222 CH 10 HW Solutions 5th edition

222 CH 10 HW Solutions 5th edition - CHAPTER 10 Budgetary...

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Unformatted text preview: CHAPTER 10 Budgetary Control and Responsibility Accounting Homework Solutions ANSWERS TO QUESTIONS (5, 12, 15, 25) 5. A static budget is an appropriate basis for evaluating a managers effectiveness in controlling costs when: (1) The actual level of activity closely approximates the master budget activity level and/or (2) The behavior of the costs in response to changes in activity is fixed. 12. Management by exception means that top managements review of a budget report is focused either entirely or primarily on differences between actual results and planned objectives. The criteria for identifying exceptions are materiality and controllability of the item. 15. A cost is controllable at a given level of managerial responsibility if the manager has the power to incur the cost within a given period of time. Most costs incurred directly are controllable, whereas costs incurred indirectly and allocated to a responsibility level are noncontrollable at that level. 20. Direct fixed costs relate specifically to one center and are incurred for the sole benefit of that center. An indirect fixed cost relates to the companys overall activities and is incurred for the benefit of more than one profit center. Both types of fixed costs are controllable. A direct fixed cost is controllable by a specific center manager and an indirect fixed cost is controllable by an officer higher up in the organization. SOLUTIONS TO BRIEF EXERCISES (4, 5, 7, 12) BRIEF EXERCISE 10-4 ORTIZ COMPANY Monthly Flexible Manufacturing Budget For the Year 2011 Activity level Finished units Variable costs Direct materials ($4) Direct labor ($6) Overhead ($8) Total variable costs ($18) Fixed costs Depreciation (1) Supervision (2) Total fixed costs Total costs 80,000 $ 320,000 480,000 640,000 $1,440,000 200,000 100,000 300,000 $1,740,000 100,000 $ 400,000 600,000 800,000 $1,800,000 200,000 100,000 300,000 $2,100,000 120,000 $ 480,000 720,000 960,000 $2,160,000 200,000 100,000 300,000 $2,460,000 (1) $2 X 1,200,000 12 (2) $1 X 1,200,000 12 BRIEF EXERCISE 10-5 ORTIZ COMPANY Manufacturing Flexible Budget Report For the Month Ended March 31, 2011 Budget Actual Difference Units produced Variable costs Direct materials Direct labor Overhead Total variable costs Fixed costs Depreciation Supervision Total fixed costs Total costs 100,000 $ 400,000 600,000 800,000 $1,800,000 200,000 100,000 300,000 $2,100,000 100,000 $ 425,000 590,000 805,000 $1,820,000...
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222 CH 10 HW Solutions 5th edition - CHAPTER 10 Budgetary...

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