QR uses an activity based budgeting (ABB) system to budget product costs. It manufactures two products, product Q and product R. The budget details for these two products for the forthcoming period are as follows:

The total budgeted cost of setting up the machines is $74,400.
What was the budgeted machine set up cost per unit of product Q?

• A. $0.48 per unit
• B. $0.39 per unit
• C. $0.37 per unit
• D. $0.56 per unit

Explain how probability analysis could be used to assess the risk of the evaluated projects.
Select all the true statements.

• A. The probabilities can be combined to calculate the expected value of each cash flow element and of the project as a whole
• B. The net present value (NPV) of the project, if all high, low or medium estimates occurred, can be calculated along with the combined probabilities of their occurrence.
• C. The NPVs of a sample range of possible outcomes and the probability of each NPV can be calculated. If a small sample is taken the distribution of outcomes can be used to calculate the zero activities deviation of the NPVs and the probability of success of the projects.
• D. The company can determine a range of possible outcomes for each of the cash flows in the project, for example, a high, low and medium estimate of each cash flow could be determined.

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

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

JL is preparing its cash budget for the next three quarters. The following data have been extracted from the operational budgets:

Additional information is available as follows:
* JL sells 20% of its goods for cash. Of the remaining sales value, 70% is received within the same quarter as sale and 30% is received in the following quarter. It is estimated that trade receivables will be $125,000 at the beginning of Quarter 1. No bad debts are anticipated.
* 50% of payments for direct material purchases are made in the quarter of purchase, with the remaining 50% in the quarter following purchase. It is estimated that the amount owing for direct material purchases will be
$60,000 at the beginning of Quarter 1.
* JL pays labour and overhead costs when they are incurred. It has been estimated that labour and overhead costs in total will be $303,600 per quarter. This figure includes depreciation of $19,600.
* JL expects to repay a loan of $100,000 in Quarter 3.
* The cash balance at the beginning of Quarter 1 is estimated to be $49,400 positive.
Required:
Prepare a cash budget for each of the THREE quarters.
What will the closing balance of cash flows in quarter THREE be?

• A. $130 200
• B. $100 200
• C. $170 400
• D. $160 690
• E. $184 900
• F. $145 000
• G. $150 200

XY, a not-for-profit charity organization which is funded by public donations, is concerned that it is not making the best use of its available funds. It has carried out a review of its budgeting system and is considering
replacing the current system with a zero-based budgeting system.
Select ALL the potential advantages AND disadvantages for the charity of a zero-based budgeting system.

• A. Preparation of the decision packages will normally require the environment of many employees. This environment may produce useful ideas and promote job satisfaction.
• B. The creation of decision packages and their subsequent ranking by top management is very time consuming and costly. The charity will need to assess whether the benefits of the system outweigh the costs involved.
• C. It discourages a questioning approach by focusing attention not only on the cost of the activity but on the benefits it provides. The charity managers will not articulate the benefits encouraging them to think clearly about the activities.
• D. It avoids the complacency inherent in the traditional incremental approach where it is assumed that future activities will be very similar to current ones.
• E. In an organization like a charity, the decision packages are not very disparate and difficult t compare.
• F. In applying traditional budgeting, 'activities' may result in functional departments rather than cross functional activities and thus distract attention from the real cost-reduction issues.