How budgets are related to organizational strategies

Q 1 The accountant for Kadhim Inc. is preparing the budgets for operating department
support service costs. Maintenance costs are allocated based on square feet, and
cafeteria costs are allocated based on a number of employees. The following data have
been collected:
Support Departments Operating Departments
Maintenance Cafeteria Cutting Packaging
Direct costs SAR50,000 SAR45,000 SAR275,000 SAR300,000
Number of employees 15 10 150 250
Square feet 1,500 2,000 3,500 4,000
a- If the direct method is used, calculate maintenance costs allocated to the cutting
department?
b- If the direct method is used, calculate the total cost (including allocations) for the
packaging department?
c- Assume you are working for the organization and are requested to allocate support
department costs. Describe how you would choose the best method?
( 2 marks)
Answer
Q 2 Khaleel Company produces three products A, B, and C. During the year the joint costs
of processing the coffee were SAR270,000. Production and sales value information was as
follows:
Sales Value
Product Units at Split-Off Separable Costs Selling Price
A 300,000 SAR9 per unit SAR5.00 per unit SAR32 per unit
B 200,000 SAR8 per unit SAR3.00 per unit SAR30 per unit
C 400,000 SAR7 per unit SAR2.00 per unit SAR20 per unit
Page 3 of 4
Chose one method to allocate joint costs and allocate the joint costs. (1 mark)
Answer
Q 3 In a recent accounting period, Ismail Company experienced a SAR30,000 unfavorable
variance for variable production costs. Explain the meaning of an unfavorable variance.
Suggest two possible (1 mark)
Answer
Q 4 How are budgets related to organizational strategies? (1 mark)
Answer