A niteclub chain in Lusaka, owns three niteclubs in the towns of Kitwe, Ndola and Kabwe. It has prepared budgets for the coming year based on a ticket price of K40. KITWE NDOLA KABWE TOTAL K’000 K’000 K’000 K’000 Budgeted ticket receipts 16,000 12,000 8,000 36,000 Costs: Music Hire 5,000 4,000 3,900 12,900 Wages and Salaries 3,000 2,500 1,600 7,100 Overheads 5,000 4,000 3,500 12,900 Total Costs 13,000 10,500 9,000 32,500 Included in the overhead figures are the Lusaka Head Office fixed costs that amount to K7,200,000. These have been allocated to each niteclub on the basis of budgeted tickets receipts. All other costs are available. The management are concerned about the Kabwe niteclub and the fact that is showing a budgeted loss and is considering closing the niteclub and selling the site to a Property Developer. REQUIRED: Prepare marginal costing statements to show contributions for each niteclub and contribution and profit for the overall chain on the basis of: (i) the original budget (ii) the Kabwe niteclub is closed. On the grounds of profitability do you think that the Kabwe niteclub should be closed. Give A reasoned explanation of your decision. © What is the contribution per ticket sale at each niteclub.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Answer BOTH QUESTIONS.
- A niteclub chain in Lusaka, owns three niteclubs in the towns of Kitwe, Ndola and Kabwe. It has prepared budgets for the coming year based on a ticket price of K40.
KITWE NDOLA KABWE TOTAL
K’000 K’000 K’000 K’000
Budgeted ticket receipts 16,000 12,000 8,000 36,000
Costs:
Music Hire 5,000 4,000 3,900 12,900
Wages and Salaries 3,000 2,500 1,600 7,100
Total Costs 13,000 10,500 9,000 32,500
Included in the overhead figures are the Lusaka Head Office fixed costs that amount to K7,200,000. These have been allocated to each niteclub on the basis of budgeted tickets receipts. All other costs are available.
The management are concerned about the Kabwe niteclub and the fact that is showing a budgeted loss and is considering closing the niteclub and selling the site to a Property Developer.
REQUIRED:
- Prepare marginal costing statements to show contributions for each niteclub and contribution and profit for the overall chain on the basis of:
(i) the original budget
(ii) the Kabwe niteclub is closed.
- On the grounds of profitability do you think that the Kabwe niteclub should be closed. Give
A reasoned explanation of your decision.
© What is the contribution per ticket sale at each niteclub.
- What is the margin of safety in revenue for the chain at the budgeted level of activity if:
- the Kabwe niteclub is kept open?
- The Kabwe niteclub is closed?
- If the Kabwe niteclub is kept open management want an increase in profitability. One suggestion is that receipts at the niteclub be increased by 50% by an advertising campaign directed at Kabwe that will add K40,000 to the chains fixed costs..
REQUIRED:
Do you think that the advertising campaign should be undertaken to improve the cinema’s profitability? Give reasons in your decision.
- Consultant Inc. is a firm of consulting engineers, newly established to advise on a large project taking three years to complete. Their fee for this work is a percentage of the total project costs, payable on completion of the project. In the interim, advances on the final fee are made at six-monthly intervals. The total project costs will not be known until the project is completed. The following advances were received by Consultant Inc. during the three-year period:
Year ended 31 December 20x0 K25,000
Year ended 31 December 20x1 K30,000
Year ended 31 December 20x2 K30,000
When the total costs were computed during the year ended 31 December 20x0, it was found that a further sum of K50,000 was due to Consultat Inc.
REQUIRED;
- Explain how Consultat Inc. would show the payments made during the periods covered by the project. Justify your explanation in terms of the concepts of accounting which you consider apply to this situation.
- Would you change your reasoning at all in the light of the following information?
- The advance payments are not contractual but discretionary on the part of the paying company;
- A clause in the consulting agreement requires Consultat Inc. to undertake – free of charge – extra work to remedy defects appearing within three years of the completion of the project.
Suggest how you would treat these problems by reference to accounting concepts.
© Several approaches to the development of accounting theory have emerged in recent decades,
Write briefly on the three approaches citing examples or sketches where possible.
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