2010s2w13HomeQ - Suggested solutions to homework questions...

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Unformatted text preview: Suggested solutions to homework questions – Week 13 Problem 18.13 Gardner Company Cash Budget For the Month of April 1998 Beginning cash balance $12,500 Collections: Cash sales (.3 x $565,000) 169,500 April with discounta 116,277 b without discount 118,650 c March 70,000 d February 42,000 Sale of old equipment 13,000 Total cash available $541,927 Less disbursements: Raw materials: $60,000 April e f March 56,500 Direct labour 50,000 Operating expenses 143,000 Dividends 65,000 Equipment 80,000 Total disbursements $454,500 Minimum cash balance 10,000 Total cash needs $464,500 Excess of cash available over needs 77,427 Ending cash balance $ 87,427 a (.7 x $565,000) x .6 x .5 x .98 (.7 x $565,000) x .6 x .5 c (.7 x $500,000) x .2 d (.7 x $300,000) x .2 e April requirements (.2 x $565,000) Desired ending inventory (.2 x $600,000) Total requirements Less: Beginning inventory Purchases April payment: $120,000/2 b f $113,000 120,000 $233,000 113,000 $120,000 $113,000/2 (purchases for March are computed as shown for April) OR SEE SPREADSHEET Problem 18.14 1. a. The new budget system allows managers to focus on those areas that need attention. By dividing the annual budget into 12 equal parts, it allows the managers to take corrective action before the error is compounded and frequent feedback is provided. In addition, the company has segregated costs into fixed and variable components, an essential step for good control. A major weakness of the budget is the failure to properly define responsibility (see below b, about problem of including corporate costs). Because of this, supervisors are being held accountable for areas over which they have no control. b. There are two major weaknesses of the performance report. The first weakness is that it includes corporate costs ‐ costs that are outside the control of the machining department manager. The second weakness is that it compares actual level of activity of 3,185 units with budget level of activity of 3,000 units – it’s similar to comparing apples with oranges. 2. A revised report for machining department is shown below using a flexible budgeting system. OR SEE SPREADSHEET. Berwin Pty. Ltd. Machining Department Performance Report For the Month Ended May 31, 1998 Budget Actual Variance 3,185 3,185 ‐0‐ Volume in units Costs: Direct Materials $25,480 $24,843 $ 637 F Direct Labour 29,461 29,302 159 F Variable Overhead 35,354 35,035 319 F Total variable costs $90,295 $89,180 $1,115 F Fixed Manufacturing Costs: Indirect labour $ 3,300 $ 3,334 $ 34 U Depreciation 1,500 1,500 0 Taxes 300 300 0 Insurance 240 240 0 Other 930 1,027 97 U Total fixed costs $ 6,270 $ 6,401 $ 131 U Total costs $96,565 $95,581 $ 984 F 3. Berwin’s budgetary system could also be improved by offering monetary and non‐monetary incentives (e.g., budget participation by lower level managers) to reach budget goals. The budget needs to be based on realistic conditions and expectations. And the managers should be held accountable only for costs over which they havecontrol. ...
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