ACCT303Chapter6

# Nonmanufacturing costs budget for the year ending

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Nonmanufacturing Costs Budget For the Year Ending December 31, 2009 Variable Fixed Total Marketing \$2,011,200 \$4,500,000 \$6,511,200 Distribution 54,000 380,000 434,000 Total \$2,065,200 \$4,880,000 \$6,945,200 6-36

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12. Budgeted Income Statement For the Year Ending December 31, 2009 Revenue \$54,260,000 Cost of goods sold 26,679,827 Gross margin 27,580,173 Operating (nonmanufacturing) costs 6,945,200 Operating income \$20,634,973 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 ─ \$211.40) = \$688.60 ( \$688.60 76.5% \$900 ). Customers who purchase a table will likely want 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. 6-37
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 Large 3,000 \$3 \$ 9,000 Giant 1,800 4 7,200 Total \$16,200 b. Production Budget For the Month of June, 20xx Product Large Giant Budgeted unit sales 3,000 1,800 Add: target ending finished goods inventory 300 180 Total required units 3,300 1,980 Deduct: beginning finished goods inventory 200 150 Units of finished goods to be produced 3,100 1,830 6-38

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c. Direct Material Usage Budget in Quantity and Dollars For the Month of June, 20xx Material Sugar Sticks Total Physical Units Budget Direct materials required for Large (3,100 units × 0.25 lb.; 1 stick) 775 lbs. 3,100 Giant (1,830 units × 0.50 lb.; 1 stick) 915 lbs. 1,830 Total quantity of direct materials to be used 1,690 lbs. 4,930 Cost Budget Available from beginning direct materials inventory (under a FIFO cost-flow assumption) \$ 64 \$ 105 To be purchased this period Sugar: (1,690 lbs. – 125 lbs.) × \$0.50 per lb. 783 Sticks: (4,930 – 350) × \$0.30 per stick ____ 1,374 Direct materials to be used this period \$847 \$1,479 \$2,326 Direct Materials Purchases Budget For the Month of June, 20xx Material Sugar Sticks Total Physical Units Budget To be used in production 1,690 lbs. 4,930
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