'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. An incremental; approach is not as easy and fast to implement than other forms of budgeting approaches e.g. zero based budgeting.
• B. The main advantage of incremental budgeting is that the cost of past activities becomes fixed and any inefficiencies or wastage is perpetuated.
• C. 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.
• D. 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.
• E. The incremental approach encourages managers in public sector organizations to look at the efficiency and effectiveness of activities undertaken.
• F. 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.

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

EF manufactures and sells three products, X, Y and Z. The following production overhead costs are budgeted for next year:

Required:
Calculate the total budgeted production overhead cost for each product using activity based budgeting.

• A. The total budgeted production overhead cost was $ 2 195 000
• B. The total budgeted production overhead cost was $ 1 258 000
• C. The total budgeted production overhead cost was $ 1 188 000
• D. The total budgeted production overhead cost was $ 1 305 000
• E. The total budgeted production overhead cost was $ 1 285 000

RS is a travel company providing daily tours of a major European capital city. The market is highly competitive and RS has commissioned some market research to help with the pricing decision for a new tour. The research identified the probability of three possible market conditions and the number of tickets that would be sold each day at three different price levels.

Demonstrate, using a decision tree and based on expected value, which ticket price RS should choose.

• A. RS should charge a ticket price of $100.
• B. RS should charge a ticket price of $90.
• C. RS should charge a ticket price of $80.
• D. RS should charge a ticket price of $70.
• E. RS should charge a ticket price of $75

A company is preparing its annual budget and is estimating the number of units of Product A that it will sell in each quarter of year 2. Past experience has shown that the trend for sales of the product is represented by the following relationship:
y = a + bx where
y = number of sales units in the quarter a = 10,000 units b = 3,000 units x = the quarter number where 1 = quarter 1 of year 1 Actual sales of Product A in Year 1 were affected by seasonal variations and were as follows:
Quarter 1:14,000 units Quarter2: 18,000 units Quarter 3: 18,000 units Quarter 4: 20,000 units Calculate the expected sales of Product A (in units) for each quarter of year 2, after adjusting for seasonal variations using the additive model.

• A. The expected sales for year 2 Quarter 4 was 32700 units
• B. The expected sales for year 2 Quarter 4 was 32000 units
• C. The expected sales for year 2 Quarter 4 was 33000 units
• D. The expected sales for year 2 Quarter 4 was 40000 units