Strategic COST Answer KEYS PDF

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Strategic Cost ManagementExercises and Problems Answer KeyChapter 2Exercise 1 (Problem Solving, Scorekeeping, and Attention Directing)Because the accountant’s duties are often not sharply defined, some of these answers might be challenged: 1. Scorekeeping 2. Attention directing 3. Scorekeeping 4. Pr...

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Strategic Cost Management Exercises and Problems Answer Key Chapter 2 Exercise 1 (Problem Solving, Scorekeeping, and Attention Directing) Because the accountant’s duties are often not sharply defined, some of these answers might be challenged: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Scorekeeping Attention directing Scorekeeping Problem solving Attention directing Attention directing Problem solving Scorekeeping (depending on the extent of the report) or attention getting This question is intentionally vague. The give-and-take of the budgetary process usually encompasses all three functions, but it emphasizes scorekeeping the least. The main function is attention directing, but problem solving is also involved. 10. Problem solving Exercise 2 (Management Accounting Information System) 1. 2. 3. 4.

Inputs: b, g, i, m Processes: a, d, f, j Outputs: e, k, n System objectives: c, h, l

Exercise 7 (The Roles of Managers and Management Accountants) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Managerial accounting, Financial accounting Planning Directing and motivating Feedback Decentralization Line Staff Controller Budgets Performance report Chief Financial Officer Precision; Nonmonetary data

Exercise 11 (Ethics in Business) Requirement 1 No, Santos did not act in an ethical manner. In complying with the president’s instructions to omit liabilities from the company’s financial statements he was in direct violation of the IMA’s Standards of Ethical Conduct for Management Accountants. He violated both the “Integrity” and “Objectivity”

guidelines on this code of ethical conduct. The fact that the president ordered the omission of the liabilities is immaterial. Requirement 2 No, Santos’ actions can’t be justified. In dealing with similar situations, the Securities and Exchange Commission (SEC) has consistently ruled that “…corporate officers…cannot escape culpability by asserting that they acted as ‘good soldiers’ and cannot rely upon the fact that the violative conduct may have been condoned or ordered by their corporate superiors.” (Quoted from: Gerald H. Lander, Michael T. Cronin, and Alan Reinstein, “In Defense of the Management Accountant,” Management Accounting, May, 1990, p. 55) Thus, Santos not only acted unethically, but he could be held legally liable if insolvency occurs and litigation is brought against the company by creditors or others. It is important that students understand this point early in the course, since it is widely assumed that “good soldiers” are justified by the fact that they are just following orders. In the case at hand, Santos should have resigned rather than become a party to the fraudulent misrepresentation of the company’s financial statements.

Chapter 5 Answer to Matching Type

1. 2. 3. 4. 5.

C H E F I

6. 7. 8. 9. 10.

A B J D G

Exercises 1 (Schedule of Expected Cash Collections)

Requirement 1

July May sales: P430,000 × 10% June sales: P540,000 × 70%, 10% July sales: P600,000 × 20%, 70%, 10% August sales: P900,000 × 20%, 70% September sales: P500,000 × 20% Total cash collections

August

September

P 43,000

Total P

43,000

378,000

P54,000

120,000

420,000

P 60,000

600,000

180,000

630,000

810,000

P541,000

P654,000

432,000

100,000 P790,000

100,000 P1,985,000

Notice that even though sales peak in August, cash collections peak in September. This occurs because the bulk of the company’s customers pay in the month following sale. The lag in collections

that this creates is even more pronounced in some companies. Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest.

Requirement 2 Accounts receivable at September 30: From August sales: P900,000 × 10% From September sales: P500,000 × (70% + 10%) Total accounts receivable

P 90,000 400,000 P490,000

Exercise 2 (Production Budget)

Budgeted sales in units Add desired ending inventory* Total needs Less beginning inventory Required production

July 30,000 4,500 34,500 3,000 31,500

August 45,000 6,000 51,000 4,500 46,500

September 60,000 5,000 65,000 6,000 59,000

Quarter 135,000 5,000 140,000 3,000 137,000

* 10% of the following month’s sales

Exercise 3 (Materials Purchase Budget)

Required production of calculators Number of chips per calculator Total production needs—chips

Production needs—chips Add desired ending inventory—chips Total needs—chips Less beginning inventory—chips Required purchases—chips Cost of purchases at P2 per chip

Exercise 4 (Direct Labor Budget)

Requirement 1

First 60,000 ×3 180,000

First 180,000 54,000 234,000 36,000 198,000 P396,000

Quarter – Year 2 Second Third 90,000 150,000 ×3 ×3 270,000 450,000

Second 270,000 90,000 360,000 54,000 306,000 P612,000

Year 2 Third 450,000 60,000 510,000 90,000 420,000 P840,000

Fourth 100,000 ×3 300,000

Fourth 300,000 48,000 348,000 60,000 288,000 P576,000

Year 3 First 80,000 ×3 240,000

Year 1,200,000 48,000 1,248,000 36,000 1,212,000 P2,424,000

Assuming that the direct labor workforce is adjusted each quarter, the direct labor budget would be: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 5,000 4,400 4,500 4,900 × 0.40 × 0.40 × 0.40 × 0.40 2,000 1,760 1,800 1,960 × P11.00 × P11.00 × P11.00 × P11.00 P 22,000 P 19,360 P 19,800 P 21,560

Units to be produced Direct labor time per unit (hours) Total direct labor hours needed Direct labor cost per hour Total direct labor cost

Year 18,800 × 0.40 7,520 × P11.00 P 82,720

Requirement 2 Assuming that the direct labor workforce is not adjusted each quarter and that overtime wages are paid, the direct labor budget would be:

Units to be produced Direct labor time per unit (hours) Total direct labor hours needed Regular hours paid Overtime hours paid Wages for regular hours (@ P11.00 per hour) Overtime wages (@ P11.00 per hour × 1.5) Total direct labor cost

1st Quarter 5,000 × 0.40 2,000 1,800 200

2nd Quarter 3rd Quarter 4th Quarter 4,400 4,500 4,900 × 0.40 × 0.40 × 0.40 1,760 1,800 1,960 1,800 1,800 1,800 160

Year 18,800 × 0.40 7,520 7,200 360

P19,800

P19,800

P19,800

P19,800

P79,200

3,300 P23,100

P19,800

P19,800

2,640 P22,440

5,940 P85,140

Exercise 5 (Manufacturing Overhead Budget)

Requirement 1

Kiko Corporation Manufacturing Overhead Budget

Budgeted direct labor-hours Variable overhead rate Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Less depreciation Cash disbursements for manufacturing overhead

Requirement 2

1st Quarter 5,000 x P1.75 P 8,750 35,000 43,750 15,000

2nd Quarter 4,800 x P1.75 P 8,400 35,000 43,400 15,000

3rd Quarter 5,200 x P1.75 P 9,100 35,000 44,100 15,000

4th Quarter 5,400 x P1.75 P 9,450 35,000 44,450 15,000

Year 20,400 x P1.75 P 35,700 140,000 175,700 60,000

P28,750

P28,400

P29,100

P29,450

P115,700

Total budgeted manufacturing overhead for the year (a) Total budgeted direct labor-hours for the year (b) Predetermined overhead rate for the year (a) ÷ (b)

P175,700 20,400 P 8.61

Exercise 6 (Selling and Administrative Budget)

Helene Company Selling and Administrative Expense Budget 1st Quarter 2nd Quarter 3rd Quarter Budgeted unit sales 12,000 14,000 11,000 Variable selling and administrative expense per unit x P2.75 x P2.75 x P2.75 Variable expense P33,000 P 38,500 P 30,250 Fixed selling and administrative expenses: Advertising 12,000 12,000 12,000 Executive salaries 40,000 40,000 40,000 Insurance 6,000 Property taxes 6,000 Depreciation 16,000 16,000 16,000 Total fixed selling and administrative expenses 68,000 74,000 74,000 Total selling and administrative expenses 101,000 112,500 104,250 Less depreciation 16,000 16,000 16,000 Cash disbursements for selling and administrative expenses P 85,000 P 96,500 P 88,250

Exercise 7 (Cash Budget Analysis)

4th Quarter 10,000

Year 47,000

x P2.75 P 27,500

x P2.75 P129,250

12,000 40,000 6,000 16,000 74,000 101,500 16,000

48,000 160,000 12,000 6,000 64,000 290,000 419,250 64,000

P 85,500

P355,250

Cash balance, beginning Add collections from customers Total cash available Less disbursements: Purchase of inventory Operating expenses Equipment purchases Dividends Total disbursements Excess (deficiency) of cash available over disbursements

Financing: Borrowings Repayments (including interest) Total financing Cash balance, ending

1 P9 * 76 85 *

Quarter (000 omitted) 2 3 4 P 5 P 5 P 5 90 125 * 100 95 130 105

40 * 36 10 * 2 * 88

58 42 8 2 110

(3)*

8 0 8 P5

* 36 * 54 * * 8 * * 2 * * 100

(15)

30 *

20 * — 0 (25) 20 (25) P 5 P 5

32 * 48 10 2 * 92

Year P 9 391 * 400 166 180 * 36 * 8 390

13

10

— (7)* (7) P 6

28 (32) (4) P 6

*Given.

Answer to Problems

Problem 1 (Schedule of Expected Cash Collections and Disbursements)

Requirement 1

September cash sales September collections on account: July sales: P20,000 × 18% August sales: P30,000 × 70%

P 7,400 3,600 21,000

September sales: P40,000 × 10% Total cash collections

4,000 P36,000

Requirement 2

Payments to suppliers: August purchases (accounts payable) September purchases: P25,000 × 20% Total cash payments

P16,000 5,000 P21,000

Requirement 3

COOKIE PRODUCTS Cash Budget For the Month of September Cash balance, September 1 Add cash receipts: Collections from customers Total cash available before current financing Less disbursements: Payments to suppliers for inventory Selling and administrative expenses Equipment purchases Dividends paid Total disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Total financing Cash balance, September 30   * P13,000 – P4,000 = P9,000.

Problem 2 (Production and Purchases Budget)

P 9,000 36,000 45,000 P21,000 9,000 * 18,000 3,000 51,000 (6,000) 11,000 0 0 11,000 P 5,000

Requirement 1

Production budget: Budgeted sales (units) Add desired ending inventory Total needs Less beginning inventory Required production

July 40,000 20,000 60,000 17,000 43,000

August 50,000 26,000 76,000 20,000 56,000

September 70,000 15,500 85,500 26,000 59,500

October 35,000 11,000 46,000 15,500 30,500

Requirement 2 During July and August the company is building inventories in anticipation of peak sales in September. Therefore, production exceeds sales during these months. In September and October inventories are being reduced in anticipation of a decrease in sales during the last months of the year. Therefore, production is less than sales during these months to cut back on inventory levels. Requirement 3 Raw materials purchases budget: Required production (units) Material P214 needed per unit Production needs (lbs.) Add desired ending inventory (lbs.) Total Material P214 needs Less beginning inventory (lbs.) Material P214 purchases (lbs.)

July 43,000 × 3 lbs. 129,000 84,000 213,000 64,500 148,500

August 56,000 × 3 lbs. 168,000 89,250 257,250 84,000 173,250

September 59,500 × 3 lbs. 178,500 45,750 * 224,250 89,250 135,000

Third Quarter 158,500 × 3 lbs. 475,500 45,750 521,250 64,500 456,750

* 30,500 units (October production) × 3 lbs. per unit= 91,500 lbs.; 91,500 lbs. × 0.5 = 45,750 lbs.

As shown in requirement (1), production is greatest in September. However, as shown in the raw material purchases budget, the purchases of materials is greatest a month earlier because materials must be on hand to support the heavy production scheduled for September.

Problem 3 (Cash Budget; Income Statement; Statement of Financial Position)

Requirement 1

Schedule of cash receipts:

Cash sales—June Collections on accounts receivable: May 31 balance June (50% × 190,000) Total cash receipts Schedule of cash payments for purchases:

P 60,000 72,000 95,000 P227,000

May 31 accounts payable balance June purchases (40% × 200,000) Total cash payments

P 90,000 80,000 P170,000

PICTURE THIS, INC. Cash Budget For the Month of June Cash balance, beginning Add receipts from customers (above) Total cash available Less disbursements: Purchase of inventory (above) Operating expenses Purchases of equipment Total cash disbursements Excess of receipts over disbursements Financing: Borrowings—note Repayments—note Interest Total financing Cash balance, ending

P 8,000 227,000 235,000 170,000 51,000 9,000 230,000 5,000 18,000 (15,000) (500) 2,500 P 7,500

Requirement 2

PICTURE THIS, INC. Budgeted Income Statement For the Month of June Sales Cost of goods sold: Beginning inventory Add purchases Goods available for sale Ending inventory Cost of goods sold Gross margin Operating expenses (P51,000 + P2,000) Net operating income

P250,000 P 30,000 200,000 230,000 40,000 190,000 60,000 53,000 7,000

Interest expense Net income

500 P 6,500

Requirement 3 PICTURE THIS, INC. Budgeted Statement of Financial Position June 30 Assets Cash Accounts receivable (50% × 190,000) Inventory Buildings and equipment, net of depreciation (P500,000 + P9,000 – P2,000) Total assets

507,000 P649,500

Liabilities and Equity Accounts payable (60% × 200,000) Note payable Share capital Retained earnings (P85,000 + P6,500) Total liabilities and equity

P120,000 18,000 420,000 91,500 P649,500

P 7,500 95,000 40,000

Problem 4 (Sales, Production and Materials Purchases Budget)

Requirement 1 Nikko Manufacturing Company Sales Budget For the year ending December 31, 2018

First quarter

Units

Amount

16,000

P 480,000

Second quarter

20,000

600,000

Third quarter

22,000

660,000

Fourth quarter

22,000

660,000

Total

80,000

P2,400,000

Requirement 2 Nikko Manufacturing Company Statement of Production Required For 2018

Quarter

Units to be sold Add: Desired ending inventory (20%) Total units required Less: Beginning inventory Units to be produced

1st

2nd

3rd

4th

Total

16,000

20,000

22,000

22,000

80,000

4,000

4,400

4,400

5,000

5,000

20,000

24,400

26,400

27,000

85,000

3,000

4,000

4,400

4,400

3,000

17,000

20,400

22,000

22,600

82,000

Requirement 3 Nikko Manufacturing Company Statement of Raw Materials Purchase Requirements For 2018

Quarter 1st

2nd

3rd

Units required for production

51,000

61,200

66,000

67,800 246,000

Add: Desired ending inventory

12,240

13,200

13,560

15,000

63,240

74,400

79,560

82,800 261,000

Less: Beginning inventory

12,500

12,240

13,200

13,560

Raw Materials to be Purchased

50,740

62,160

66,360

69,240 248,500

Total units

4th

Total

15,000

12,500

Problem 5 (Schedule of Expected Cash Collections; Cash Budget)

Requirement 1 Schedule of expected cash collections:

From accounts receivable From April sales: 20% × 200,000 75% × 200,000 4% × 200,000 From May sales: 20% × 300,000 75% × 300,000 From June sales: 20% × 250,000 Total cash collections

April P141,000

Month May P 7,200

June

40,000

Quarter P148,200

P 8,000

40,000 150,000 8,000

225,000

60,000 225,000 50,000 P681,200

150,000

60,000

P181,000

P217,200

50,000 P283,000

April P 26,000

Month May P 27,000

June P 20,200

Quarter P 26,000

181,000 207,000

217,200 244,200

283,000 303,200

681,200 707,200

108,000 9,000 15,000 70,000

120,000 9,000 15,000 80,000

180,000 8,000 15,000 60,000

408,000 26,000 45,000 210,000

Requirement 2 Cash budget:

Cash balance, beginning Add receipts: Collections from customers Total available Less disbursements: Merchandise purchases Payroll Lease payments Advertising

Equipment purchases Total disbursements Excess (deficiency) of receipts over disbursements Financing: Borrowings Repayments Interest Total financing Cash balance, ending

8,000 210,000

— 224,000

— 263,000

8,000 697,000

(3,000)

20,200

40,200

10,200

30,000 — — 30,000 P 27,000

— — — — P 20,200

— (30,000) (1,200) (31,200) P 9,000

30,000 (30,000) (1,200) (1,200) P 9,000

Requirement 3 If the company needs a minimum cash balance of P20,000 to start each month, the loan cannot be repaid in full by June 30. If the loan is repaid in full, the cash balance will drop to only P9,000 on June 30, as shown above. Some portion of the loan balance will have to be carried over to July, at which time the cash inflow should be sufficient to complete repayment.

Problem 6 (Flexible Budget)

Summer Machine Company Flexible Overhead Budget Department 1

Capacity 100% Machine Hours Variable Overhead Fixed Overhead Total

90%

80%

70%

60%

200,000

180,000

160,000

140,000

120,000

P1,300,000

P1,170,000

P1,040,000

P 910,000

P 780,000

300,000

300,000

300,000

300,000

300,000

P1,600,000

P1,470,000

P1,340,000

P1,210,000

P1,080,000

Manufacturing Overhead rate per machine hour P8.00

Summer Machine Company Flexible Overhead Budget Department 2

Capacity

100%

90%

80%