Tutorial work Solutions Managerial Accounting: Tutorial 6 till 10 Capter 10-13 PDF

Preview

Summary

Download Tutorial work Solutions Managerial Accounting: Tutorial 6 till 10 Capter 10-13 PDF

Description

NUS Business School Department of Accounting ACC2002 - Managerial Accounting Semester II, AY2013/14 (January to May 2014) Tutorial 6 (10 to 14 March) Budgeting Chapter 10

1. Budgets are used for planning rather than for control of operations. FALSE

2. A production budget is to a manufacturing firm as a merchandise purchases budget is to a merchandising firm. TRUE

3. In companies that have "no lay-off" policies, the total direct labor cost for a budget period is computed by multiplying the total direct labor hours needed to make the budgeted output of completed units by the direct labor wage rate. FALSE

4. If the expected level of activity is appreciably above or below the company's present capacity, it may be desirable to adjust fixed costs in the budget. TRUE

5. The beginning cash balance is not included on the cash budget because the cash budget deals exclusively with cash flows rather than with balance sheet amounts. FALSE

6.

The concept of responsibility accounting means that:

A. B. C.

Budgetary data should be reviewed and approved by the budget committee. Budgetary data should be reviewed and approved by all levels of management. An employee's performance should be evaluated only on those items under his or her control. An employee's performance should be evaluated only by his or her immediate supervisor.

D.

1

7. Parlee Company's sales are 30% in cash and 70% on credit. 60% of the credit sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder are uncollectible. The following are budgeted sales data:

Total cash receipts in April would be budgeted to b e: A. $38,900 B. $47,900 C. $27,230 D. $36,230

8. Modesto Company produces and sells Product AlphaB. To guard against stockouts, the company requires that 20% of the next month's sales be on hand at the end of each month. Budgeted sales of Product AlphaB over the next four months are:

Budgeted production for August would be: A. 62,000 units B. 70,000 units C. 58,000 units D. 50,000 units Units produced = Ending inventory + Units sold - Beginning inventory = (20% x 50,000) + 60,000 - (20% x 60,000) = 10,000 + 60,000 - 12,000 = 58,000

2

9. Marple Company's budgeted production in units and budgeted raw materials purchases over the next three months are given below:

Two pounds of raw materials are required to produce one unit of product. The company wants raw materials on hand at the end of each month equal to 30% of the following month's production needs. The company is expected to have 36,000 pounds of raw materials on hand on January 1. Budgeted production for February should be: A. B. C. D.

105,000 units 82,500 units 150,000 units 75,000 units

Budgeted raw material purchases for February (in pounds) = [30% x (100,000 x 2 lbs)] + (February production x 2 lbs) - [30% x (February production x 2 lbs) 165,000 = 60,000 + (1.4 x February production) February production = 75,000 units 10. The following are budgeted data:

Each unit requires 0.75 hours of direct labor at a cost of $6.50 per hour. What is the cost of direct labor for May? A. $73,125 B. $82,875 C. $63,375 D. $78,000 Budgeted direct labor cost = Units produced x Direct labor-hours per unit x Budgeted direct labor cost per unit = 16,000 x 0.75 direct labor-hours x $6.50 per direct labor-hour = $78,000

3

11. The Stacy Company makes and sells a single product, Product R. Budgeted sales for April are $300,000. Gross Margin is budgeted at 30% of sales dollars. If the net income for April is budgeted at $40,000, the budgeted selling and administrative expenses are: A. $133,333 B. $50,000 C. $102,000 D. $78,000

* Solve backwards for this figure: $90,000 - $40,000 = $50,000

Braston Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow:  Sales are budgeted at $350,000 for November, $330,000 for December, and $340,000 for January.  Collections are expected to be 70% in the month of sale, 26% in the month following the sale, and 4% uncollectible.  The cost of goods sold is 70% of sales.  The company purchases 50% of its merchandise in the month prior to the month of sale and 50% in the month of sale. Payment for merchandise is made in the month following the purchase.  Other monthly expenses to be paid in cash are $20,100.  Monthly depreciation is $22,000.  Ignore taxes.

4

12. Expected cash collections in December are: A. B. C. D.

$91,000 $330,000 $322,000 $231,000

13. The cost of December merchandise purchases would be: A. B. C. D.

$231,000 $119,000 $245,000 $234,500

14. December cash disbursements for merchandise purchases would be: A. B. C. D.

$119,000 $234,500 $231,000 $238,000

15. The excess (deficiency) of cash available over disbursements for December would be: A. B. C. D.

$20,200 $107,600 $43,700 $63,900

5

The Charade Company is preparing its Manufacturing Overhead budget for the fourth quarter of the year. The budgeted variable factory overhead is $5.00 per direct labor-hour; the budgeted fixed factory overhead is $75,000 per month, of which $15,000 is factory depreciation. 16. If the budgeted direct labor time for November is 7,000 hours, then the total budgeted factory overhead for November is: A. $95,000 B. $110,000 C. $75,000 D. $125,000

17. If the budgeted cash disbursements for factory overhead for December total $105,000, then the budgeted direct labor-hours for December must be: A. 6,000 hours B. 21,000 hours C. 9,000 hours D. 3,000 hours

6

18. If the budgeted direct labor time for December is 8,000 hours, then total budgeted factory overhead per direct labor-hour is (rounded): A. B. C. D.

$14.38 $9.38 $12.50 $16.25

Porus Corporation makes and sells a single product called a Yute. The company is in the process of preparing its Selling and Administrative Expense Budget for the last quarter of the year. The following budget data are available:

All of these expenses (except depreciation) are paid in cash in the month they are incurred. 19. If the company has budgeted to sell 19,000 Yutes in November, then the total budgeted selling and administrative expenses for November would be: A. B. C. D.

$529,100 $189,000 $340,100 $528,100

7

20. If the company has budgeted to sell 20,000 Yutes in December, then the budgeted total cash disbursements for selling and administrative expenses for December would be: A. $546,000 B. $547,000 C. $189,000 D. $358,000

21. If the total budget for selling and administrative expense for October is $493,300, then how many Yutes does the company plan to sell in October? A. 17,500 units B. 17,000 units C. 17,200 units D. 16,700 units

8

Carner Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:  Sales are budgeted at $370,000 for November, $360,000 for December, and $340,000 for January.  Collections are expected to be 85% in the month of sale, 13% in the month following the sale, and 2% uncollectible.  The cost of goods sold is 70% of sales.  The company purchases 30% of its merchandise in the month prior to the month of sale and 70% in the month of sale. Payment for merchandise is made in the month following the purchase.  Other monthly expenses to be paid in cash are $24,600.  Monthly depreciation is $17,000.  Ignore taxes.

22. The net income for December would be: A. B. C. D.

$59,200 $83,400 $66,400 $72,600

9

23. The cash balance at the end of December would be: A. B. C. D.

$91,600 $205,500 $186,500 $19,000

24. The accounts receivable balance, net of uncollectible accounts, at the end of December would be: A. B. C. D.

$94,900 $46,800 $90,200 $54,000

Sales in December not yet collected ($360,000 x 13%) = $46,800 25. Accounts payable at the end of December would be: A. B. C. D.

$176,400 $252,000 $247,800 $71,400

Merchandise purchases in December not yet paid [($340,000 x 30%) + ($360,000 x 70%)] x 70% = $247,800 10

26. Retained earnings at the end of December would be: A. B. C. D.

$224,500 $147,900 $88,700 $209,900

11

27. Weltin Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:       

Sales are budgeted at $390,000 for November, $370,000 for December, and $380,000 for January. Collections are expected to be 90% in the month of sale, 5% in the month following the sale, and 5% uncollectible. The cost of goods sold is 60% of sales The company purchases 70% of its merchandise in the month prior to the month of sale and 30% in the month of sale. Payment for merchandise is made in the month following the purchases Other monthly expenses to be paid in cash are $21,800. Monthly depreciation is $18,000. Ignore taxes.

Required: a.

Prepare a Schedule of Expected Cash Collections for November and December.

b.

Prepare a Merchandise Purchases Budget for November and December.

c.

Prepare Cash Budgets for November and December.

d.

Prepare Budgeted Income Statements for November and December.

e.

Prepare a Budgeted Balance Sheet for the end of December.

12

Alternative solution for Cash budget (including opening balances):

13

28. A sales budget is given below for one of the products manufactured by the Key Co.:

The inventory of finished goods at the end of each month must equal 20% of the next month's sales. On December 31, the finished goods inventory totaled 4,000 units. Each unit of product requires three specialized electrical switches. Since the production of these specialized switches by Key's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year. Required: Prepare a budget showing the quantity of switches to be purchased each month for January, February, and March and in total for the quarter.

The company's production budget is as follows: 14

\ The materials purchases budget (based on the above production budget) would be as follows:

*69,000 x 0.30 =20,700 **38,000 x 3 = 114,000; 114,000 x 0.30 = 34,200

15

29. Bottom up budgeting is a better budgeting system, do you agree? Ans: The bottom up approach tends to have a positive impact on employee morale because employee views and judgments are valued by the top management. Employees are likely to be more committed to reaching the targets as these targets are set by themselves. With a selfimposed budget, it is not possible to argue that the budget is unattainable since it is a self formed target. A key disadvantage of this approach is that employees tend to set easily attainable targets in order to make life easier for themselves. Hence, too much budgetary slack or budget padding can occur with bottom-up budgeting. In general, managers incorporate budgetary slack by understating budgeted sales and overstating budgeted expenses. As a result, the overall targeted net income is understated and can be met more easily. Budgetary slack or budget padding can be very damaging to the organization’s performance. With a slack budget, company’s performance may not be optimized as employees tend to underperform with easy targets. Top management must therefore carefully review the budgeted data prepared for them. Item by item comparisons with industrial figures or past year data may help to reveal budgetary slack. Another way to minimize budgetary slack is to have the budgets set at the top. This is known as top-down budgeting, with this system, the budget is set by the top management and impose on the lower layers of the organization. Top down budgets clearly express the performance goals and expectations of top management, but can be unrealistic because input from the lower level staff is not obtained. A key advantage of these top-down budgets is that it requires less time to prepare as fewer discussions or negotiations are required. However, lower level employees are unlikely to be committed to reach these targets as they can argue that their input has not been taken into account. Which system is a better system may depend on where the knowledge lies. For example, if the ground level sales people know better about the market demand, they should then be asked to come up with the budgeted sales figures. On the other hand, if the top management has access to the market data and therefore they may be in a better position to do the projection. In practice, a mixture of both approaches may be used. For example, the initial targets may be set by the top management, views of managers are then obtained and any necessary adjustments to the targets are then made by the top management. Also, the definition of bottom-up or top-down is not so clear cut. A company may appear to have a system of bottom-up approach of budgeting but the final figures are basically from the top management even after many rounds of negotiations and hence realistically, this is more of a top-down approach of budgeting.

30. Budgets have various problems including, for example, budget padding, time consuming and costly to do, most companies still prepare budgets, what could be the reasons? Ans: Budgets are very important to help us to plan and coordinate various activities within an organization. Without the need to prepare for a budget, managers may be less likely to think ahead for the future. In large corporations, budgets are particularly useful for top management to express the company’s strategies and missions into quantifiable targets and measures. Despite the various criticisms and short comings of budgets, budgets are still

16

being done year after year by many companies. This may suggest that benefits of budgets still out weight costs of budgets. To minimize the problem of budgetary slack or budget padding, top managers should not overly rely on meeting budgets as performance measures. Rather, budgets should be used as a plan and a coordinating tool for running the company. Human behaviors towards budgeting will affect the usefulness or otherwise of the budgets. Therefore, effective communication and mutual trust between the top management and its employees may be critical in determining the success of budgets. Top management should exercise flexibility in making and using the budgets.

17

NUS Business School Department of Accounting ACC2002 - Managerial Accounting Semester II, AY2013/14 (January to May 2014) Tutorial 7 (17 to 21 March) Flexible Budgeting Chapter 11 1. A flexible budget is an estimate of what revenues and costs should have been, given the level of activity that had been planned for the period. FALSE 2. An unfavorable activity variance for a cost indicates that spending was higher than it should have been for the actual level of activity for the period. FALSE 3. The revenue and spending variances are the differences between the static planning budget and the flexible budget. FALSE 4. A static planning budget is suitable for planning and for evaluating how well costs are controlled. FALSE 5. Dunklin Medical Clinic measures its activity in terms of patient-visits. Last month, the budgeted level of activity was 1,620 patient-visits and the actual level of activity was 1,540 patient-visits. The cost formula for administrative expenses is $3.20 per patient-visit plus $14,300 per month. The actual administrative expense was $21,050. In the clinic's flexible budget performance report for last month, the spending variance for administrative expenses was: A. B. C. D.

$118 F $256 F $1,566 U $1,822 U

Feedback: Since the actual expense is more than the flexible budget, the variance is unfavorable (U)

1

6. Gladstone Footwear Corporation's flexible budget cost formula for supplies, a variable cost, is $2.83 per unit of output. The company's flexible budget performance report for last month showed a $9,555 unfavorable spending variance for supplies. During that month, 19,500 units were produced. Budgeted activity for the month had been 19,300 units. The actual cost per unit for indirect materials must have been closest to: A. $3.32 B. $3.81 C. $2.83 D. $3.85 Feedback: Actual supplies - Flexible budget = Spending variable (U) Actual supplies - (19,500 x $2.83) = $9,555 Actual supplies = $64,740 Actual cost per unit = $64,740 19,500 = $3.32 Werber Clinic uses client-visits as its measure of activity. During January, the clinic budgeted for 2,700 client-visits, but its actual level of activity was 2,730 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for January:

7.

The activity variance for personnel expenses in January would be closest to:

A. B. C. D.

$661 U $261 U $261 F $661 F

Feedback: Since the flexible budget is greater than the planning budget, the variance is unfavorable (U) 2

8.

The activity variance for administrative expenses in January would be closest to:

A. B. C. D.

$12 F $8 F $12 U $8 U

Feedback: Since the flexible budget is greater than the planning budget, the variance is unfavorable (U)

9.

The activity variance for net operating income in January would be closest to:

A. B. C. D.

$2,019 U $2,019 F $489 F $489 U

Since the flexible budget net operating income is greater than the planning budget, the variance is favorable (F)

3

Burget Clinic uses client-visits as its measure of activity. During July, the clinic budgeted for 2,100 client-visits, but its actual level of activity was 2,110 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for July:

10. The revenue variance for July would be closest to: A. B. C. D.

$2,581 F $2,110 U $2,110 F $2,581 U

Feedback: Since the actual revenue is greater than the flexible budget, the variance is favorable (F)

11. The spending variance for medical supplies in July would be closest to: A. B. C. D.

$580 U $645 U $645 F $580 F

Feedback: Since the actual expense is greater than the flexible budget, the variance is unfavorable (U)

4

12. The spending variance for occupancy expenses in July would be closest to: A. B. C. D.

$265 F $280 U $280 F $265 U

Feedback: Since the actual expense is less than the flexible budget, the variance is favorable (F)

5

13. The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variance column on the flexible budget performance report) for July would be closest to: A. B. C. D.

$4,508 F $4,290 U $4,290 F $4,508 U

Feedback: Since the actual net operating income is greater than the flexible budget, the variance is favorable (F)

6

Cotty Clinic uses client-visits as its measure of activity. During March, the clinic budgeted for 3,000 client-visits, but its actual level of activity was 2,970 client-visits. The clinic has provided the following data concerning the...