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COURSE READER SOLUTIONS Danny S. Litt Student Name: ___________________________________________ Student ID Number: _______________________________________ Management Accounting Management 122

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DANNY S. LITT MANAGEMENT 122 COURSE READER - REV J2 - SOLUTIONS Page | 1 Class Problem Redo the budgeting example with the following updated sales forecast and prepare the balance sheet: Budget Sales for the next five months April 25,000 Units May 50,000 Units June 30,000 Units July 25,000 Units August 15,000 Units Requirement Assume that the forecast for sales in April increases from 20,000 units to 25,000 units sold. Make sure your balance sheet is in balance! Budgeted Balance Sheet Current Assets Cash 71,300.00 A/R 75,000.00 Raw Materials Inventory 4,600.00 Finished Goods Inventory 24,646.23 175,546.23 Plant and Equipment Land 400,000.00 Buildings and equipment 1,802,500.00 Accumlated Depreciation (841,500.00) 1,361,000.00 Total Assets 1,536,546.23 Liabilities Revolver Due - A/P 28,400.00 Stockholder's Equity Common Stock 200,000.00 Retained Earnings 1,308,146.23 1,508,146.23 Total Liabilites and Stockholders Equity 1,536,546.23
DANNY S. LITT MANAGEMENT 122 COURSE READER - REV J2 - SOLUTIONS Page | 2 Class Problem Litt Manufacturing Company manufactures computer desks. The 2009 operating budget is based on sales of 40,000 units at \$25 per desk. Operating income is anticipated to be \$60,000. Budgeted variable costs are \$16 per desk while fixed costs are \$300,000. Actual income for 2009 was a surprising \$177,000 on actual sales of 42,000 units. Actual variable costs were \$15 per unit and fixed costs totaled \$285,000. Requirement Prepare a variance analysis report with both flexible budget and sales volume variances. Actual Results Flexible Variances Flexible Budget Sales Volume Variance Static Budget Units Sold 42,000 42,000 40,000 Sales 1,092,000 42,000 F 1,050,000 50,000 F 1,000,000 Variable costs 630,000 (42,000) F 672,000 32,000 U 640,000 Contribution Margin 462,000 84,000 F 378,000 18,000 F 360,000 Fixed Costs 285,000 (15,000) F 300,000 - 300,000 Operating Income 177,000 99,000 F 78,000 18,000 F 60,000 Total flexible budget variance = \$99,000F Total sales volume variance = \$18,000F

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DANNY S. LITT MANAGEMENT 122 COURSE READER - REV J2 - SOLUTIONS Page | 3 Class Problem Bug Catchers manufactures traps that catch bugs. The standard materials allowed for each unit is 8 direct material items. Each item has a standard cost of \$5. During August 9,000 input items were used to manufacture 1,100 actual units. The material costs \$5.25 per item. Requirement a. Determine the price variance. b. Determine the quantity variance. Solution Price variance = Q a x (P a P s ) = 9,000 x (\$5.25 - \$5.00) = \$2,250U Quantity variance = P s x (Q a Q s ) = \$5 x (9,000 (1,100 x 8)) = \$1,000U
DANNY S. LITT MANAGEMENT 122 COURSE READER - REV J2 - SOLUTIONS Page | 4 Class Problem Danny Door Company manufactures large house doors. A certain size door requires the following: Direct materials standard

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