ACCA · Question 36 · D. Budgeting

SECTION B - MULTI-TASK QUESTION 1 (BUDGETING)

Scenario: AquaPure Desalination Plant is a public utility providing fresh water. The plant is preparing its budgets for Q3.

Data:

• Budgeted water sales: July 50,000 units; August 60,000 units; September 70,000 units.
• Inventory policy: Closing inventory of finished water must equal 10% of the next month's sales. (July opening inventory is exactly 5,000 units).
• Material requirements: Each unit of water requires 2 kg of chemical filter.
• Chemical filter cost: $3 per kg.

Based on the scenario, answer the following 5 sub-tasks. (Note: In a live exam, these would be separate input fields. For this practice, review the detailed solution).

Task 1: Calculate the budgeted production units for July.
Task 2: Calculate the budgeted production units for August.
Task 3: Calculate the total kg of chemical filter required for August production.
Task 4: If fixed costs are $100,000 and variable costs are $2 per unit, what is the flexed budget total cost for August's actual production if actual production was 62,000 units?
Task 5: Identify the budgeting approach where managers deliberately underestimate revenues or overestimate costs to make targets easier to achieve.