222 CH 9 HW Solutions 5th edition

222 CH 9 HW Solutions 5th edition - CHAPTER 9 Budgetary...

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CHAPTER 9 Budgetary Planning Homework Solutions ANSWERS TO QUESTIONS (7, 10, 12, 20) 7. Participative budgeting involves the use of a “bottom-to-top” approach, which requires input from lower level management during the budgeting process so as to involve employees from various levels and areas within the company. The potential benefits of this approach are lower- level managers have more detailed knowledge of the specifics of their job, and thus should be able to provide better budgetary estimates. In addition, by involving lower-level managers in the process, it is more likely that they will perceive the budget as being fair and reasonable. One disadvantage of participative budgeting is that it takes more time, and thus costs more. Another disadvantage of participative budgeting is that it may enable managers to game the system through such practices as budgetary slack. 10. The sales budget is the starting point in preparing the master budget. An inaccurate sales budget may adversely affect net income. An overly optimistic sales budget may result in excessive inventories and a very conservative sales budget may lead to inventory shortages. 12. The required units of production are 165,000 (160,000 + 20,000 = 180,000 – 15,000 = 165,000). 20. Cash collections are: January—$500,000 X 45% = $225,000. February—$500,000 X 50% = $250,000. March—$500,000 X 5% = $25,000. SOLUTIONS TO BRIEF EXERCISES (2, 3, 4, 10) BRIEF EXERCISE 9-2 MUSSATTO COMPANY Sales Budget For the Year Ending December 31, 2011 Quar ter 1 2 3 4 Year Expected unit sales Unit selling price Total sales 10,000 X $80 $800,000 12,000 X $80 $960,00 0 14,000 X $80 $1,120,000 18,000 X $80 $1,440,000 54,000 X $80 $4,320,000
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BRIEF EXERCISE 9-3 MUSSATTO COMPANY Production Budget For the Six Months Ending June 30, 2011 Quarter Six Months 1 2 Expected unit sales Add: Desired ending finished goods Total required units Less: Beginning finished goods inventory Required production units 10,000 2,400 12,400 2,000 10,400 a b 12,000 2,800 14,800 2,400 12,400 c 22,800 a 12,000 X .20 b 10,000 X .20 c 14,000 X .20 BRIEF EXERCISE 9-4 HANNON COMPANY Direct Materials Budget For the Month Ending January 31, 2012 Units to be produced. ........................................................ 4,000 Direct materials per unit. ................................................... X 2 Total pounds required for production. ............................ 8,000 Add: Desired ending inventory (20% X 5,500 X 2). ....... 2,200 Total materials required. .................................................... 10,200 Less: Beginning materials inventory. ............................. 1,600 Direct materials purchases. .............................................. 8,600 Cost per pound. .................................................................. X $6 Total cost of direct materials purchases. ........................ $51,600 BRIEF EXERCISE 9-10 Budgeted cost of goods sold ($400,000 X 60%). ....................... $240,000
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222 CH 9 HW Solutions 5th edition - CHAPTER 9 Budgetary...

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