costacctg13_sm_ch06 - CHAPTER 6 MASTER BUDGET AND...

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Unformatted text preview: CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING 6-1 a. b. c. d. The budgeting cycle includes the following elements: Planning the performance of the company as a whole as well as planning the performance of its subunits. Management agrees on what is expected. Providing a frame of reference, a set of specific expectations against which actual results can be compared. Investigating variations from plans. If necessary, corrective action follows investigation. Planning again, in light of feedback and changed conditions. 6-2 The master budget expresses management’s operating and financial plans for a specified period (usually a fiscal year) and includes a set of budgeted financial statements. It is the initial plan of what the company intends to accomplish in the period. 6-3 Strategy, plans, and budgets are interrelated and affect one another. Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives. Strategic analysis underlies both long-run and short-run planning. In turn, these plans lead to the formulation of budgets. Budgets provide feedback to managers about the likely effects of their strategic plans. Managers use this feedback to revise their strategic plans. 6-4 We agree that budgeted performance is a better criterion than past performance for judging managers, because inefficiencies included in past results can be detected and eliminated in budgeting. Also, future conditions may be expected to differ from the past, and these can also be factored into budgets. 6-5 Production and marketing traditionally have operated as relatively independent business functions. Budgets can assist in reducing conflicts between these two functions in two ways. Consider a beverage company such as Coca-Cola or Pepsi-Cola: Communication. Marketing could share information about seasonal demand with production. Coordination. Production could ensure that output is sufficient to meet, for example, high seasonal demand in the summer. 6-6 In many organizations, budgets impel managers to plan. Without budgets, managers drift from crisis to crisis. Research also shows that budgets can motivate managers to meet targets and improve their performance. Thus, many top managers believe that budgets meet the cost-benefit test. 6-7 A rolling budget, also called a continuous budget, is a budget or plan that is always available for a specified future period, by continually adding a period (month, quarter, or year) to the period that just ended. A four-quarter rolling budget for 2009 is superseded by a four-quarter rolling budget for April 2009 to March 2010, and so on. 6-1 6-8 The steps in preparing an operating budget are as follows: 1. Prepare the revenues budget 2. Prepare the production budget (in units) 3. Prepare the direct material usage budget and direct material purchases budget 4. Prepare the direct manufacturing labor budget 5. Prepare the manufacturing overhead budget 6. Prepare the ending inventories budget 7. Prepare the cost of goods sold budget 8. Prepare the nonmanufacturing costs budget 9. Prepare the budgeted income statement 6-9 The sales forecast is typically the cornerstone for budgeting, because production (and, hence, costs) and inventory levels generally depend on the forecasted level of sales. 6-10 Sensitivity analysis adds an extra dimension to budgeting. It enables managers to examine how budgeted amounts change with changes in the underlying assumptions. This assists managers in monitoring those assumptions that are most critical to a company in attaining its budget and allows them to make timely adjustments to plans when appropriate. 6-11 Kaizen budgeting explicitly incorporates continuous improvement anticipated during the budget period into the budget numbers. 6-12 Nonoutput-based cost drivers can be incorporated into budgeting by the use of activitybased budgeting (ABB). ABB focuses on the budgeted cost of activities necessary to produce and sell products and services. Nonoutput-based cost drivers, such as the number of part numbers, number of batches, and number of new products can be used with ABB. 6-13 The choice of the type of responsibility center determines what the manager is accountable for and thereby affects the manager’s behavior. For example, if a revenue center is chosen, the manager will focus on revenues, not on costs or investments. The choice of a responsibility center type guides the variables to be included in the budgeting exercise. 6-14 Budgeting in multinational companies may involve budgeting in several different foreign currencies. Further, management accountants must translate operating performance into a single currency for reporting to shareholders, by budgeting for exchange rates. Managers and accountants must understand the factors that impact exchange rates, and where possible, plan financial strategies to limit the downside of unexpected unfavorable moves in currency valuations. In developing budgets for operations in different countries, they must also have good understanding of political, legal and economic issues in those countries. 6-15 No. Cash budgets and operating income budgets must be prepared simultaneously. In preparing their operating income budgets, companies want to avoid unnecessary idle cash and unexpected cash deficiencies. The cash budget, unlike the operating income budget, highlights periods of idle cash and periods of cash shortage, and it allows the accountant to plan cost effective ways of either using excess cash or raising cash from outside to achieve the company’s operating income goals. 6-2 6-16 1. (15 min.) Sales budget, service setting. McGrath & Sons Radon Tests Lead Tests 2009 Volume 11,000 15,200 At 2009 Selling Prices $250 $200 Expected 2010 Change in Volume +5% -10% Expected 2010 Volume 11,550 13,680 McGrath & Sons Sales Budget For the Year Ended December 31, 2010 Selling Price $250 $200 Units Sold 11,550 13,680 Total Revenues $2,887,500 2,736,000 $5,623,500 Expected 2010 Expected Change in 2010 Volume Volume +5% 11,550 -5% 14,440 Radon Tests Lead Tests 2. McGrath & Sons Radon Tests Lead Tests 2009 Volume 11,000 15,200 Planned 2010 Selling Prices $250 $190 McGrath & Sons Sales Budget For the Year Ended December 31, 2010 Selling Price $250 $190 Total Revenues $2,887,500 2,743,600 $5,631,100 Radon Tests Lead Tests Units Sold 11,550 14,440 Expected revenues at the new 2010 prices are $5,631,100, which are greater than the expected 2010 revenues of $5,623,500 if the prices are unchanged. So, if the goal is to maximize sales revenue and if Jim McGrath’s forecasts are reliable, the company should lower its price for a lead test in 2010. 6-3 6-17 (5 min.) Sales and production budget. 200,000 25,000 225,000 15,000 210,000 Budgeted sales in units Add target ending finished goods inventory Total requirements Deduct beginning finished goods inventory Units to be produced 6-18 (5 min.) Direct materials purchases budget. Direct materials to be used in production (bottles) Add target ending direct materials inventory (bottles) Total requirements (bottles) Deduct beginning direct materials inventory (bottles) Direct materials to be purchased (bottles) 6-19 (10 min.) Budgeting material purchases. Production Budget: 2,500,000 80,000 2,580,000 50,000 2,530,000 Budgeted sales Add target ending finished goods inventory Total requirements Deduct beginning finished goods inventory Units to be produced Direct Materials Purchases Budget: Finished Goods (units) 45,000 18,000 63,000 16,000 47,000 Direct materials needed for production (47,000 3) Add target ending direct materials inventory Total requirements Deduct beginning direct materials inventory Direct materials to be purchased Direct Materials (in gallons) 141,000 50,000 191,000 60,000 131,000 6-4 6-20 1. (30 min.) Revenues and production budget. 12-ounce bottles 4-gallon units a b Selling Price $0.25 1.50 Units Sold 4,800,000a 1,200,000b Total Revenues $1,200,000 1,800,000 $3,000,000 400,000 × 12 months = 4,800,000 100,000 × 12 months = 1,200,000 2. Budgeted unit sales (12-ounce bottles) Add target ending finished goods inventory Total requirements Deduct beginning finished goods inventory Units to be produced 4,800,000 600,000 5,400,000 900,000 4,500,000 3. Beginning = Budgeted + Target Budgeted inventory sales ending inventory production = 1,200,000 + 200,000 1,300,000 = 100,000 4-gallon units 6-21 (30 min.) Budgeting: direct material usage, manufacturing cost and gross margin. 1. Direct Material Usage Budget in Quantity and Dollars Material Wool Physical Units Budget Direct materials required for Blue Rugs (100,000 rugs × 30 skeins and 0.5 gal.) 3,000,0000 skeins Cost Budget Available from beginning direct materials inventory (under a FIFO cost-flow assumption) Wool: 349,000 skeins $ 715,450 Dye: 5,000 gallons To be purchased this period Wool: (3,000,000 - 349,000) skeins × $2 per skein 5,302,000 _ Dye: (50,000 – 5,000) gal. × $5 per gal. ________ Direct materials to be used this period: (a) + (b) $6,017,450 Dye Total 50,000 gal. $ 24,850 225,000 $ 249,850 $6,267,300 6-5 2. $18,852,000 Weaving budgeted = = $3.3664 per DMLH overhead rate 5,600,000 DMLH Dyeing budgeted = $12,809,000 = $28.4644 per MH overhead rate 450,000 MH 3. Budgeted Unit Cost of Blue Rug Input per Unit of Output 30 skeins 0.5 gal. 56 hrs. 1 mach-hrs. 4.5 56 DMLH Wool Dye Direct manufacturing labor Dyeing overhead Weaving overhead Total 10.15 Cost per Unit of Input $2 5 15 28.4644 3.3664 Total 60.00 2.50 840.00 128.09 188.52 $1219.11 $ machine hour per skein 30 skeins per rug = 4.5 machine-hrs. per rug. 4. Revenue Budget Selling Units Price Total Revenues 100,000 $2,000 $200,000,000 95,000 $2,000 $190,000,000 Blue Rugs Blue Rugs 5a. Sales = 100,000 rugs Cost of Goods Sold Budget From Schedule Beginning finished goods inventory Direct materials used Direct manufacturing labor ($840 × 100,000) Dyeing overhead ($128.09 × 100,000) Weaving overhead ($188.52 × 100,000) Cost of goods available for sale Deduct ending finished goods inventory Cost of goods sold $ $ 6,267,300 84,000,000 12,809,000 18,852,000 Total 0 121,928,300 121,928,300 0 $121,928,300 6-6 5b. Sales = 95,000 rugs Cost of Goods Sold Budget From Schedule Beginning finished goods inventory Direct materials used Direct manufacturing labor ($840 × 100,000) Dyeing overhead ($128.09 × 100,000) Weaving overhead ($188.52 × 100,000) Cost of goods available for sale Deduct ending finished goods inventory ($1,219.11 × 5,000) Cost of goods sold 6. Revenue Less: Cost of goods sold Gross margin 6-22 1. 2. 100,000 rugs sold $200,000,000 121,928,300 $ 78,071,700 95,000 rugs sold $190,000,000 115,832,750 $ 74,167,250 $ $ 6,267,300 84,000,000 12,809,000 18,852,000 121,928,300 121,928,300 6,095,550 $115,832,750 Total 0 (15–20 min.) Revenues, production, and purchases budget. 900,000 motorcycles 400,000 yen = 360,000,000,000 yen Budgeted sales (motorcycles) Add target ending finished goods inventory Total requirements Deduct beginning finished goods inventory Units to be produced Direct materials to be used in production, 880,000 × 2 (wheels) Add target ending direct materials inventory Total requirements Deduct beginning direct materials inventory Direct materials to be purchased (wheels) Cost per wheel in yen Direct materials purchase cost in yen 900,000 80,000 980,000 100,000 880,000 3. 1,760,000 60,000 1,820,000 50,000 1,770,000 16,000 28,320,000,000 6-7 Note the relatively small inventory of wheels. In Japan, suppliers tend to be located very close to the major manufacturer. Inventories are controlled by just-in-time and similar systems. Indeed, some direct materials inventories are almost nonexistent. 6-23 (15-25 min.) Budgets for production and direct manufacturing labor. Roletter Company Budget for Production and Direct Manufacturing Labor for the Quarter Ended March 31, 2010 January 10,000 16,000 26,000 16,000 10,000 × 2.0 20,000 $200,000 10,000 3,000 8,000 15,000 $236,000 February 12,000 12,500 24,500 16,000 8,500 × 2.0 17,000 $170,000 8,500 2,550 6,800 12,750 $200,600 March 8,000 13,500 21,500 12,500 9,000 1.5 13,500 $135,000 6,750 2,025 5,400 10,125 $159,300 50,500 $505,000 25,250 7,575 20,200 37,875 $595,900 Quarter 30,000 13,500 43,500 16,000 27,500 Budgeted sales (units) Add target ending finished goods inventorya (units) Total requirements (units) Deduct beginning finished goods inventory (units) Units to be produced Direct manufacturing labor-hours (DMLH) per unit Total hours of direct manufacturing labor time needed Direct manufacturing labor costs: Wages ($10.00 per DMLH) Pension contributions ($0.50 per DMLH) Workers’ compensation insurance ($0.15 per DMLH) Employee medical insurance ($0.40 per DMLH) Social Security tax (employer’s share) ($10.00 0.075 = $0.75 per DMLH) Total direct manufacturing labor costs a100% of the first following month’s sales plus 50% of the second following month’s sales. Note that the employee Social Security tax of 7.5% is irrelevant. Such taxes are withheld from employees’ wages and paid to the government by the employer on behalf of the employees; therefore, the 7.5% amounts are not additional costs to the employer. 6-8 6-24 (20–30 min.) Activity-based budgeting. 1. This question links to the ABC example used in the Problem for Self-Study in Chapter 5 and to Question 5-23 (ABC, retail product-line profitability). Activity Ordering $90 14; 24; 14 Delivery $82 12; 62; 19 Shelf-stocking $21 16; 172; 94 Customer support $0.18 4,600; 34,200; 10,750 Total budgeted indirect costs Percentage of total indirect costs (subject to rounding) Cost Hierarchy Batch-level Batch-level Output-unitlevel Output-unitlevel Soft Drinks $1,260 984 336 828 $3,408 Fresh Produce $ 2,160 5,084 3,612 6,156 $17,012 Packaged Food $1,260 1,558 1,974 1,935 $6,727 Total $ 4,680 7,626 5,922 8,919 $27,147 13% 63% 25% 2. Refer to the last row of the table in requirement 1. Fresh produce, which probably represents the smallest portion of COGS, is the product category that consumes the largest share (63%) of the indirect resources. Fresh produce demands the highest level of ordering, delivery, shelf-stocking and customer support resources of all three product categories—it has to be ordered, delivered and stocked in small, perishable batches, and supermarket customers often ask for a lot of guidance on fresh produce items. 3. An ABB approach recognizes how different products require different mixes of support activities. The relative percentage of how each product area uses the cost driver at each activity area is: Cost Hierarchy Batch-level Batch-level Output-unit-level Output-unit-level Soft Drinks 27% 13 6 9 Fresh Produce 46% 67 61 69 Packaged Food 27% 20 33 22 Activity Ordering Delivery Shelf-stocking Customer support Total 100% 100 100 100 By recognizing these differences, FS managers are better able to budget for different unit sales levels and different mixes of individual product-line items sold. Using a single cost driver (such as COGS) assumes homogeneity in the use of indirect costs (support activities) across product lines which does not occur at FS. Other benefits cited by managers include: (1) better identification of resource needs, (2) clearer linking of costs with staff responsibilities, and (3) identification of budgetary slack. 6-9 6-25 1. (20–30 min.) Kaizen approach to activity-based budgeting (continuation of 6-24). Activity Ordering Delivery Shelf-stocking Customer support Cost Hierarchy Batch-level Batch-level Output-unit-level Output-unit-level Budgeted Cost-Driver Rates January February March $90.00 $89.82000 $89.64 82.00 81.83600 81.67 21.00 20.95800 20.92 0.18 0.17964 0.179 The March 2008 rates can be used to compute the total budgeted cost for each activity area in March 2008: Activity Ordering $89.64 14; 24; 14 Delivery $81.67 12; 62; 19 Shelf-stocking $20.92 16; 172; 94 Customer support $0.179 4,600; 34,200; 10,750 Total Cost Hierarchy Batch-level Batch-level Output-unit-level Soft Drinks $1,255 980 335 Fresh Produce $ 2,151 5,064 3,598 Packaged Food $1,255 1,552 1,966 Total $ 4,661 7,596 5,899 Output-unit-level 823 $3,393 6,122 $16,935 1,924 $6,697 8,869 $27,025 2. A kaizen budgeting approach signals management’s commitment to systematic cost reduction. Compare the budgeted costs from Question 6-24 and 6-25. ShelfStocking $5,922 5,899 Customer Support $8,919 8,869 Question 6-24 Question 6-25 (Kaizen) Ordering $4,680 4,661 Delivery $7,626 7,596 The kaizen budget number will show unfavorable variances for managers whose activities do not meet the required monthly cost reductions. This likely will put more pressure on managers to creatively seek out cost reductions by working “smarter” within FS or by having “better” interactions with suppliers or customers. One limitation of kaizen budgeting, as illustrated in this question, is that it assumes small incremental improvements each month. It is possible that some cost improvements arise from large discontinuous changes in operating processes, supplier networks, or customer interactions. Companies need to highlight the importance of seeking these large discontinuous improvements as well as the small incremental improvements. 6-10 6-26 (15 min.) Responsibility and controllability. 1. (a) Salesman (b) VP of Sales Permit the salesman to offer a reasonable discount to customers, but require that he clear bigger discounts with the VP. Also, base his bonus/performance evaluation not just on revenues generated, but also on margins (or, ability to meet budget). 2. (a) VP of Sales (b) VP of Sales VP of Sales should compare budgeted sales with actuals, and ask for an analysis of all the sales during the quarter. Discuss with salespeople why so many discounts are being offered—are they really needed to close each sale. Are our prices too high (i.e., uncompetitive)? 3. (a) Manager, Shipping department (b) Manager or Director of Operations (including shipping) Shipping department manager must report delays more regularly and request additional capacity in a timely manner. Operations manager should ask for a review of shipping capacity utilization, and consider expanding the department. 4. (a) HR department (b) Production supervisor The production supervisor should devise his or her own educational standards that all new plant employees are held to before they are allowed to work on the plant floor. Offer remedial in-plant training to those workers who show promise. Be very specific about the types of skills required when using the HR department to hire plant workers. Test the workers periodically for required skills. 5. (a) Production supervisor (b) Production supervisor Get feedback from the workers, analyze it, and act on it. Get extra coaching and training from experienced mentors. 6. (a) Maintenance department (b) Production supervisor First, get the requisite maintenance done on the machines. Make sure that the maintenance department head clearly understands the repercussions of poor maintenance. Discuss and establish maintenance standards that must be met (frequency of maintenance and tolerance limits, for example). Test and keep a log of the maintenance work. 6-11 6-27 1. (30 min.) Cash flow analysis, chapter appendix. The cash that TabComp, Inc., can expect to collect during April 2006 is calculated below. April cash receipts: April cash sales ($400,000 .25) April credit card sales ($400,000 .30 .96) Collections on account: March ($480,000 .45 .70) February ($500,000 .45 .28) January (uncollectible-not relevant) Total collections $100,000 115,200 151,200 63,000 0 $429,400 2. (a) The projected number of the MZB-33 computer hardware units that TabComp, Inc., will order on January 25, 2006, is calculated as follows. MZB-33 Units 110 27 137 33 104 March sales Plus: Ending inventorya Total needed Less: Beginning inventoryb Projected purchases in units a0.30 b0.30 90 unit sales in April 110 unit sales in March (b) Selling price = $2,025,000 675 units, or for March, $330,000 110 units = $3,000 per unit $ 1,800 Purchase price per unit, 60% $3,000 Projected unit purchases x 104 $187,200 Total MZB-33 purchases, $1,800 104 3. Monthly cash budgets are prepared by companies such as TabComp, Inc., in order to plan for their cash needs. This means identifying when both excess cash and cash shortages may occur. A company needs to know when cash shortages will occur so that prior arrangements can be made with lending institutions in order to have cash available for borrowing when the company needs it. At the same time, a company should be aware of when there is excess cash available for investment or for repaying loans. 6-12 6-28 1a. (40 min.) Budget schedules for a manufacturer. Revenues Budget Units sold Selling price Budgeted revenues Executive Line 740 $ 1,020 $754,800 Chairman Line 390 $ 1,600 $624,000 Total $1,378,800 b. Production Budget in Units Budgeted unit sales Add budgeted ending fin. goods inventory Total requirements Deduct beginning fin. goods. inventory Budgeted production Executive Line 740 30 770 20 750 Chairman Line 390 15 405 5 400 c. Direct Materials Usage Budget (units) Oak Executive Line: 1. Budgeted input per f.g. unit 2. Budgeted production 3. Budgeted usage (1 × 2) Chairman Line: 4. Budgeted input per f.g. unit 5. Budgeted production 6. Budgeted usage (4 × 5) 7. Total direct materials usage (3 + 6) Direct Materials Cost Budget 8. Beginning inventory 9. Unit price (FIFO) 10. Cost of DM used from beginning inventory (8 × 9) 11. Materials to be used from purchases (7 – 8) 12. Cost of DM in March 13. Cost of DM purchased and used in March (11 × 12) 14. Direct materials to be used (10 + 13) 16 750 12,000 – – – Red Oak Oak Legs 4 750 3,000 Red Oak Legs – – – Total – – – 12,000 25 400 10,000 10,000 – – – 3,000 4 400 1,600 1,600 320 $18 $5,760 11,680 $20 $233,600 $239,360 150 $23 $3,450 9,850 $25 $246,250 $249,700 100 $11 $1,100 2,900 $12 $34,800 $35,900 40 $17 $680 1,560 $18 $28,080 $28,760 $542,730 $553,720 $10,990 6-13 Direct Materials Purchases Budget Oak Budgeted usage (from line 7) Add target ending inventory Total requirements Deduct beginning inventory Total DM purchases Purchase price (March) Total purchases 12,000 192 12,192 320 11,872 $20 $237,440 Red Oak 10,000 200 10,200 150 10,050 $25 $251,250 Oak Legs 3,000 80 3,080 100 2,980 $12 $35,760 Red Oak Legs 1,600 44 1,644 40 1,604 $18 $28,872 Total ________ $553,322 d. Direct Manufacturing Labor Budget Output Units Produced 750 400 Direct Manuf. LaborHours per Output Unit 3 5 Total Hours 2,250 2,000 4,250 Hourly Rate $30 $30 Executive Line Chairman Line Total $ 67,500 60,000 $127,500 e. Manufacturing Overhead Budget Variable manufacturing overhead costs (4,250 × $35) Fixed manufacturing overhead costs Total manufacturing overhead costs $191,250 Total manuf. overhead cost per hour = = 4,250 $42,500 Fixed manuf. overhead cost per hour = = 4,250 $148,750 42,500 $191,250 $45 per direct manufacturing labor-hour $10 per direct manufacturing labor-hour f. Computation of unit costs of ending inventory of finished goods Executive Chairman Line Line Direct materials Oak top ($20 × 16, 0) $320 $ 0 Red oak ($25 × 0, 25) 0 625 Oak legs ($12 × 4, 0) 48 0 Red oak legs ($18 × 0, 4) 0 72 Direct manufacturing labor ($30 × 3, 5) 90 150 Manufacturing overhead Variable ($35 × 3, 5) 105 175 Fixed ($10 × 3, 5) 30 50 Total manufacturing cost $593 $1,072 6-14 Ending Inventories Budget Cost per Unit Direct Materials Oak top Red oak top Oak legs Red oak legs Finished Goods Executive Chairman Total g. $ 20 25 12 18 Units 192 200 80 44 Total $ 3,840 5,000 960 792 10,592 17,790 16,080 33,870 $44,462 593 1,072 30 15 Cost of goods sold budget Budgeted fin. goods inventory, March 1, 2009 ($10,480 + $4,850) 15,330 Direct materials used (from Dir. materials purch. budget) $553,720 Direct manufacturing labor (Dir. manuf. labor budget) 127,500 Manufacturing overhead (Manuf. overhead budget) 191,250 Cost of goods manufactured Cost of goods available for sale Deduct ending fin. goods inventory, March 31, 2009 (Inventories budget) Cost of goods sold $853,930 $ 872,470 887,800 33,870 2. Areas where continuous improvement might be incorporated into the budgeting process: (a) Direct materials. Either an improvement in usage or price could be budgeted. For example, the budgeted usage amounts could be related to the maximum improvement (current usage – minimum possible usage) of 1 square foot for either desk: • Executive: 16 square feet – 15 square feet minimum = 1 square foot • Chairman: 25 square feet – 24 square feet minimum = 1 square foot Thus, a 1% reduction target per month could be: • Executive: 15 square feet + (0.99 × 1) = 15.99 • Chairman: 24 square feet + (0.99 × 1) = 24.99 Some students suggested the 1% be applied to the 16 and 25 square-foot amounts. This can be done so long as after several improvement cycles, the budgeted amount is not less than the minimum desk requirements. (b) Direct manufacturing labor. The budgeted usage of 3 hours/5 hours could be continuously revised on a monthly basis. Similarly, the manufacturing labor cost per hour of $30 could be continuously revised down. The former appears more feasible than the latter. (c) Variable manufacturing overhead. By budgeting more efficient use of the allocation base, a signal is given for continuous improvement. A second approach is to budget continuous improvement in the budgeted variable overhead cost per unit of the allocation base. (d) Fixed manufacturing overhead. The approach here is to budget for reductions in the year-to-year amounts of fixed overhead. If these costs are appropriately classified as fixed, then they are more difficult to adjust down on a monthly basis. 6-15 6-29 (45 min.) Activity-based budget: kaizen improvements. 1. Revenue Budget For the Quarter Ending March 31, 20xx Units 20,000 Selling price $120 Total revenues $2,400,000 2. Direct Material Usage Budget in Quantity and Dollars For the Quarter Ending March 31, 20xx Physical units budget Direct materials required (20,000 units 10 oz.) 200,000 oz. Cost budget To be purchased this period (200,000 oz. $4 per oz.) $8,000,000 Direct materials to be used this period $8,000,000 3. Direct Manufacturing Labor Costs Budget For the Quarter Ending March 31, 20xx Output units produced 20,000 Direct manufacturing labor-hours per unit 2 Total direct manufacturing labor-hours 40,000 Hourly wage rate $15 Total direct manufacturing labor costs $600,000 4. Manufacturing Overhead Costs Budget For the Quarter Ending March 31, 20xx Machine setup overhead (400 setup-hours $80 per hour) $32,000 Operations overhead (40,000 hours $1.60 per hour) 64,000 Total manufacturing overhead costs $96,000 20,000 units = 200 batches. Each batch requires 2 setup hours, so 100 units per batch 200 batches 2 setup-hours per batch = 400 setup-hours 6-16 5. Budgeted Unit Cost For the Quarter Ending March 31, 20xx Cost per Unit of Input per Input Unit of Output Direct material $4 10 oz. Direct manufacturing labor 15 2 DMLH Machine setup overhead 80 0.02 setup-hours1 Operations overhead 1.60 2 DMLH Total cost per gizmo 1Setup-hours Total $40.00 30.00 1.60 3.20 $74.80 per gizmo = 400 setup-hours ÷ 20,000 gizmos = 0.02 setup-hours per gizmo. Alternatively, Budgeted Unit Cost For the Quarter Ending March 31, 20xx Total Per unit (1) (2) = (1) ÷ 20,000 Direct material costs (requirement 2) $ 800,000 $40.00 Direct manufacturing labor costs (requirement 3) 600,000 30.00 Machine setup overhead costs (requirement 4) 32,000 1.60 Operations overhead costs (requirement 4) 64,000 3.20 Total costs $1,496,000 $74.80 6. Cost of Goods Sold Budget For the Quarter Ending March 31, 20xx Total Beginning finished goods inventory, Jan. 1 Direct materials used Direct manufacturing labor Manufacturing overhead Cost of goods manufactured Cost of goods available for sale Deduct: Ending finished goods inventory, Mar. 311 Cost of goods sold 1Under $ $800,000 600,000 96,000 72,000 1,496,000 1,568,000 72,000 $1,496,000 LIFO cost flow assumption, the 1,000 gizmos in beginning finished goods inventory that remain in inventory on March 31 continue to be valued at $72,000. 6-17 7. Budgeted Gross Margin For the Quarter Ending March 31, 20xx Revenues $2,400,000 Cost of goods sold 1,496,000 Gross margin $ 904,000 8. 1st Quarter Quantity (1) 10 oz 2 DMLH 0.02 setup-hours 2 DMLH Proposed Decrease (2) 1% 1% 3% 1% 2d Quarter Revised Quantity (3) = (1)×(100% ─ (2)) 9.9 oz. 1.98 DMLH 0.0194 setup-hours 1.98 DMLH 3rd Quarter Revised Quantity (4) = (3)×(100% ─ (2)) 9.8 oz. 1.96 DMLH 0.01882 setup-hours 1.96 DMLH Direct material Direct manufacturing labor Machine setup overhead Operations overhead Budgeted Unit Cost For the Quarters Ending June 30 and Sept. 30, 20xx Cost per Unit of Input $4 15 80 1.60 2d Quarter Input per Unit of Output 9.9 oz. 1.98 DMLH 0.0194 setup hrs. 1.98 DMLH Budgeted Unit Cost June 30 $39.60 29.70 1.55 3.17 $74.02 3rd Quarter Input per Unit of Output 9.80 oz 1.96 DMLH 0.0188 setup-hr 1.96 DMLH Budgeted Unit Cost Sept. 30 $39.20 29.40 1.50 3.14 $73.24 Direct material Direct manufacturing labor Machine setup overhead Operations overhead Total Revenues Cost of goods sold ($74.02; $73.24 × 20,000) Gross margin Budgeted Gross Margin For the Quarters Ending June 30, 20xx $2,400,000 1,480,400 $ 919,600 Sept. 30, 20xx $2,400,000 1,464,800 $ 935,200 9. Reduction in materials can be accomplished by reducing waste and scrap. Reduction in direct labor and setup time can be accomplished by improving the efficiency of operations and decreasing down time. Employees who make the gizmos may have suggestions for ways to do their jobs more efficiently. For instance, employees may recommend process changes that reduce idle time, setup time, and scrap. To motivate workers to improve efficiency, many companies have set up programs that share productivity gains with the workers. Korna must be careful that productivity improvements and cost reductions do not in any way compromise product quality. 6-18 6-30 (30–40 min.) Revenue and production budgets. This is a routine budgeting problem. The key to its solution is to compute the correct quantities of finished goods and direct materials. Use the following general formula: 错误!未指定开关参数。= 错误!未指定开关参数。+ 错误!未指定开关参数。– 错误!未指定开关参数 。 1. Scarborough Corporation Revenue Budget for 2010 Units 60,000 40,000 Price $165 250 Total $ 9,900,000 10,000,000 $19,900,000 Thingone Thingtwo Budgeted revenues 2. Scarborough Corporation Production Budget (in units) for 2010 Thingone 60,000 25,000 85,000 20,000 65,000 Thingtwo 40,000 9,000 49,000 8,000 41,000 Budgeted sales in units Add target finished goods inventories, December 31, 2010 Total requirements Deduct finished goods inventories, January 1, 2010 Units to be produced 3. Scarborough Corporation Direct Materials Purchases Budget (in quantities) for 2007 Direct Materials A B Direct materials to be used in production • Thingone (budgeted production of 65,000 units times 4 lbs. of A, 2 lbs. of B) • Thingtwo (budgeted production of 41,000 units times 5 lbs. of A, 3 lbs. of B, 1 lb. of C) Total Add target ending inventories, December 31, 2010 Total requirements in units Deduct beginning inventories, January 1, 2010 Direct materials to be purchased (units) C 260,000 205,000 465,000 36,000 501,000 32,000 469,000 130,000 123,000 253,000 32,000 285,000 29,000 256,000 -41,000 41,000 7,000 48,000 6,000 42,000 6-19 4. Scarborough Corporation Direct Materials Purchases Budget (in dollars) for 2010 Budgeted Purchases (Units) 469,000 256,000 42,000 Expected Purchase Price per unit $12 5 3 Direct material A Direct material B Direct material C Budgeted purchases 5. Total $5,628,000 1,280,000 126,000 $7,034,000 Scarborough Corporation Direct Manufacturing Labor Budget (in dollars) for 2010 Direct Manufacturing Labor-Hours per Unit 2 3 Thingone Thingtwo Total 6. Budgeted Production (Units) 65,000 41,000 Rate Total per Hours Hour 130,000 $12 123,000 16 Total $1,560,000 1,968,000 $3,528,000 Scarborough Corporation Budgeted Finished Goods Inventory at December 31, 2010 Thingone: Direct materials costs: A, 4 pounds × $12 $48 B, 2 pounds × $5 10 Direct manufacturing labor costs, 2 hours × $12 Manufacturing overhead costs at $20 per direct manufacturing labor-hour (2 hours × $20) Budgeted manufacturing costs per unit Finished goods inventory of Thingone $122 × 25,000 units Thingtwo: Direct materials costs: A, 5 pounds × $12 $60 B, 3 pounds × $5 15 C, 1 each × $3 3 Direct manufacturing labor costs, 3 hours × $16 Manufacturing overhead costs at $20 per direct manufacturing labor-hour (3 hours × $20) Budgeted manufacturing costs per unit Finished goods inventory of Thingtwo $186 × 9,000 units Budgeted finished goods inventory, December 31, 2010 $ 58 24 40 $122 $3,050,000 $ 78 48 60 $186 1,674,000 $4,724,000 6-20 6-31 (30 min.) Budgeted income statement. Easecom Company Budgeted Income Statement for 2008 (in thousands) Revenues Equipment ($6,000 × 1.06 × 1.10) Maintenance contracts ($1,800 × 1.06) Total revenues Cost of goods sold ($4,600 × 1.03 × 1.06) Gross margin Operating costs: Marketing costs ($600 + $250) Distribution costs ($150 × 1.06) Customer maintenance costs ($1,000 + $130) Administrative costs Total operating costs Operating income $6,996 1,908 $8,904 5,022 3,882 850 159 1,130 900 3,039 $ 843 6-32 (15 min.) Responsibility of purchasing agent. The time lost in the plant should be charged to the purchasing department. The plant manager probably should not be asked to underwrite a loss due to failure of delivery over which he had no supervision. Although the purchasing agent may feel that he has done everything he possibly could, he must realize that, in the whole organization, he is the one who is in the best position to evaluate the situation. He receives an assignment. He may accept it or reject it. But if he accepts, he must perform. If he fails, the damage is evaluated. Everybody makes mistakes. The important point is to avoid making too many mistakes and also to understand fully that the extensive control reflected in responsibility accounting is the necessary balance to the great freedom of action that individual executives are given. Discussions of this problem have again and again revealed a tendency among students (and among accountants and managers) to “fix the blame”––as if the variances arising from a responsibility accounting system should pinpoint misbehavior and provide answers. The point is that no accounting system or variances can provide answers. However, variances can lead to questions. In this case, in deciding where the penalty should be assigned, the student might inquire who should be asked––not who should be blamed. Classroom discussions have also raised the following diverse points: (a) Is the railroad company liable? (b) Costs of idle time are usually routinely charged to the production department. Should the information system be fine-tuned to reallocate such costs to the purchasing department? (c) How will the purchasing managers behave in the future regarding willingness to take risks? The text emphasizes the following: Beware of overemphasis on controllability. For example, a time-honored theme of management is that responsibility should not be given without accompanying authority. Such a guide is a useful first step, but responsibility accounting is more far-reaching. The basic focus should be on information or knowledge, not on control. The key 6-21 question is: Who is the best informed? Put another way, “Who is the person who can tell us the most about the specific item, regardless of ability to exert personal control?” 6-33 (60 min.) Comprehensive problem with ABC costing 1. Revenue Budget For the Month of April Units Selling Price Total Revenues 500 $160 $ 80,000 300 250 75,000 $155,000 Cat-allac Dog-eriffic Total 2. Production Budget For the Month of April Product Cat-allac Dog-eriffic 500 300 35 15 535 315 15 30 520 285 Budgeted unit sales Add target ending finished goods inventory Total required units Deduct beginning finished goods inventory Units of finished goods to be produced 3a. Direct Material Usage Budget in Quantity and Dollars For the Month of April Material Plastic Metal Physical Units Budget Direct materials required for Cat-allac (520 units × 4 lbs. and 0.5 lb.) Dog-errific (285 units × 6 lbs. and 1 lb.) Total quantity of direct material to be used Total 2,080 lbs. 1,710 lbs. 3,790 lbs. 260 lbs. 285 lbs. 545 lbs. Cost Budget Available from beginning direct materials inventory (under a FIFO cost-flow assumption) Plastic: 250 lbs. × $3.80 per lb. $ 950 Metal: 60 lbs. × $3 per lb. To be purchased this period . Plastic: (3,790 – 250) lbs. $4 per lb. 14,160 Metal: (545 – 60) lbs. $3 per lb. __ ____ Direct materials to be used this period $15,110 $ 180 1,455 $ 1,635 $16,745 6-22 Direct Material Purchases Budget For the Month of April Material Plastic Metal Physical Units Budget To be used in production (requirement 3) Add target ending inventory Total requirements Deduct beginning inventory Purchases to be made Cost Budget Plastic: 3,920 lbs. $4 Metal: 540 lbs. $3 Purchases 4. Direct Manufacturing Labor Costs Budget For the Month of April Output Units Produced (requirement 2) 520 285 Hourly Wage Rate $10 10 3,790 lbs. 380 lbs. 4,170 lbs. 250 lbs. 3,920 lbs. 545 lbs. 55 lbs. 600 lbs. 60 lbs. 540 lbs. Total $15,680 ______ $15,680 $ 1,620 $ 1,620 $ 17,300 Cat-allac Dog-errific Total DMLH per Unit 3 5 Total Hours 1,560 1,425 Total $15,600 14,250 $29,850 5. Machine Setup Overhead Units to be produced Units per batch Number of batches Setup time per batch Total setup time Cat-allac 520 ÷ 20 26 1.5 hrs. 39 hrs. Dog-errific 285 ÷15 19 1.75 hrs. 33.25 hrs. Total 72.25 hrs. Budgeted machine setup costs = $100 per setup hour 72.25 hours = $7,225 Processing Overhead Budgeted machine-hours (MH) = (10 MH per unit × 520 units) + (18 MH per unit × 285 units) = 5,200 MH + 5,130 MH = 10,330 MH Budgeted processing costs = $5 per MH × 10,330 MH = $51,650 Inspection Overhead Budgeted inspection-hours = (0.5 26 batches) + (0.6 19 batches) = 13 + 11.4 = 24.4 inspection hrs. Budgeted inspection costs = $16 per inspection hr. 24.4 inspection hours = $390.40 6-23 Manufacturing Overhead Budget For the Month of April Machine setup costs $ 7,225 Processing costs 51,650 Inspection costs 390 Total costs $59,265 6. Unit Costs of Ending Finished Goods Inventory April 30, 20xx Product Cat-allac Dog-errific Cost per Input per Input per Unit of Unit of Unit of Input Output Total Output Total Plastic $4 4 lbs. $ 16.00 6 lbs. $ 24.00 Metal 3 0.5 lbs. 1.50 1 lb. 3.00 Direct manufacturing labor 10 3 hrs. 30.00 5 hrs. 50.00 Machine setup 100 0.075 hrs. 1 7.50 0.1167 hr1 11.67 Processing 5 10 MH 50.00 18 MH 90.00 2 2 Inspection 16 0.025 hr 0.40 0.04 hr. 0.64 Total $105.40 $179.31 1 2 39 setup-hours ÷ 520 units = 0.075 hours per unit; 33.25 setup-hours ÷ 285 units = 0.1167 hours per unit 13 inspection hours ÷ 520 units = 0.025 hours per unit; 11.4 inspection hours ÷ 285 units = 0.04 hours per unit Ending Inventories Budget April 30, 20xx Quantity Direct Materials Plastic Metals Finished goods Cat-allac Dog-errific Total ending inventory 380 55 Cost per unit $4 3 Total $1,520 165 $1,685 35 15 $105.40 179.31 $3,689 2,690 6,379 $8,064 6-24 7. Cost of Goods Sold Budget For the Month of April, 20xx Beginning finished goods inventory, April, 1 ($1,500 + $5,580) Direct materials used (requirement 3) Direct manufacturing labor (requirement 4) Manufacturing overhead (requirement 5) Cost of goods manufactured Cost of goods available for sale Deduct: Ending finished goods inventory, April 30 (reqmt. 6) Cost of goods sold $ $16,745 29,850 59,265 7,080 105,860 112,940 6,379 $106,561 8. Nonmanufacturing Costs Budget For the Month of April, 20xx Salaries ($36,000 ÷ 2 1.05) $18,900 Other fixed costs ($36,000 ÷ 2) 18,000 Sales commissions ($155,000 1%) 1,550 Total nonmanufacturing costs $38,450 9. Budgeted Income Statement For the Month of April, 20xx Revenues $155,000 Cost of goods sold 106,561 Gross margin 48,439 Operating (nonmanufacturing) costs 38,450 Operating income $ 9,989 6-25 6-34 (25 min.) (Continuation of 6-33) Cash budget (Appendix) Cash Budget April 30, 20xx Cash balance, April 1, 20xx Add receipts Cash sales ($155,000 × 10%) Credit card sales ($155,000 × 90% × 97%) Total cash available for needs (x) Deduct cash disbursements Direct materials ($8,500 + $17,300 × 50%) Direct manufacturing labor Manufacturing overhead ($59,265 ─ $20,000 depreciation) Nonmanufacturing salaries Sales commissions Other nonmanufacturing fixed costs ($18,000 ─ $10,000 deprn) Machinery purchase Income taxes Total disbursements (y) Financing Repayment of loan 1 Interest at 12% ($2,000 12% ) 12 Total effects of financing (z) Ending cash balance, April 30 (x) ─ (y) ─ (z) $ 5,360 15,500 135,315 $156,175 $ 17,150 29,850 39,265 18,900 1,550 8,000 13,700 5,000 $133,415 $ 2,000 20 $ 2,020 $ 20,740 6-26 6-35 1. (60 min.) Comprehensive operating budget, budgeted balance sheet. Schedule 1: Revenues Budget for the Year Ended December 31, 2010 Units Selling Price Total Revenues Snowboards 1,000 $450 $450,000 Schedule 2: Production Budget (in Units) for the Year Ended December 31, 2010 Snowboards Budgeted unit sales (Schedule 1) 1,000 Add target ending finished goods inventory 200 Total requirements 1,200 Deduct beginning finished goods inventory 100 Units to be produced 1,100 Schedule 3A: Direct Materials Usage Budget for the Year Ended December 31, 2010 Wood Fiberglass Total 2. 3. Physical Units Budget Wood: 1,100 × 5.00 b.f. Fiberglass: 1,100 × 6.00 yards To be used in production Cost Budget Available from beginning inventory Wood: 2,000 b.f. × $28.00 Fiberglass: 1,000 b.f. × $4.80 To be used from purchases this period Wood: (5,500 – 2,000) × $30.00 Fiberglass: (6,600 – 1,000) × $5.00 Total cost of direct materials to be used 5,500 5,500 6,600 6,600 $ 56,000 $ 4,800 105,000 $161,000 28,000 $32,800 $193,800 Schedule 3B: Direct Materials Purchases Budget for the Year Ended December 31, 2010 Wood Physical Units Budget Production usage (from Schedule 3A) Add target ending inventory Total requirements Deduct beginning inventory Purchases Cost Budget Wood: 5,000 × $30.00 Fiberglass: 7,600 × $5.00) Purchases 5,500 1,500 7,000 2,000 5,000 Fiberglass 6,600 2,000 8,600 1,000 7,600 Total $150,000 $150,000 $38,000 $38,000 $188,000 6-27 4. Schedule 4: Direct Manufacturing Labor Budget for the Year Ended December 31, 2010 Labor Category Manufacturing labor Cost Driver Units 1,100 DML Hours per Driver Unit 5.00 Total Hours 5,500 Wage Rate $25.00 Total $137,500 5. Schedule 5: Manufacturing Overhead Budget for the Year Ended December 31, 2010 At Budgeted Level of 5,500 Direct Manufacturing Labor-Hours Variable manufacturing overhead costs ($7.00 × 5,500) Fixed manufacturing overhead costs Total manufacturing overhead costs $ 38,500 66,000 $104,500 6. 7. 8. $104,500 = $19.00 per hour 5,500 $104,500 Budgeted manufacturing overhead cost per output unit: = $95.00 per output unit 1,100 Schedule 6A: Computation of Unit Costs of Manufacturing Finished Goods in 2010 Budgeted manufacturing overhead rate: Cost per Unit of Inputa Direct materials Wood Fiberglass Direct manufacturing labor Total manufacturing overhead $30.00 5.00 25.00 Inputsb 5.00 6.00 5.00 Total $150.00 30.00 125.00 95.00 $400.00 acost binputs is per board foot, yard or per hour is the amount of each input per board 9. Schedule 6B: Ending Inventories Budget, December 31, 2010 Cost per Units Unit Total Direct materials Wood 1,500 $ 30.00 $ 45,000 Fiberglass 2,000 5.00 10,000 Finished goods Snowboards 200 400.00 80,000 Total Ending Inventory $135,000 6-28 10. Schedule 7: Cost of Goods Sold Budget for the Year Ended December 31, 2010 From Schedule Total Beginning finished goods inventory January 1, 2010, $374.80 × 100 Given $ 37,480 Direct materials used 3A $193,800 Direct manufacturing labor 4 137,500 Manufacturing overhead 5 104,500 Cost of goods manufactured 435,800 Cost of goods available for sale 473,280 Deduct ending finished goods inventory, December 31, 2010 6B 80,000 Cost of goods sold $393,280 11. Budgeted Income Statement for Slopes for the Year Ended December 31, 2010 Revenues Schedule 1 $450,000 Cost of goods sold Schedule 7 393,280 Gross margin 56,720 Operating costs Variable marketing costs ($250 × 30) $ 7,500 Fixed nonmanufacturing costs 30,000 37,500 Operating income $ 19,220 12. Budgeted Balance Sheet for Slopes as of December 31, 2010 Cash Inventory Schedule 6B Property, plant, and equipment (net) Total assets Current liabilities Long-term liabilities Stockholders’ equity Total liabilities and stockholders’ equity $ 10,000 135,000 850,000 $995,000 $ 17,000 178,000 800,000 $995,000 6-29 6-36 1. (30 min.) Cash budgeting, chapter appendix. Projected Sales May June 120 $54,000 July 200 $90,000 August 100 $45,000 September 60 $27,000 October 40 80 $36,000 Sales in units Revenues (Sales in units × $450) Collections of Receivables May From sales in: May (30% $36,000) June (50%; 30% $54,000) July (20%; 50%; 30% $90,000) August (20%; 50% $45,000) September (20% $27,000) Total Calculation of Payables May Material and Labor Use, Units Budgeted production Direct materials Wood (board feet) Fiberglass (yards) Direct manuf. labor (hours) Disbursement of Payments Direct materials Wood (1,000; 500; 300 $30) Fiberglass (1,200; 600; 360 $5) Direct manuf. labor (500; 300; 200 $25) Interest payment (6% $30,000 ÷12) Variable Overhead Calculation Variable overhead rate Overhead driver (direct manuf. labor-hours) Variable overhead expense June July $10,800 27,000 18,000 August September October $16,200 45,000 9,000 $70,200 $55,800 $ 27,000 22,500 5,400 $54,900 June 200 1,000 1,200 1,000 July 100 500 600 500 August 60 300 360 300 September 40 200 240 200 October $30,000 6,000 12,500 150 $15,000 3,000 7,500 150 $9,000 1,800 5,000 150 $ 7 $ 7 $ 7 500 $ 3,500 300 $ 2,100 200 $1,400 6-30 Cash Budget for the months of July, August, September 2007 July August Beginning cash balance $10,000 $ 5,650 Add receipts: Collection of receivables Total cash available Deduct disbursements: Material purchases Direct manufacturing labor Variable costs Fixed costs Interest payments Total disbursements Ending cash balance 55,800 $65,800 70,200 $75,850 September $40,100 54,900 $95,000 $36,000 12,500 3,500 8,000 150 60,150 $ 5,650 $18,000 7,500 2,100 8,000 150 35,750 $40,100 $10,800 5,000 1,400 8,000 150 25,350 $69,650 2. Yes. Slopes has a budgeted cash balance of $69,650 on 10/1/2010 and so it will be in a position to pay off the $30,000 1-year note on October 1, 2010. 3. No. Slopes does not maintain a $10,000 minimum cash balance in July. To maintain a $10,000 cash balance in each of the three months, it could perhaps encourage its customers to pay earlier by offering a discount. Alternatively, Slopes could seek short-term credit from a bank. 6-31 6-37 (40–50 min.) Cash budgeting, chapter appendix. Itami Wholesale Co. Statement of Budgeted Cash Receipts and Disbursements For the Months of December 2009 and January 2010 December 2009 $ 10,000 235,900 245,900 $183,875 50,000 10,000 243,875 $ 2,025 January 2010 $ 2,025 285,800 287,825 $141,750 25,000 10,000 176,750 $111,075 Cash balance, beginning Add receipts: Collections of receivables (Schedule 1) (a) Total cash available for needs Deduct disbursements: For merchandise purchases (Schedule 2) For variable costs (Schedule 3) For fixed costs (Schedule 3) (b) Total disbursements Cash balance, end of month (a – b) Enough cash should be available for repayment of the note on January 31, 2010. Schedule 1: Collections of Receivables Collections in December January a0.08 b0.20 c0.70 October $14,400a November $50,000b} 171,500c 20,000d December Total $235,900 $ 60,000e} 205,800f $285,800 × $180,000 × $250,000 × $250,000 × .98 d0.08 × $250,000 e0.20 × $300,000 f0.70 × $300,000 × .98 6-32 Schedule 2: Payments for Merchandise Target ending inventory (in units) Add units sold (sales ÷ $100) Total requirements Deduct beginning inventory (in units) Purchases (in units) Purchases in dollars (units × $70) December 875a 3,000 3,875 1,250b 2,625 $183,750 December Cash disbursements: For December, accounts payable; For January, December’s purchases at 50% For current month’s purchases at 50% a500 January 800c 1,500 2,300 875 1,425 $99,750 January $ 92,000 91,875 $183,875 $ 91,875 49,875 $141,750 units + 0.25 ($150,000 ÷ $100) ÷ $70 c500 units + 0.25($120,000 ÷ $100) b$87,500 Schedule 3: Marketing, Distribution, and Customer-Service Costs Total annual fixed costs, $150,000, minus $30,000 depreciation Monthly fixed cost requiring cash outlay $400,000 $150,000 Variable cost ratio to sales = = 1/6 $1,500,000 December variable costs: 1/6 × $300,000 sales $50,000 January variable costs: 1/6 × $150,000 sales $25,000 $120,000 $ 10,000 6-33 6-38 1. (60 min.) Comprehensive problem; ABC manufacturing, two products. Revenues Budget For the Year Ending December 31, 2009 Selling Price Total Revenues $ 80 $13,760,000 $900 $40,500,000 $54,260,000 Chairs Tables Total Units 172,000 45,000 2a. Total budgeted marketing costs = Budgeted variable marketing costs + Budgeted fixed marketing costs = $2,011,200 + $4,500,000 = $6,511,200 $6,511, 200 Marketing allocation rate = = $0.12 per sales dollar $54, 260,000 2b. Total budgeted distribution costs = Budgeted variable distribution costs + Budgeted fixed distribution costs = $54,000 + $380,000 = $434,000 Chairs: Tables: Total 172,000 units ÷ 500 units per delivery 45,000 units ÷ 500 units per delivery 344 deliveries 90 deliveries 434 deliveries Delivery allocation rate = 3. $434,000 = $1,000 per delivery 434 deliveries Production Budget (in Units) For the Year Ending December 31, 2009 Product Chairs Tables Budgeted unit sales 172,000 45,000 Add target ending finished goods inventory 8,500 2,250 Total required units 180,500 47,250 Deduct beginning finished goods inventory 8,000 2,100 Units of finished goods to be produced 172,500 45,150 6-34 4a. Chairs Machine setup overhead Units to be produced Units per batch Number of setups Hours to setup per batch Total setup hours 172,500 ÷500 345 ×3 1,035 Tables 45,150 ÷50 903 ×2 1,806 Total 2,841 Total budgeted setup costs = Budgeted variable setup costs + Budgeted fixed setup costs = $97,000 + $300,740 = $397,740 $397,740 Machine setup = = $140 per setup hour allocation rate 2,841 setup-hours b. Chairs: Tables: Total 172,500 units × 3 MH per unit 45,150 units × 5 MH per unit 517,500 MH 225,750 MH 743,250 MH Total budgeted processing costs = Budgeted variable processing costs + Budgeted fixed processing costs = $789,250 + $5,900,000 = $6,689,250 $6,689, 250 Processing allocation rate = $9 per MH 743, 250 MH 5. Direct Material Usage Budget in Quantity and Dollars For the Year Ending December 31, 2009 Material Glass Wood Physical Units Budget Direct materials required for Chairs (172,500 units × 5 b.f. and 0 sheets) Tables (45,150 units × 7 b.f. and 2 sheets) Total quantity of direct materials to be used Total 862,500 b.f. 316,050 b.f. 1,178,550 b.f. 90,300 sheets 90,300 sheets Cost Budget Available from beginning direct materials inventory (under a FIFO cost-flow assumption) $ 170,352 To be purchased this period Wood: (1,178,550 b.f. ─ 109,200 b.f.) × $1.60 per b.f. 1,710,960 Glass: (90,300 sheets ─ 8,750 sheets) × $12 per sheet _________ Direct materials to be used this period $1,881,312 $ 109,375 978,600 $ 1,087,975 $2,969,287 Direct Materials Purchases Budget 6-35 For the Year Ending December 31, 2009 Material Wood Physical Units Budget To be used in production (requirement 5) Add: Target ending direct material inventory Total requirements Deduct: Beginning direct material inventory Purchases to be made Cost Budget Wood: 1,186,850 b.f. $1.60 per b.f. Glass: 90,550 sheets $12 per sheet Purchases 1,178,550 b.f. 117,500 b.f. 1,296,050 b.f. 109,200 b.f. 1,186,850 Glass 90,300 sheets 9,000 sheets 99,300 sheets 8,750 sheets 90,550 sheets Total $ 1,898,960 __________ $ 1,898,960 $ 1,086,600 $ 1,086,600 $2,985,560 Total budgeted materials-handling costs = Budgeted variable materials-handling costs + Budgeted fixed materials-handling costs = $342,840 + $600,000 = $942,840 Materials handling = $942,840 = $0.80 per b.f. allocation rate 1,178,550 b.f. 7. Direct Manufacturing Labor Costs Budget For the Year Ending December 31, 2009 Output Units Produced 172,500 45,150 Direct Manufacturing Total Hourly Wage Total Labor-Hours per Unit Hours Rate 4 690,000 $15 $10,350,000 8 361,200 15 5,418,000 $15,768,000 Chairs Tables Total 8. Manufacturing Overhead Cost Budget For the Year Ending December 31, 2009 Variable $ 342,840 97,000 789,250 $1,229,090 Fixed $ 600,000 300,740 5,900,000 $6,800,740 Total $ 942,840 397,740 6,689,250 $8,029,830 Materials handling Machine setup Processing Total 6-36 9. Unit Costs of Ending Finished Goods Inventory For the Year Ending December 31, 2009 Chair Input per Unit of Output 5 b.f. ─ 4 hrs. 5 b.f. 0.006 hrs. 1 3 MH Table Input per Unit of Output 7 b.f. 2 sheets 8 hrs. 7 b.f. 0.04 setup-hr1 5 MH Wood Glass Direct manufacturing labor Materials handling Machine setup Processing Total 1 Cost per Unit of Input $1.60 12 15 0.80 140 9 Total $ 8.00 ─ 60.00 4.00 0.84 27.00 $ 99.84 Total $ 11.20 24.00 120.00 5.60 5.60 45.00 $211.40 1,035 setup-hours ÷ 172,500 units = 0.006 hours per unit; 1,806 setup hours ÷ 45,150 units = 0.04 hours per unit Ending Inventories Budget December 31, 2009 Quantity Direct Materials Wood Glass Finished goods Chairs Tables Total ending inventory 10. Cost of Goods Sold Budget For the Year Ending December 31, 2009 Beginning finished goods inventory, Jan. 1 ($760,000 + $477,000) Direct materials used (requirement 5) $ 2,969,287 Direct manufacturing labor (requirement 7) 15,768,000 Manufacturing overhead (requirement 8) 8,029,830 Cost of goods manufactured Cost of goods available for sale Deduct: Ending finished goods inventory, December 31 (reqmt. 9) Cost of goods sold 11. Nonmanufacturing Costs Budget For the Year Ending December 31, 2009 Variable $2,011,200 54,000 $2,065,200 6-37 Fixed $4,500,000 380,000 $4,880,000 Total $6,511,200 434,000 $6,945,200 117,500 b.f. 9,000 sheets Cost per unit $1.60 12.00 Total $188,000 108,000 $ 296,000 8,500 2,250 $99.84 211.40 $848,640 475,650 1,324,290 $1,620,290 $ 1,237,000 26,767,117 28,004,117 1,324,290 $26,679,827 Marketing Distribution Total 12. Budgeted Income Statement For the Year Ending December 31, 2009 $54,260,000 26,679,827 27,580,173 6,945,200 $20,634,973 Revenue Cost of goods sold Gross margin Operating (nonmanufacturing) costs Operating income 13. The budgeted unit cost of the chair is $99.84, which is $20 more than the selling price of $80 per chair. The company is willing to accept the loss on chairs because of the high markup on tables ($900 $688.60 ─ $211.40) = $688.60 ( 76.5% ). Customers who purchase a table will likely want $900 matching chairs. Thus the markup on tables more than recoups the loss on four chairs. Dinette could, of course, reduce the price on tables and increase the price on chairs. If, however, customers care less about the price of the table and more about the price of chairs and buy 4 chairs for every 1 table, Dinette’s pricing strategy may well be optimal. 6-38 6-39 (15 min.) Budgeting and ethics. 1. The standards proposed by Wert are not challenging. In fact, he set the target at the level his department currently achieves. DM 2.95 lbs. 100 units = 295 lbs. DL 19.2 min. 100 units = 1,920 min ÷ 60 = 32 hrs. MT 9.9 min. 100 units = 990 min. ÷ 60 = 16.5 hrs. 2. Wert probably chose these standards so that his department would be able to make the goal and receive any resulting reward. With a little effort, his department can likely beat these goals. 3. As discussed in the chapter, benchmarking might be used to highlight the easy targets set by Wert. Perhaps the organization has multiple plant locations that could be used as comparisons. Alternatively, management could use industry averages. Also, management should work with Wert to better understand his department and encourage him to set more realistic targets. Finally, the reward structure should be designed to encourage increasing productivity, not beating the budget. 6-40 (60 min.) Comprehensive budgeting problem; activity-based costing, operating and financial budgets. 1a. Revenues Budget For the Month of June, 20xx Units Selling Price Total Revenues 3,000 $3 $ 9,000 1,800 4 7,200 $16,200 Large Giant Total b. Production Budget For the Month of June, 20xx Product Large Giant 3,000 1,800 300 180 3,300 1,980 200 150 3,100 1,830 Budgeted unit sales Add: target ending finished goods inventory Total required units Deduct: beginning finished goods inventory Units of finished goods to be produced 6-39 c. Direct Material Usage Budget in Quantity and Dollars For the Month of June, 20xx Material Sugar Sticks Physical Units Budget Direct materials required for Large (3,100 units × 0.25 lb.; 1 stick) Giant (1,830 units × 0.50 lb.; 1 stick) Total quantity of direct materials to be used Total 775 lbs. 915 lbs. 1,690 lbs. 3,100 1,830 4,930 Cost Budget Available from beginning direct materials inventory (under a FIFO cost-flow assumption) $ 64 To be purchased this period Sugar: (1,690 lbs. – 125 lbs.) × $0.50 per lb. 783 Sticks: (4,930 – 350) × $0.30 per stick ____ Direct materials to be used this period $847 $ 105 1,374 $1,479 $2,326 Direct Materials Purchases Budget For the Month of June, 20xx Material Sugar Sticks Physical Units Budget To be used in production Add: Target ending direct material inventory Total requirements Deduct: beginning direct material inventory Purchases to be made Cost Budget Sugar: (1,805 lbs. × $0.50 per lb.) Sticks: (5,060 × $0.30 per stick) Total d. Direct Manufacturing Labor Costs Budget For the Month of June, 20xx Output Units Produced 3,100 1,830 Direct Manufacturing Labor-Hours per Unit 0.20 0.25 Total Hourly Wage Hours Rate 620 $8 457.5 8 1,077.5 Total $4,960 3,660 $8,620 1,690 lbs. 240 lbs. 1,930 lbs. 125 lbs. 1,805 lbs. 4,930 480 5,410 350 5,060 Total $903 ____ $903 $1,518 $1,518 $2,421 Large Giant Total 6-40 e. Manufacturing Overhead Costs Budget For the Month of June 20xx Total Machine setup (Large 310 batches1 0.08 hrs./batch + Giant 183 batches2 0.09 hrs./batch) $20/hour Processing (1,077.5 DMLH $1.70) Total 1Large: $ 825 1,832 $2,657 3,100 units ÷ 10 units per batch = 310; 2Giant: 1,830 units ÷ 10 units per batch = 183 f. Unit Costs of Ending Finished Goods Inventory For the Month of June, 20xx Large Giant Cost per Input per Input per Unit of Input Unit of Output Total Unit of Output $ 0.50 0.25 lb $0.125 0.50 lb. 0.30 1 0.30 1 8.00 0.2 hr. 1.60 0.25 hr. 20.00 0.008 hr. 1 0.16 0.009 hr1 1.70 0.2 hr 0.34 0.25 hr $2.525 Sugar Sticks Direct manufacturing labor Machine setup Processing Total 1 Total $ 0.25 0.30 2.00 0.18 0.425 $3.155 0.08 hour per setup ÷ 10 units per batch = 0.008 hr. per unit; 0.09 hour per setup ÷ 10 units per batch = 0.009 hr. per unit. Ending Inventories Budget June, 20xx Quantity Direct Materials Sugar Sticks Finished goods Large Giant Total ending inventory 240 lbs. 480 sticks Cost per unit $0.50 0.30 $120 144 Total $ 264 300 180 $2.525 3.155 $757 568 1,325 $1,589 6-41 g. Cost of Goods Sold Budget For the Month of June, 20xx Beginning finished goods inventory, June 1 ($500 + $474) Direct materials used (requirement c) Direct manufacturing labor (requirement d) Manufacturing overhead (requirement e) Cost of goods manufactured Cost of goods available for sale Deduct ending finished goods inventory, June 30 (requirement f) Cost of goods sold h. Nonmanufacturing Costs Budget For the Month of June, 20xx Total Marketing and general administration 10% 16,200 2. Cash Budget June 30, 20xx Cash balance, June 30, 20xx Add receipts Collections from May accounts receivable Collections from June accounts receivable ($16,200 80% 50%) Collections from June cash sales ($16,200 20%) Total collection from customers Total cash available for needs (x) Deduct cash disbursements Direct material purchases in May Direct material purchases in June ( $2,421 70%) Direct manufacturing labor Manufacturing overhead ( $2,657 60% because 40% is depreciation) Nonmanufacturing costs ( $1,620 70% because 30% is depreciation) Taxes Total disbursements (y) Financing Interest at 12% ($20,000 12% 1 ÷ 12) (z) Ending cash balance, June 30 (x) ─ (y) ─ (z) $ 587 4,704 6,480 3,240 14,424 $15,011 $ 696 1,695 8,620 1,594 1,134 500 $14,239 $ $ 200 572 $1,620 $ $2,326 8,620 2,657 974 13,603 14,577 1,325 $13,252 6-42 3. Budgeted Income Statement For the Month of June, 20xx Revenues Cost of goods sold Gross margin Operating (nonmanufacturing) costs Bad debt expense ($16,200 80% 1%) Interest expense (for June) Net income $16,200 13,252 2,948 $1,620 130 200 $ 1,950 998 Budgeted Balance Sheet June 30, 20xx Assets Cash Accounts receivable ($16,200 80% 50%)) Less: allowance for doubtful accounts Inventories Direct materials Finished goods Fixed assets Less: accumulated depreciation ($55,759 + 2,657 40% + 1,620 30%) Total assets $ $ 6,480 130 264 1,325 572 6,350 $ 1,589 $190,000 57,308 132,692 $141,203 Liabilities and Equity Accounts payable ($2,421 30%) Interest payable Long-term debt Common stock Retained earnings ($109,279 + $998) Total liabilities and equity $ 726 200 20,000 10,000 110,277 $141,203 6-43 ...
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This note was uploaded on 11/18/2009 for the course FINANCE CS-1212 taught by Professor Mr.lincolen during the Spring '09 term at Pennsylvania College of Optometry.

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costacctg13_sm_ch06 - CHAPTER 6 MASTER BUDGET AND...

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