Professional Documents
Culture Documents
9.21
9.22
9.23
9.24
9.25
9.26
9.27
9.28
9.29
9.3
9.31
9.32
9.33
9.34
9.35
9.36
9.37
9.38
9.39
9.4
9.41
9.42
9.43
McGraw-Hill/Irwin
Managerial Accounting, 8/e
solutions
23
24
22
21
25
28
29
27
30
32
31
36
35
33
38
37
40
39
41
42
CHAPTER 9
Profit Planning and Activity-Based Budgeting
ANSWERS TO REVIEW QUESTIONS
9-1
9-2
9-3
9-4
The flowchart on the following page depicts the components of the master budget
for a service station.
9-5
General economic trends are important in forecasting sales in the airline industry.
The overall health of the economy is an important factor affecting the extent of
business travel. In addition, the health of the economy, inflation, and income levels
affect the extent to which the general public travels by air.
9-6
McGraw-Hill/Irwin
9-2
Sales
Budget
Operational
Budgets
Ending
Inventory
Budget:
Gasoline
Materials Budget:
Gasoline and
Related Products
Labor
Budget
Overhead
Budget
Selling and
Administrative
Expense
Budget
Cash
Budget
Budgeted
Income
Statement
Budgeted
Financial
Statements
Budgeted
Balance Sheet
Budgeted
Statement of
Cash Flows
McGraw-Hill/Irwin
Managerial Accounting, 8/e
9-7
9-8
9-9
The city of Boston could use budgeting for planning purposes in many ways. For
example, the city's personnel budget would be important in planning for required
employees in the police and fire departments. The city's capital budget would be
used in planning for the replacement of the city's vehicles, computers,
administrative buildings, and traffic control equipment. The city's cash budget would
be important in planning for cash receipts and disbursements. It is important for any
organization, including a municipal government, to make sure that it has enough
cash on hand to meet its cash needs at all times.
9-10
The budget director, or chief budget officer, specifies the process by which budget
data will be gathered, collects the information, and prepares the master budget. To
communicate budget procedures and deadlines to employees throughout the
organization, the budget director often develops and disseminates a budget manual.
9-11
The budget manual says who is responsible for providing various types of
information, when the information is required, and what form the information is to
take. The budget manual also states who should receive each schedule when the
master budget is complete.
9-12
A company's board of directors generally has final approval over the master budget.
By exercising its authority to make changes in the budget and grant final approval,
the board of directors can wield considerable influence on the overall direction the
organization takes. Since the budget is used as a resource-allocation mechanism,
the board of directors can emphasize some programs and curtail or eliminate others
by allocating funds through the budgeting process.
McGraw-Hill/Irwin
9-4
9-13
9-14
The difference between the revenue or cost projection that a person provides in the
budgeting process and a realistic estimate of the revenue or cost is called budgetary
slack. Building budgetary slack into the budget is called padding the budget. A
significant problem caused by budgetary slack is that the budget ceases to be an
accurate portrayal of likely future events. Cost estimates are often inflated, and
revenue estimates are often understated. In this situation, the budget loses its
effectiveness as a planning tool.
9-15
An organization can reduce the problem of budgetary slack in several ways. First, it
can avoid relying on the budget as a negative, evaluative tool. Second, managers
can be given incentives not only to achieve budgetary projections but also to
provide accurate projections.
9-16
9-17
This comment is occasionally heard from people who have started and run their own
small business for a long period of time. These individuals have great knowledge in
their minds about running their business. They feel that they do not need to spend a
great deal of time on the budgeting process, because they can essentially run the
business by feel. This approach can result in several problems. First, if the person
who is running the business is sick or traveling, he or she is not available to make
decisions and implement plans that could have been clarified by a budget. Second,
the purposes of budgeting are important to the effective running of an organization.
Budgets facilitate communication and coordination, are useful in resource
allocation, and help in evaluating performance and providing incentives to
employees. It is difficult to achieve these benefits without a budgeting process.
McGraw-Hill/Irwin
Managerial Accounting, 8/e
9-18
In developing a budget to meet your college expenses, the primary steps would be to
project your cash receipts and your cash disbursements. Your cash receipts could
come from such sources as summer jobs, jobs held during the academic year,
college funds saved by relatives or friends for your benefit, scholarships, and
financial aid from your college or university. You would also need to carefully project
your college expenses. Your expenses would include tuition, room and board, books
and other academic supplies, transportation, clothing and other personal needs, and
money for entertainment and miscellaneous expenses.
9-19
into U.S. dollars. Almost all the world's currencies fluctuate in their values
relative to the dollar, and this fluctuation makes budgeting for those translations
difficult.
9-20
McGraw-Hill/Irwin
9-6
SOLUTIONS TO EXERCISES
EXERCISE 9-21 (20 MINUTES)
1.
40,000 (given)
42,000 (40,000 1.05)
44,100 (42,000 1.05)
46,305 (44,100 1.05)
Sales in units:
2.
July ................................................................................................................
August ...........................................................................................................
September.....................................................................................................
Total for third quarter...................................................................................
Add: Desired ending inventory, September 30 ..........................................
Subtotal .........................................................................................................
Deduct: Desired ending inventory, June 30 ...............................................
Total required production ............................................................................
40,000
42,000
44,100
126,100
37,044
163,144
32,000
131,144
120,000
4
480,000
McGraw-Hill/Irwin
Managerial Accounting, 8/e
120,000
600,000
140,000
460,000
$1.40
$ 644,000
Notice that the amount of sales on account in June, $122,500 was not needed to
solve the exercise.
2.
3.
Credit
Sales
$225,000
250,000
212,500
October
$157,500
$157,500
November
$ 33,750
175,000
208,750
December
$ 22,500
37,500
148,750
$208,750
$575,000
In the electronic version of the solutions manual, press the CTRL key and click on
the following link: BUILD A SPREADSHEET
McGraw-Hill/Irwin
9-8
2.
a$270,000
= $135,000 2
b$120,000
= $240,000 .5
c$
= $180,000 .5
90,000
July
$240,000
August
$180,000
September
$270,000a
$ 120,000b
108,000d
$ 228,000
$ 90,000c
102,000
$ 192,000
$135,000
117,000e
$252,000
d$108,000
e$117,000
600,000 euros
2,400,000 euros
(2,200,000) euros*
800,000 euros
*2,200,000 euros
= 600,000 euros + 2,400,000 euros 800,000 euros
3.
1,700,000y
4,500,000y
(3,900,000y)
2,300,000y
4.
$ 405,000
75,000
$ 480,000
5.
$1,537,500
300,000
0
$1,837,500
McGraw-Hill/Irwin
Managerial Accounting, 8/e
2.
3,360,000
350,000
560,000
3,150,000
Purchases of raw material (in units), assuming production of 3,500,000 finished units:
Raw material required for production (3,500,000 2) ................................
Add: Desired ending inventory on December 31 ........................................
Deduct: Beginning inventory on January 1 ................................................
Required raw-material purchases during the year .....................................
McGraw-Hill/Irwin
9-10
7,000,000
315,000
245,000
7,070,000
2.
Sales
$150,000
195,000
165,000
Percent
9%
20%
70%
Expected
Collections
$ 13,500
39,000
115,500
$168,000
3.
$135,000
2,700
$132,300
36,000
$168,300
McGraw-Hill/Irwin
Managerial Accounting, 8/e
$ 55,000
168,000
168,300
$ 54,700
2.
Collections in December
$152,000
$400,000 38%
264,000
440,000 60%
$416,000
McGraw-Hill/Irwin
9-12
$440,000
330,000
$110,000
$ 8,800
36,000
45,200
90,000
$ 20,000
Month
December....................
January .......................
Total December
purchases ................
Sales
$440,000
400,000
Cost of
Goods
Sold
$330,000
300,000
McGraw-Hill/Irwin
Managerial Accounting, 8/e
Today
To:
From:
McGraw-Hill/Irwin
9-14
$ 14,250*
150,000
40,000**
$ 204,250
$ 14,250
195,000
52,000
$261,250
$ 14,250
240,000
64,000
$318,250
McGraw-Hill/Irwin
Managerial Accounting, 8/e
800 hours
1,600 hours
2,400 hours
$ 90
$216,000
May
3,200
$60
$192,000
800
$105
$ 84,000
$276,000
June
3,200
$60
$192,000
800
$105
$ 84,000
$276,000
10%
$ 27,600
90%
$248,400
$276,000
$12,000
18,000
$30,000
4. In the electronic version of the solutions manual, press the CTRL key and click on the
following link: BUILD A SPREADSHEET
McGraw-Hill/Irwin
9-16
SOLUTIONS TO PROBLEMS
PROBLEM 9-31 (30 MINUTES)
1.
2.
February
March
$ 33,000
270,000
$303,000
$157,500
324,000
$189,000
$481,500
333,000
15,000
$537,000
McGraw-Hill/Irwin
Managerial Accounting, 8/e
February
March
$ 66,000
189,000
93,000
$348,000
$ 81,000
210,000
$ 90,000
72,000
$363,000
294,000
135,000
$519,000
February
March
$ 60,000
481,500
$541,500
363,000
$178,500
$132,900
537,000
$669,900
519,000
$150,900
(45,000)
(600)*
$132,900
-0-0-0$150,900
* $45,000 x 8% x 2/12
McGraw-Hill/Irwin
9-18
January
20,000
32,000
52,000
32,000
20,000
Month
February
24,000
25,000
49,000
32,000
17,000
March
16,000
27,000
43,000
25,000
18,000
.75
Quarter
60,000
27,000
87,000
32,000
55,000
20,000
17,000
13,500
50,500
$320,000
$272,000
$216,000
$808,000
10,000
8,500
6,750
25,250
4,000
3,400
2,700
10,100
16,000
13,600
10,800
40,400
22,400
$372,400
19,040
$316,540
15,120
$251,370
56,560
$940,310
*100 percent of the first following month's sales plus 50 percent of the second following
month's sales.
DLH denotes direct-labor hour.
McGraw-Hill/Irwin
Managerial Accounting, 8/e
Sales budget
Cost-of-goods-sold budget
Selling and administrative expense budget
Components of the master budget, other than the production budget and the directlabor budget, that would also use the production data include the following:
Direct-material budget
Manufacturing-overhead budget
Cost-of-goods-sold budget
Components of the master budget, other than the production budget and the directlabor budget, that would also use the direct-labor-hour data include the following:
McGraw-Hill/Irwin
9-20
January
February
March
Quarter
$ 60,000
$ 72,000
$48,000
$180,000
90,000
210,000
$360,000
76,500
178,500
$327,000
81,000
141,750
$270,750
247,500
530,250
$957,750
Niagra Chemical Companys production budget (in gallons) for the three products for
20x2 is calculated as follows:
Yarex
Darol
Norex
120,000
80,000
50,000
_10,400
130,400
_5,600
85,600
_4,800
54,800
9,600
120,800
6,400
79,200
4,000
50,800
The companys conversion cost budget for 20x2 is shown in the following schedule:
Conversion hours required:
Yarex (120,800 .07) ..................................
Darol (79,200 .10) ....................................
Norex (50,800 .16) ...................................
Total hours .................................................
8,456
7,920
_8,128
24,504
$490,080
McGraw-Hill/Irwin
Managerial Accounting, 8/e
4.
Since the 20x1 usage of Islin is 200,000 gallons, the firms raw-material purchases
budget (in dollars) for Islin for 20x2 is as follows:
Quantity of Islin required for production in 20x2 (in gallons):
Yarex (120,800 1)...................................................................
Darol (79,200 .7) ....................................................................
Norex (50,800 .5) ...................................................................
Subtotal..
Add: Required inventory, 12/31/x2 (201,640 .10) ......................
Subtotal ..........................................................................................
Deduct: Inventory, 1/1/x2 (200,000 .10) .....................................
Required purchases (gallons).......................................................
120,800
55,440
25,400
201,640
20,164
221,804
20,000
201,804
$1,009,020
The company should continue using Islin, because the cost of using Philin is
$152,632 greater than using Islin, calculated as follows:
Change in material cost from substituting Philin for Islin:
20x2 production requirements:
Philin (201,640 $5 1.2) ........................................................
Islin (201,640 $5) ...................................................................
Increase in cost of raw material ....................................................
Change in conversion cost from substituting Philin for Islin:
Philin (24,504 $20 .9) ..........................................................
Islin (24,504 $20) ...................................................................
Decrease in conversion cost ........................................................
Net increase in production cost ...................................................
McGraw-Hill/Irwin
9-22
$1,209,840
1,008,200
$ 201,640
$ 441,072
490,080
$ (49,008)
$ 152,632
2.
12,000
600
12,600
180
12,420
x 30
372,600
x $75
$27,945,000
12,600
x 10
126,000
25
5,040
5
1,008
3.
4.
No. While the number of faculty may be a key driver, the number of faculty is highly
dependent on the number of students. Students (and tuition revenue) are akin to
salesthe starting point in the budgeting process.
McGraw-Hill/Irwin
Managerial Accounting, 8/e
Sales budget
Sales (in sets) .............................................
Sales price per set ......................................
Sales revenue .............................................
2.
August
6,000
$60
$360,000
September
7,500
$60
$450,000
July
5,000
1,200
6,200
1,000
5,200
August
6,000
1,500
7,500
1,200
6,300
September
7,500
1,500
9,000
1,500
7,500
3.
July
5,000
$60
$300,000
Raw-material purchases
Planned production (sets) ............................
Raw material required per set
(board feet) ................................................
Raw material required for production
(board feet) ................................................
Add: Desired ending inventory of raw
material (board feet) ..................................
Total requirements ........................................
Less: Projected beginning inventory of
raw material (board feet) ...........................
Planned purchases of raw material
(board feet) ................................................
Cost per board foot .......................................
Planned purchases of raw material
(dollars) ......................................................
McGraw-Hill/Irwin
9-24
July
5,200
10
August
6,300
10
September
7,500
10
52,000
63,000
75,000
6,300
58,300
7,500
70,500
8,000
83,000
5,200
6,300
7,500
53,100
$.60
64,200
$.60
75,500
$.60
$ 31,860
$ 38,520
$ 45,300
Direct-labor budget
Planned production (sets) ............................
Direct-labor hours per set .............................
Direct-labor hours required ..........................
Cost per hour .................................................
Planned direct-labor cost..............................
5.
July
5,200
1.5
7,800
$21
$163,800
August
6,300
1.5
9,450
$21
$198,450
September
7,500
1.5
11,250
$21
$236,250
In the electronic version of the solutions manual, press the CTRL key and click on
the following link: BUILD A SPREADSHEET
McGraw-Hill/Irwin
Managerial Accounting, 8/e
Sales are collected over a two-month period, 40% in the month of sale and 60% in the
following month. December receivables of $108,000 equal 60% of Decembers sales;
thus, December sales total $180,000 ($108,000 .6). Since the selling price is $20
per unit, Dakota Fan sold 9,000 units ($180,000 $20).
2.
Since the company expects to sell 10,000 units, sales revenue will total $200,000
(10,000 units x $20).
3.
Dakota Fan collected 40% of Februarys sales during February, or $78,400. Thus,
Februarys sales total $196,000 ($78,400 .4). Combining January sales ($76,000 +
$114,000), February sales ($196,000), and March sales ($200,000), the company will
report revenue of $586,000.
4.
5.
6.
February sales will total 9,800 units ($196,000 $20), giving rise to a January 31
inventory of 1,960 units (9,800 x 20%). Letting X denote production, then:
12/31/x0 inventory + X January 20x1 sales = 1/31/x1 inventory
1,900 + X - 9,500 = 1,960
X 7,600 = 1,960
X = 9,560
7.
Financing required is $3,500 ($15,000 minimum balance less ending cash balance of
$11,500):
Cash balance, January 1 $ 22,500
Add: January receipts ($108,000 + $76,000)..
184,000
Subtotal $206,500
Less: January payments 195,000
Cash balance before financing. $ 11,500
McGraw-Hill/Irwin
9-26
The benefits that can be derived from implementing a budgeting system include the
following:
McGraw-Hill/Irwin
Managerial Accounting, 8/e
b. Subsequent Schedule
Production Budget
Selling Expense Budget
Budgeted Income Statement
Production Budget
Direct-Material Budget
Direct-Labor Budget
Manufacturing-Overhead Budget
Direct-Material Budget
Cost-of-Goods-Manufactured Budget
Direct-Labor Budget
Cost-of-Goods-Manufactured Budget
Manufacturing-Overhead Budget
Cost-of-Goods-Manufactured Budget
Cost-of-Goods-Manufactured Budget
Cost-of-Goods-Sold Budget
McGraw-Hill/Irwin
9-28
Units
60,000
40,000
Price
$130
$190
Total
$ 7,800,000
7,600,000
$15,400,000
Light
Coils
60,000
Heavy
Coils
40,000
25,000
85,000
20,000
65,000
9,000
49,000
8,000
41,000
Raw Material
Sheet
Copper
Metal
Wire
Platforms
McGraw-Hill/Irwin
Managerial Accounting, 8/e
260,000
130,000
__
205,000
465,000
36,000
501,000
123,000
253,000
32,000
285,000
41,000
41,000
7,000
48,000
32,000
469,000
29,000
256,000
6,000
42,000
Raw Material
Required
Raw Material
(units)
Sheet metal.............................................................
469,000
Copper wire ............................................................
256,000
Platforms ................................................................
42,000
Total.
5.
Total
$ 7,504,000
2,560,000
___252,000
$10,316,000
Projected
Production
(units)
Light coils .....................................
65,000
Heavy coils ...................................
41,000
Total ..............................................
6.
Anticipated
Purchase
Price
$16
10
6
Hours
per
Unit
4
6
Total
Hours
260,000
246,000
Rate
$15
20
Total
Cost
$3,900,000
4,920,000
$8,820,000
Cost Driver
Quantity
Cost
Driver
Rate
725,000 lb.a
106,000 coils b
100,000c
506,000 hr. d
$.50
$8.00
$2.00
$6.00
Budgeted
Cost
$362,500
848,000
200,000
3,036,000
$4,446,500
a725,000
McGraw-Hill/Irwin
9-30
Sales budget:
Box C
500,000
$1.35
$675,000
Box P
500,000
$1.95
$975,000
$1,650,000
3.
Total
Box C
500,000
5,000
505,000
10,000
495,000
Box P
500,000
15,000
515,000
20,000
495,000
Raw-material budget:
CORRUGATING MEDIUM
Production requirements (number of boxes) .........
Raw material required per box (pounds) ................
Raw material required for
production (pounds) ............................................
Add: Desired ending
raw-material inventory .........................................
Total raw-material needs .........................................
Deduct: Beginning raw-material inventory ............
Raw material to be purchased.................................
Price (per pound)......................................................
Cost of purchases (corrugating medium) ..............
Total cost of raw-material purchases
($145,500 + $37,875) .............................................
McGraw-Hill/Irwin
Managerial Accounting, 8/e
Box C
495,000
.2
Box P
495,000
.3
Total
99,000
148,500
247,500
10,000
257,500
5,000
252,500
$.15
$ 37,875
$183,375
Box P
495,000
.7
Total
148,500
346,500
495,000
5,000
500,000
15,000
485,000
$.30
$145,500
Direct-labor budget:
Production requirements (number of boxes)
Direct labor required per box (hours) .....................
Direct labor required for production (hours)
Direct-labor rate .......................................................
Total direct-labor cost..............................................
5.
Box C
495,000
.3
Box C
495,000
.0025
1,237.5
Box P
495,000
.005
2,475
Total
3,712.5
$18
$66,825
Manufacturing-overhead budget:
Indirect material ...........................................................................................
Indirect labor ................................................................................................
Utilities ..........................................................................................................
Property taxes ..............................................................................................
Insurance ......................................................................................................
Depreciation .................................................................................................
Total overhead ..............................................................................................
McGraw-Hill/Irwin
9-32
$ 15,750
75,000
37,500
27,000
24,000
43,500
$222,750
7.
$112,500
22,500
135,000
39,000
6,000
$315,000
$1,650,000
480,000
$1,170,000
315,000
$ 855,000
299,250
$ 555,750
McGraw-Hill/Irwin
Managerial Accounting, 8/e
budgetedmanufacturing overhead
volume of direct-labor hours
$222,750
(495,000)(.0025) (495,000)(.005)
$222,750
$60 per hour
3,712.5 hours
McGraw-Hill/Irwin
9-34
Box P
$.090
$.210
.030
.045
.045
.090
.150
___
$.315
.300
$.645
$ 956,250
936,000
$1,892,250
20,000
$1,912,250
Expenses:
Consultant salary expenses* .................................................................
Travel and related expenses .................................................................
General and administrative expenses ..................................................
Depreciation expense ............................................................................
Corporate expense allocation ...............................................................
Total expenses ................................................................................
Operating income ..........................................................................................
$1,021,300
115,750
186,000
80,000
150,000
$1,553,050
$ 359,200
McGraw-Hill/Irwin
Managerial Accounting, 8/e
McGraw-Hill/Irwin
9-36
$843,750
$150
5,625
15
375
50
425
15
6,375
$150
$956,250
$630,000
$180
3,500
10
350
50
400
13
5,200
$180
$936,000
Compensation:
Existing consultants:
Annual salary ...........................................................
Quarterly salary .......................................................
Planned increase (10%) ..........................................
Total fourth-quarter salary per consultant ............
Number of consultants ...........................................
Total .................................................................................
New consultants at old salary (3 $25,000) .................
Total salary ......................................................................
Benefits (40%) .................................................................
Total compensation ................................................
Travel expenses:
Computer system consultants (425 hrs. 15) .............
Management consultants (400 hrs. 13) ......................
Total hours ...............................................................
Rate per hour* ................................................................
Total travel expense ................................................
General and administrative ($200,000 93%) ....................
Corporate expense allocation ($100,000 150%) .............
*Third-quarter travel expense
hours
$91,250 9,125
9,125
2.
Computer
System
Consulting
Management
Consulting
$ 92,000
$ 23,000
2,300
$ 25,300
15
$379,500
-0$379,500
151,800
$531,300
$100,000
$ 25,000
2,500
$27,500
10
$275,000
75,000
$350,000
140,000
$490,000
6,375
5,200
11,575
$10
$115,750
$186,000
$150,000
= rate
= $10.00
McGraw-Hill/Irwin
Managerial Accounting, 8/e
2.
For each of the financial objectives established by the board of directors and
president of Fit-for-Life, Inc., the calculations to determine whether John Winslows
budget attains these objectives are presented in the following table.
CALCULATION OF FINANCIAL OBJECTIVES: FIT-FOR-LIFE, INC.
Objective
Increase sales by 12%
($1,700,000 1.12 = $1,904,000)
Attained/
Not Attained
Not attained
Calculations
($1,895,500$1,700,000)/$1,700,000 = 11.5%
Attained
($241,500$210,000)/$210,000 = 15%
Attained
Not attained
*Variable cost of goods sold + fixed manufacturing cost = $1,149,450 + $189,550 = $1,339,000
3.
McGraw-Hill/Irwin
9-38
Sales budget:
20x0
Total sales........................
Cash sales* ......................
Sales on account ...........
December
$800,000
200,000
600,000
20x1
January February
$880,000 $968,000
220,000
242,000
660,000
726,000
March
$1,064,800
266,200
798,600
First
Quarter
$2,912,800
728,200
2,184,600
January
$220,000
February
$242,000
March
$266,200
First
Quarter
$ 728,200
66,000
72,600
79,860
218,460
540,000
$826,000
594,000
$908,600
653,400
$999,460
1,787,400
$2,734,060
Purchases budget:
20x0
December
Budgeted cost of
goods sold.................. $560,000
Add: Desired
ending inventory ........ 308,000
Total goods
needed ........................ $868,000
Less: Expected
beginning
inventory..................... 280,000
Purchases ........................ $588,000
20x1
January
February
March
First
Quarter
$2,038,960
$616,000
$677,600
$745,360
338,800
372,680
372,680*
$954,800
308,000
$646,800
$1,050,280 $1,118,040
338,800
$711,480
372,680
$745,360
372,680
$2,411,640
308,000**
$2,103,640
*Since April's expected sales and cost of goods sold are the same as the projections
for March, the desired ending inventory for March is the same as that for February.
The
desired ending inventory for the quarter is equal to the desired ending inventory
on March 31, 20x1.
**The beginning inventory for the quarter is equal to the December ending inventory.
50%
McGraw-Hill/Irwin
9-40
February
$258,720
$284,592
$298,144
$ 841,456
352,800
388,080
426,888
1,167,768
$611,520
$672,672
$725,032
$2,009,224
Other expenses:
Sales salaries ..................................
Advertising and promotion ............
Administrative salaries ...................
Interest on bonds** .........................
Property taxes** ..............................
Sales commissions.........................
$ 42,000
32,000
42,000
30,000
-08,800
$ 42,000
32,000
42,000
-010,800
9,680
$ 42,000
32,000
42,000
-0-010,648
$ 126,000
96,000
126,000
30,000
10,800
29,128
$154,800
$766,320
$136,480
$809,152
$126,648
$851,680
$ 417,928
$2,427,152
Inventory purchases:
Cash payments for purchases
during the current month* ........
Cash payments for purchases
during the preceding
month .......................................
Total cash payments for
inventory purchases .......................
March
First
Quarter
**Bond interest is paid every six months, on January 31 and July 31. Property taxes also
are paid every six months, on February 28 and August 31.
McGraw-Hill/Irwin
Managerial Accounting, 8/e
First
Quarter
$2,734,060
February
$ 908,600
March
$ 999,460
(809,152)
(851,680)
(2,427,152)
$ 99,448
$147,780
$ 306,908
30,000
200,000
(250,000)
(200,000)
(5,000)
(100,000)
(200,000)
(5,000)
(100,000)
$ (18,092)
70,000
$ 51,908
McGraw-Hill/Irwin
9-42
$ 70,000
50,000
$ 20,000
30,000
$ 50,000
250,000
$(200,000)
8.
$2,912,800
2,038,960
$ 873,840
$126,000
29,128
96,000
126,000
150,000
15,000
5,000
5,400
552,528
$ 321,312
McGraw-Hill/Irwin
Managerial Accounting, 8/e
$ 215,000
321,312
100,000
$ 436,312
$ 447,216
10,000
1,800
600,000
1,000,000
436,312
$2,495,328
$ 540,000
2,184,600
Buildings
$1,252,000
250,000
(150,000)
$1,352,000
$ 352,800
2,103,640
(2,009,224)
$ 447,216
McGraw-Hill/Irwin
9-44
51,908
718,740
372,680
1,352,000
$2,495,328
(2,005,860)
$ 718,740
SOLUTIONS TO CASES
CASE 9-43 (35 MINUTES)
1.
Some of the operational and behavioral benefits that are generally attributed to a
participatory budgeting process are as follows:
- Utilization of the best knowledge of activities in a specific area, because the
participants are close to daily operations.
- Goals that are more realistic and acceptable.
- Improved communication and group cohesiveness.
- A sense of commitment and willingness to be held accountable for the budget.
2.
Four deficiencies in Jack Rileys participatory policy for planning and performance
evaluation, along with recommendations of how the deficiencies can be corrected:
Deficiencies
Recommendations
McGraw-Hill/Irwin
Managerial Accounting, 8/e
Yes, Triple-F Health Club should be better able to plan its cash receipts with the new
membership plan and fee structure. The cash flows should be more predictable and
certain because the large, prepaid membership fee becomes the only factor affecting
cash receipts. The hourly court fees, which were dependent upon a variable that could
fluctuate daily, are eliminated.
2.
a.
Factors that management should consider before adopting the new membership
plan and fee structure include:
The anticipated rate of return for excess cash or cost of borrowing funds in
periods of cash shortages
b.
3.
McGraw-Hill/Irwin
9-46
Sales budget:
20x4
4th
Quarter
1st
Quarter
2nd
Quarter
20x5
3rd
Quarter
S frame unit
sales ....................
50,000
S sales price .....
$10
55,000
$10
60,000
$10
65,000
$10
70,000
$10
250,000
$10
S frame sales
revenue ...............
$ 500,000
$ 550,000
$ 600,000
$ 650,000
$ 700,000
$2,500,000
L frame unit
sales ....................
40,000
L sales price......
$15
45,000
$15
50,000
$15
55,000
$15
60,000
$15
210,000
$15
L frame sales
revenue ...............
$ 600,000
$ 675,000
$ 750,000
$ 825,000
$ 900,000
$3,150,000
Total sales
revenue ............... $1,100,000
$1,225,000
$1,350,000
$1,475,000
$1,600,000
$5,650,000
$ 440,000
$ 490,000
$ 540,000
$590,000
$640,000
$2,260,000
660,000
735,000
810,000
885,000
960,000
3,390,000
Cash sales*...........
Sales on
account ..............
4th
Quarter
Entire
Year
McGraw-Hill/Irwin
Managerial Accounting, 8/e
1st
Quarter
Cash sales ..........................................
$ 490,000
Cash collections from credit
sales made during current
quarter* ............................................588,000
Cash collections from credit
sales made during previous
quarter ............................................132,000
Total cash receipts ............................
$1,210,000
2nd
Quarter
$ 540,000
20x5
3rd
Quarter
$ 590,000
4th
Quarter
$ 640,000
Entire
Year
$2,260,000
648,000
708,000
768,000
2,712,000
147,000
$1,335,000
162,000
$1,460,000
177,000
$1,585,000
618,000
$5,590,000
McGraw-Hill/Irwin
9-48
Production budget:
20x4
4th
Quarter
S frames:
Sales (in units) .................
Add: Desired ending
inventory........................
Total units needed ..............
Less: Expected
beginning inventory.........
Units to be produced ..........
L frames:
Sales (in units) .................
Add: Desired ending
inventory........................
Total units needed ..............
Less: Expected
beginning inventory.........
Units to be produced ..........
McGraw-Hill/Irwin
Managerial Accounting, 8/e
1st
Quarter
2nd
Quarter
20x5
3rd
Quarter
4th
Quarter
Entire
Year
50,000
55,000
60,000
65,000
70,000 250,000
11,000
61,000
12,000
67,000
13,000
73,000
14,000
79,000
15,000 15,000
85,000 265,000
10,000
51,000
11,000
56,000
12,000
61,000
13,000
66,000
14,000 11,000
71,000 254,000
40,000
45,000
50,000
55,000
60,000 210,000
9,000
49,000
10,000
55,000
11,000
61,000
12,000
67,000
13,000 13,000
73,000 223,000
8,000
41,000
9,000
46,000
10,000
51,000
11,000
56,000
12,000
9,000
61,000 214,000
Direct-material budget:*
20x4
4th
Quarter
Metal strips:
S frames to be
produced ....................... 51,000
Metal quantity per
2
unit (ft.) ..........................
Needed for S frame
production ..................... 102,000
L frames to be
produced ....................... 41,000
Metal quantity per
unit (ft.) ..........................
3
Needed for L frame
production ..................... 123,000
Total metal needed
for production; to
be purchased (ft.) .......... 225,000
Price per foot ................
$1
Cost of metal strips to
be purchased: ............... $225,000
1st
Quarter
2nd
Quarter
56,000
20x5
3rd
Quarter
61,000
4th
Quarter
66,000
Entire
Year
71,000
254,000
112,000
122,000
132,000
142,000
508,000
46,000
51,000
56,000
61,000
214,000
138,000
153,000
168,000
183,000
642,000
250,000
$1
275,000
$1
300,000
$1
325,000
$1
1,150,000
$1
$250,000
$275,000
$300,000
$325,000
$1,150,000
McGraw-Hill/Irwin
9-50
McGraw-Hill/Irwin
Managerial Accounting, 8/e
1st
Quarter
2nd
Quarter
56,000
61,000
.25
4th
Quarter
66,000
.25
Entire
Year
71,000
.25
254,000
.25
14,000
15,250
16,500
17,750
63,500
46,000
51,000
56,000
61,000
214,000
.25
20x5
3rd
Quarter
.5
.5
.5
.5
.5
23,000
25,500
28,000
30,500
107,000
37,000
40,750
44,500
48,250
170,500
8,150
45,150
8,900
49,650
9,650
54,150
10,400
58,650
10,400
180,900
7,400
8,150
8,900
9,650
7,400
37,750
41,500
45,250
49,000
173,500
$8
$8
$8
$8
$8
$302,000
$332,000
$362,000
$392,000
$1,388,000
$552,000
$607,000
$662,000
$717,000
$2,538,000
Raw-material purchases:
Cash payments for
purchases during
the current quarter .........
Cash payments for
purchases during the
preceding quarter**..........
Total cash payments for
raw-material purchases ...
Direct labor:
Frames produced
(S and L) ...........................
Direct-labor hours per
frame .................................
Direct-labor hours to be
used ..................................
Rate per direct-labor
hour ...................................
Total cash payments for
direct labor .......................
1st
Quarter
2nd
Quarter
205
3rd
Quarter
$441,600
$ 485,600
$ 529,600
$ 573,600
$2,030,400
99,400
110,400
121,400
132,400
463,600
$541,000
$ 596,000
$ 651,000
$ 706,000
$2,494,000
102,000
112,000
122,000
132,000
468,000
.1
10,200
$20
$204,000
.1
11,200
$20
$ 224,000
.1
4th
Quarter
12,200
$20
$ 244,000
Entire
Year
.1
13,200
$20
$ 264,000
.1
46,800
$ 936,000
McGraw-Hill/Irwin
9-52
$20
McGraw-Hill/Irwin
Managerial Accounting, 8/e
2nd
Quarter
11,200
44,800
36,000
3rd
Quarter
$
12,200
48,800
41,000
4th
Quarter
$
13,200
52,800
46,000
Entire
Year
$ 10,200
40,800
31,000
46,800
187,200
154,000
$ 82,000
$ 92,000
$ 102,000
$ 112,000
$ 388,000
$100,000
$927,000
$ 100,000
$1,012,000
$ 100,000
$1,097,000
$ 100,000
$1,182,000
$ 400,000
$4,218,000
1st
Quarter
$1,210,000
2nd
Quarter
$1,335,000
20x5
3nd
Quarter
$1,460,000
4th
Quarter
$1,585,000
Entire
Year
$5,590,000
927,000
1,012,000
1,097,000
1,182,000
4,218,000
$ 283,000
(50,000)
1,000,000
(1,000,000)
$ 323,000
(50,000)
$ 363,000
(50,000)
$ 403,000
(50,000)
$1,372,000
(200,000)
1,000,000
(1,000,000)
(250,000)
(25,000)
(250,000)
(18,750)
(250,000)
(12,500)
(250,000)
(6,250)
(1,000,000)
(62,500)
96,750
107,750
$ 204,500
$ 109,500
95,000
$ 204,500
$ (42,000)
95,000
$ 53,000
4,250
53,000
$ 57,250
50,500
57,250
$ 107,750
McGraw-Hill/Irwin
9-54
Direct material:
Raw-material inventory, 1/1/x5.................................................
Add: Purchases of raw material [req. (4)] ...............................
Raw material available for use .................................................
Deduct: Raw-material inventory, 12/31/x5
([req. (4)] 10,400 $8) ..........................................................
Raw material used
Direct labor [req. (5)].......................................................................
Manufacturing overhead:
Indirect material ........................................................................
Indirect labor .............................................................................
Other overhead .........................................................................
Depreciation ..............................................................................
Total manufacturing overhead .................................................
Cost of goods manufactured .........................................................
Add: Finished-goods inventory, 1/1/x5 .........................................
Cost of goods available for sale ....................................................
Deduct: Finished-goods inventory, 12/31/x5 ................................
Cost of goods sold .........................................................................
$ 59,200
2,538,000
$2,597,200
83,200
$2,514,000
936,000
$ 46,800
187,200
154,000
80,000
__ 468,000 *
$3,918,000
167,000
$4,085,000
235,000 **
$3,850,000
*In the budget, budgeted and applied manufacturing overhead are equal. The applied
manufacturing overhead may be verified independently as follows:
Total number of frames produced ........................................... 468,000
Direct-labor hours per frame ................................................
.1
Total direct-labor hours ............................................................ 46,800
Predetermined overhead rate per hour ................................ $10
Total manufacturing overhead applied ................................... $468,000
See
next page.
**See next page.
See next page.
McGraw-Hill/Irwin
Managerial Accounting, 8/e
S Frames
L Frames
254,000
214,000
$7
$10
$1,778,000
$2,140,000
$3,918,000
S Frames
L Frames
15,000
13,000
$7
$10
$ 105,000
$ 130,000
$235,000
8.
S Frames
L Frames
250,000
210,000
$7
$10
$1,750,000
$2,100,000
$3,850,000
McGraw-Hill/Irwin
9-56
$5,650,000
3,850,000
$1,800,000
$400,000
62,500
462,500
$1,337,500
10.
$3,353,800
1,337,500
200,000
$4,491,300
$ 204,500
192,000
$ 143,400
5,000,000
4,491,300
$9,634,700
83,200
235,000
8,920,000
$9,634,700
McGraw-Hill/Irwin
Managerial Accounting, 8/e
McGraw-Hill/Irwin
9-58