preparing the annual budget, management realizes that the total skilled labor hours required to meet market demand for all three products is 50,000 hours, but only 40,000 hours are available. Materials and machine time are abundant.

In this scenario, what is skilled labor known as?

A project requires an initial investment of $100,000. It will generate cash inflows of $40,000 per year for 3 years. The company's cost of capital is 10%.
The discount factors at 10% are: Year 1 = 0.909, Year 2 = 0.826, Year 3 = 0.751.

What is the Net Present Value (NPV) of the project?

A company is calculating the Internal Rate of Return (IRR) for a new machine.
At a discount rate of 10%, the NPV is +$5,000.
At a discount rate of 15%, the NPV is -$2,000.

Using the interpolation formula, what is the approximate IRR?

A project requires an initial investment of $80,000. It generates the following cash inflows:
Year 1: $30,000
Year 2: $40,000
Year 3: $30,000

Assuming cash flows occur evenly throughout the year, what is the payback period?

SECTION B - MULTI-TASK QUESTION 1 (BUDGETING)

Scenario: AquaHarvest Ltd operates a marine agriculture business, farming specialized seaweed for the cosmetics industry. The company is preparing its budgets for the upcoming quarter (Q3: July, August, September).

Data provided:

• Sales volume forecast (kg): July 5,000; August 6,000; September 8,000.
• Selling price: $20 per kg.
• Production volume is set to equal sales volume each month (no inventory held).
• Variable production cost: $8 per kg (paid in the month of production).
• Fixed overheads: $30,000 per month (includes $5,000 depreciation). Paid in the month incurred.
• Sales receipts: 60% collected in the month of sale, 40% in the following month.
• June sales were $80,000.

Answer the following 5 sub-questions (2 marks each):

1. What is the budgeted total revenue for August?
2. What are the budgeted cash receipts from customers in July?
3. What are the total cash payments for production and overheads in September?
4. If AquaHarvest flexes its August budget to actual sales of 7,000 kg, what would be the total flexed cost (variable + fixed)?
5. Identify the principal budget factor if the maximum seaweed harvesting capacity is capped at 6,500 kg per month.

Section A

NationalGrid Utilities is transitioning from incremental budgeting to Zero-Based Budgeting (ZBB) for its maintenance departments. Which TWO of the following are recognized advantages of implementing ZBB in this context?

Section A

FinTech Innovators operates in a highly volatile market where technology changes rapidly. They currently use an annual fixed budget but find it becomes outdated within months. Which budgeting approach would be most appropriate to resolve this issue?

Section A

AgriCorp expects sales of $100,000 in March, $120,000 in April, and $150,000 in May. Customers pay 40% in the month of sale, 50% in the month following the sale, and 8% two months after the sale (2% are bad debts). What are the expected cash receipts from sales in May?

Section A

SteelForge Manufacturing is preparing its functional budgets. The sales director confirms demand for 50,000 units. The factory has a maximum capacity of 40,000 machine hours. Each unit requires 1 machine hour. Raw materials are abundant. What is the principal budget factor for SteelForge?

Section A

CareNet NGO budgeted to distribute 10,000 care packages at a variable cost of $15 each and fixed costs of $50,000. Actually, 12,000 packages were distributed. Total actual costs incurred were $240,000. What is the total budget variance when using a flexible budget?

Section A

GlobalConsult Partners is implementing a new budgeting system. The CEO wants to ensure that junior managers feel ownership of their targets to improve motivation. Which budgeting approach is most likely to achieve this behavioral objective?

Section A

EuroTech Multinationals is evaluating a capital project. The initial investment is $100,000. The expected net cash inflows are:
Year 1: $30,000
Year 2: $40,000
Year 3: $50,000
Year 4: $20,000

Assuming cash flows occur evenly throughout the year, calculate the payback period in years. Enter your answer as a decimal to one decimal place (e.g., 2.5).

Section B - Multi-Task Question 1 (Budgeting)

Scenario: SolarFlare Energy is a renewable energy startup preparing its master budget for Quarter 3.

Data:

• Expected sales: July 5,000 units; August 6,000 units; September 7,500 units.
• Closing inventory policy: 20% of the next month's sales demand.
• Opening inventory for July is exactly 20% of July's sales.
• Each unit requires 3 kg of raw material 'Silica'.
• Silica costs $4 per kg.
• The company pays for 60% of materials in the month of purchase and 40% in the following month.

This MTQ contains 5 sub-tasks worth 2 marks each.

Task 1: Calculate the budgeted production units for August.
Task 2: Calculate the total kg of Silica required for production in July.
Task 3: If August production is 6,300 units, calculate the budgeted material purchases cost ($) for August.
Task 4: Explain the primary purpose of a cash budget in this startup context.
Task 5: If actual sales in July were 5,500 units, and the original fixed budget for marketing was $10,000 plus $2 per unit sold, calculate the flexed budget for marketing in July.

A Software-as-a-Service (SaaS) company operates in a highly volatile market and uses rolling budgets. Which of the following is the primary advantage of using a rolling budget in this environment?

A local government council is implementing Zero-Based Budgeting (ZBB) for its community services department. Which TWO of the following are essential steps in the ZBB process?

A hospitality company sets a budget for its catering division based on 10,000 meals.
Budgeted fixed costs: $20,000
Budgeted variable costs: $5 per meal

During the month, the division actually served 12,000 meals.
Calculate the total flexed budget cost allowance for the actual activity level. (Enter numbers only)

The sales director of a manufacturing firm intentionally underestimates next year's sales forecast during the budgeting process to ensure the targets are easily achievable and bonuses are secured.

What behavioral budgeting concept does this scenario illustrate?

An agricultural equipment manufacturer is preparing its production budget. Maximum market demand for its main tractor model is 5,000 units. Each tractor requires 4 tons of specialized steel. The company's supplier can only provide a maximum of 15,000 tons of this steel for the year. There is no opening or closing inventory of steel or tractors.

Calculate the maximum number of tractors that can be produced, identifying the principal budget factor. (Enter the number of tractors only)

A construction company has the following budgeted sales:
January: $100,000
February: $120,000
March: $150,000

Sales are 40% cash and 60% credit. Credit customers pay in the month following the sale.
Calculate the total cash receipts budgeted for March. (Enter numbers only)

SECTION B - MULTI-TASK QUESTION 1 (BUDGETING)

A renewable energy startup is preparing its budgets for Q3.
Data:

• Budgeted sales: July 1,000 units, August 1,200 units, September 1,500 units.
• Selling price: $200 per unit.
• Sales are 20% cash and 80% credit (paid 1 month after sale).
• June credit sales were $150,000.
• Variable production cost: $100 per unit.
• Fixed production overheads: $50,000 per month.

Provide the following 5 answers (each worth 2 marks):

1. Calculate total sales revenue budgeted for August.
2. Calculate cash receipts from credit customers in July.
3. Calculate total cash receipts in August.
4. If actual production in August is 1,300 units, calculate the flexed variable production cost allowance.
5. Calculate the total flexed budget allowance (variable + fixed) for August based on 1,300 units.