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CHAPTER 9

Profit Planning, Activity-Based Budgeting, ande-Budgeting

ANSWERS TO REVIEW !ESTIONS

9-1 A budget facilitates communication and coordination by making each managerthroughout the organization aware of the plans made by other managers. Thebudgeting process pulls together the plans of each manager in the organization.

9-2 An example of using the budget to allocate resources in a uniersity is found in thearea of research funds and grants. !niersities typically hae a limited amount ofresearch-support resources that must be allocated among the arious colleges anddiisions within the uniersity. This allocation process often takes place within thecontext of the budgeting process.

9-" A master budget# or profit plan# is a comprehensie set of budgets coering allphases of an organization$s operations for a specified period of time. The masterbudget includes the following parts% sales budget# operational budgets &including a production budget# inentory budgets# a labor budget# an oerhead budget# a sellingand administratie expense budget# and a cash budget'# and budgeted financialstatements &including a budgeted income statement# budgeted balance sheet# andbudgeted statement of cash flows'.

9-( The flowchart on the following page depicts the components of the master budgetfor a serice station.

9-) *eneral economic trends are important in forecasting sales in the airline industry.The oerall health of the economy is an important factor affecting the extent ofbusiness trael. +n addition# the health of the economy# inflation# and income leelsaffect the extent to which the general public traels by air.

9-, perational budgets specify how an organization$s operations will be carried out tomeet the demand for its goods and serices. The operational budgets prepared in a

hospital would include a labor budget showing the number of professional personnelof arious types reuired to carry out the hospital$s mission# an oerhead budgetlisting planned expenditures for such costs as utilities and maintenance# and a cashbudget showing planned cash receipts and disbursements.

McGraw-Hill/Irwin 2008 The McGraw-Hill Companies,

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/lowchart for 0eiew uestion 9-(


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ales3udget

perational3udgets

3udgeted/inancial

tatements

3udgeted3alance heet

3udgetedtatement of4ash /lows

3udgeted+ncome

tatement

4ash3udget

5nding+nentory3udget%*asoline

6aterials 3udget%*asoline and

0elated 7roducts

8abor3udget

erhead3udget

elling andAdministratie

5xpense3udget

ales 3udget%*asoline# 0elated7roducts# and

erices


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9. Application of actiity-based costing to the budgeting process yields actiity-basedbudgeting &A33'. !nder A33# the first step is to specify the products or serices tobe produced and the customers to be sered. Then the actiities necessary toproduce these products and serices are determined. /inally the resources neededto perform the specified actiities are determined. A33 differs from traditionalbudgeting in the emphasis that it places on actiities and its use of actiity-basedcosting data in the budgeting process.

9.: 5-budgeting stands for an electronic and enterprise-wide budgeting process. !nder thisapproach the information needed to construct a budget is gathered ia the +nternetfrom indiiduals and subunits located throughout the enterprise. The +nternet also isused to disseminate the resulting budget schedules and information to authorizedusers throughout the enterprise.

9-9 The city of 3oston could use budgeting for planning purposes in many ways. /or

example# the city$s personnel budget would be important in planning for reuiredemployees in the police and fire departments. The city$s capital budget would beused in planning for the replacement of the city$s ehicles# computers#administratie buildings# and traffic control euipment. The city$s cash budget wouldbe important in planning for cash receipts and disbursements. +t is important for anyorganization# including a municipal goernment# to make sure that it has enoughcash on hand to meet its cash needs at all times.

9.1;The budget director# or chief budget officer# specifies the process by which budget data will be gathered# collects the information# and prepares the master budget. Tocommunicate budget procedures and deadlines to employees throughout theorganization# the budget director often deelops and disseminates a budget manual.

9-11 The budget manual says who is responsible for proiding arious types ofinformation# when the information is reuired# and what form the information is totake. The budget manual also states who should receie each schedule when themaster budget is complete.

9-12 A company$s board of directors generally has final approal oer the master budget.3y exercising its authority to make changes in the budget and grant final approal#

the board of directors can wield considerable influence on the oerall direction theorganization takes. ince the budget is used as a resource-allocation mechanism#the board of directors can emphasize some programs and curtail or eliminate othersby allocating funds through the budgeting process.


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9-1" !nder zero-base budgeting# the budget for irtually eery actiity in the organizationis initially set to zero. To receie funding during the budgeting process# each actiitymust be


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9-19 +n deeloping a budget to meet your college expenses# the primary steps would be topro


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SO'!TIONS TO E(ER)ISES

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1.

April 6ay Cuneales........................................................... D:;#;;; D,;#;;; D9;#;;;a

4ash receipts%/rom cash sales.................................... D (;#;;;b D ";#;;;c D ()#;;;/rom sales on account......................... ",#;;;d "(#;;; "9#;;;e

Total cash receipts.................................... D ,#;;; D ,(#;;; D :(#;;;

a D9;#;;; E D()#;;; × 2

bD(;#;;; E D:;#;;; × .)

cD";#;;; E D,;#;;; × .)

dD",#;;; E &D(;#;;; × .,' F &D";#;;; × .('

eD"9#;;; E &D()#;;; × .,' F &D";#;;; × .('

2. Accounts payable# 12G"1Gx;.........................................................................";;#;;; euros

7urchases of goods and serices on account during 2;x1......................1#2;;#;;; euros

7ayments of accounts payable during 2;x1..............................................&1#1;;#;;; ' eurosHAccounts payable# 12G"1Gx1......................................................................... (;;#;;; euros

H1#1;;#;;; euros E ";;#;;; euros F 1#2;;#;;; euros I (;;#;;; euros

". Accounts receiable# 12G"1Gx;..................................................................... "(;#;;; y ales on account during 2;x1..................................................................... 9;;#;;; y 4ollections of accounts receiable during 2;x1........................................ &:;#;;; y '

Accounts receiable# 12G"1Gx1..................................................................... (,;#;;; y

(. Accumulated depreciation# 12G"1Gx;........................................................... D :1;#;;;

@epreciation expense during 2;x1............................................................. 1);#;;;Accumulated depreciation# 12G"1Gx1........................................................... D 9,;#;;;

). 0etained earnings# 12G"1Gx;........................................................................ D2#;);#;;;

Bet income for 2;x1..................................................................................... (;;#;;;

@iidends paid in 2;x1................................................................................. -; -J0etained earnings# 12G"1Gx1........................................................................ D2#();#;;;


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Answers will ary widely# depending on the goernmental unit selected and the budgetaryitems on which the student focuses. +n the past# students hae expressed surprise at theproportion of the !.. federal budget that goes to entitlement programs &e.g.# ocial

ecurity and 6edicare'# interest expense# and the military.

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1. 7roduction &in units' reuired for the year%

ales for the year........................................................................................... (:;#;;;Add% @esired ending finished-goods inentory on @ecember "1.............. );#;;;@educt% 3eginning finished-goods inentory on Canuary 1...................... :;#;;;0euired production during the year........................................................... ();#;;;

2. 7urchases of raw material &in units'# assuming production of );;#;;; finished units%

0aw material reuired for production &);;#;;; × 2'................................... 1#;;;#;;;

Add% @esired ending inentory on @ecember "1........................................ ()#;;;@educt% 3eginning inentory on Canuary 1................................................. ")#;;;0euired raw-material purchases during the year...................................... 1#;1;#;;;

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1. 4ash collections in ctober%

6onth of ale Amount 4ollected in ctober

Culy............................................................... D,;#;;; × (K D 2#(;;

August......................................................... ;#;;; × 1;K #;;;

eptember................................................... :;#;;; × 1)K 12#;;;

ctober........................................................ 9;#;;; × ;K ,"#;;;

Total............................................................. D:(#(;;

Botice that the amount of sales on account in Cune# D(9#;;; was not needed to solethe exercise.


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2. 4ash collections in fourth uarter from credit sales in fourth uarter.

Amount 4ollected

6onth of ale4reditales ctober Boember @ecember

ctober............................................ D 9;#;;; D,"#;;; D1"#);; D 9#;;;Boember........................................

1;;#;;; I ;#;;; 1)#;;;

@ecember......................................... :)#;;; I I )9#);;Total................................................. D ,"#;;; D:"#);; D :"#);;Total collections in fourth uarter

from credit sales in fourthuarter......................................... D2";#;;;

". preadsheet is shown on this chapterLs solutions manual opening screen.

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1. The total reuired production is ,))#2; units# computed as follows%

3udgeted ales&in units'

7lanned 5nding +nentory&in units'

Cune 1,;#;;; &2;;#;;; × :;K'

Culy 2;;#;;; &gien'August 21;#;;; &2;;#;;; × 1.;)'

eptember 22;#);; &21;#;;; × 1.;)' 1:)#22; &2"1#)2) × :;K'

ctober 2"1#)2) &22;#);; × 1.;)'

ales in units%

Culy................................................................................................................ 2;;#;;;August........................................................................................................... 21;#;;;eptember..................................................................................................... 22;#);;Total for third uarter................................................................................... ,";#);;Add% @esired ending inentory# eptember ";.......................................... 1:)#22;ubtotal......................................................................................................... :1)#2;@educt% @esired ending inentory# Cune ";............................................... 1,;#;;;Total reuired production............................................................................ ,))#2;


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2. Assumed production during third uarter &in units'................................. ,;;#;;;0aw-material reuirements per unit of product &in pounds'....................

× (

0aw material reuired for production in third uarter &in pounds'.......... 2#(;;#;;;Add% @esired ending raw-material inentory# eptember ";

&2#(;;#;;; × 2)K'................................................................................. ,;;#;;;

ubtotal......................................................................................................... "#;;;#;;;@educt% 5nding raw-material inentory# Cune ";....................................... ;;#;;;0aw material to be purchased during third uarter &in pounds'.............. 2#";;#;;;4ost per pound of raw material...................................................................

× D1.1)

Total raw-material purchases during third uarter.................................... D2#,()#;;;

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1. BIN.A/TON 0I'/ )ORPORATIONE(PE)TE1 )AS. )O''E)TIONS

A!!ST

6onth ales 7ercent5xpected

4ollectionsCune................................................... D,;#;;; 9K D )#(;;Culy.................................................... :#;;; 2;K 1)#,;;

August............................................... ,,#;;; ;K (,#2;;Total............................................... D,#2;;

2. BIN.A/TON 0I'/ )ORPORATIONE(PE)TE1 )AS. 1ISB!RSE/ENTS

A!!ST

Culy purchases to be paid in August............................................................ D )(#;;;

8ess% 2K cash discount................................................................................ 1#;:;Bet............................................................................................................... D )2#92;

4ash disbursements for expenses............................................................... 1(#(;;Total............................................................................................................ D ,#"2;


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". BIN.A/TON )ORPORATIONE(PE)TE1 )AS. BA'AN)E

A!!ST $"

3alance# August 1.......................................................................................... D 22#;;;Add% 5xpected collections............................................................................ ,#2;;8ess% 5xpected disbursements.................................................................... ,#"2;

5xpected balance...................................................................................... D 21#::;

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6emorandum

@ate% Today

To% 7resident# 5ast 3ank of 6ississippi

/rom% +.6. tudent and Associates

ubhen a budget includesslack# the amounts in the budget no longer portray a realistic iew of future operations.

The bank$s bonus system for the new accounts manager tends to encouragebudgetary slack. ince the manager$s bonus is determined by the number of newaccounts generated oer the budgeted number# the manager has an incentie tounderstate her pro


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1.Total ales in Canuary 2;x2

D1;;#;;; D1";#;;; D1,;#;;;

4ash receipts in Canuary# 2;x2/rom @ecember sales on account............ D #12)H D #12) D #12)/rom Canuary cash sales.......................... )#;;;M 9#);; 12;#;;;/rom Canuary sales on account............... 2;#;;;HH 2,#;;; "2#;;;Total cash receipts..................................... D 1;2#12) D1";#,2) D1)9#12)

HD#12) E D19;#;;; × .2) × .1)MD)#;;; E D1;;#;;; × .)

HHD2;#;;; E D1;;#;;; × .2) × .:;

2. perational plans depend on arious assumptions. !sually there is uncertainty aboutthese assumptions# such as sales demand or inflation rates. /inancial planning helpsmanagement answer =what if= uestions about how the budget will look under arioussets of assumptions.

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1. 3udgeted cash collections for @ecember%

6onth of ale 4ollections in @ecemberBoember............................................................. D2;;#;;; × ":K D ,#;;;

@ecember.............................................................. 22;#;;; × ,;K 1"2#;;;

Total cash collections.......................................... D2;:#;;;

2. 3udgeted income &loss' for @ecember%

ales reenue....................................................................... D22;#;;;8ess% 4ost of goods sold &)K of sales'............................ 1,)#;;;*ross margin &2)K of sales'............................................... D ))#;;;

8ess% perating expenses%..................................................3ad debts expense &2K of sales'.............................. D (#(;;@epreciation &D21,#;;;G12'........................................ 1:#;;;ther expenses.......................................................... 22#,;;Total operating expenses.......................................... ()#;;;

+ncome before taxes............................................................. D 1;#;;;


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". 7ro


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2. 4ash collections during Cune%

6ay Cune

Nalf-hour isits &(#;;; × :;K'............................................... "#2;; "#2;;3illing rate..............................................................................

× D(; × D(;

Total billings for half-hour isits........................................... D12:#;;; D12:#;;;

ne-hour isits &(#;;; × 2;K'............................................... :;; :;;

3illing rate..............................................................................× D; × D;

Total billings for one-hour isits........................................... D ),#;;; D ),#;;;Total billings during month................................................... D1:(#;;; D1:(#;;;7ercentage of month$s billings collected

during Cune........................................................................× 1; K × 9; K

4ollections during Cune........................................................ D 1:#(;; D1,)#,;;Total collections in Cune &D1:#(;; F D1,)#,;;'.................... D1:(#;;;

". erhead and administratie expense budget for Cune%

7atient registration and records &(#;;; isits × D2.;; per isit'. .. D :#;;;

ther oerhead and administratie expenses

&2#(;; hours × D).;; per hour'................................................... 12#;;;

Total oerhead and administratie expenses................................. D2;#;;;

(. preadsheet is shown on this chapterLs solutions manual opening screen.


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SO'!TIONS TO PROB'E/S

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1. 7roduction and direct-labor budgets

SPI004 S.A1ES )ORPORATIONB!1ET 0OR PRO1!)TION AN1 1IRE)T 'ABOR

0OR T.E 0IRST !ARTER O0 #3("

6onthCanuary /ebruary 6arch uarter

ales &units'..................................................... 1;#;;; 12#;;; :#;;; ";#;;;Add% 5nding inentoryH................................... 1,#;;; 12#);; 1"#);; 1"#);;Total needs....................................................... 2,#;;; 2(#);; 21#);; ("#);;@educt% 3eginning inentory.......................... 1,#;;; 1,#;;; 12#);; 1,#;;;

!nits to be produced....................................... 1;#;;; :#);; 9#;;;

2#);;@irect-labor hours per unit..............................

× 1 × 1 × .)

Total hours of direct labortime needed................................................. 1;#;;; :#);; ,#); 2)#2);

@irect-labor costs%>ages &D1,.;; per @8N'M............................. D1,;#;;; D1",#;;; D1;:#;;; D(;(#;;;7ension contributions

&D.); per @8N'......................................... )#;;; (#2); "#") 12#,2)>orkers$ compensation

insurance &D.2; per @8N'........................ 2#;;; 1#;; 1#"); )#;);5mployee medical insurance

&D.:; per @8N'......................................... :#;;; ,#:;; )#(;; 2;#2;;5mployer$s social security

&at K'...................................................... 11#2;; 9#)2; #),; 2:#2:; Total direct-labor cost..................................... D1:,#2;; D1):#2; D12)#,:) D(;#1))

H1;; percent of the first following month$s sales plus ); percent of the second followingmonth$s sales.M@8N denotes direct-labor hour.


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2. !se of data throughout the master budget%

4omponents of the master budget# other than the production budget and the direct-

labor budget# that would also use the sales data include the following%

• ales budget

• 4ost-of-goods-sold budget

• elling and administratie expense budget

4omponents of the master budget# other than the production budget and the direct-labor budget# that would also use the production data include the following%

• @irect-material budget

• 6anufacturing-oerhead budget


4omponents of the master budget# other than the production budget and the direct-labor budget# that would also use the direct-labor-hour data include the following%

• 6anufacturing-oerhead budget &for determining the oerhead application rate'

4omponents of the master budget# other than the production budget and the direct-labor budget# that would also use the direct-labor cost data include the following%

• 6anufacturing-oerhead budget &for determining the oerhead application rate'


• 4ash budget

• 3udgeted income statement


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". 6anufacturing oerhead budget%

7+//? NA@5 4070AT+B

6AB!/A4T!0+B* O50N5A@ 3!@*5T/0 TN5 /+0T !A0T50 / 2;1

6onth

Canuary /ebruary 6arch uarter

hipping and handling............... D 2;#;;; D 2(#;;; D1,#;;; D ,;#;;;7urchasing# material handling#and inspection............................ ";#;;; 2)#);; 2#;;; :2#);;

ther oerhead........................... ;#;;; )9#);; (#2); 1,#);Total manufacturing oerhead... D12;#;;; D1;9#;;; D9;#2); D"19#2);

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1. Tuition reenue budget%4urrent student enrollmentPPPPPPPP. :#;;;Add% )K increase in student bodyPPPPP (;;Total student bodyPPPPPPPPPPPP. :#(;;8ess% Tuition-free scholarshipsPPPPPP. 12;

Tuition-paying studentsPPPPPPPPPP :#2:;4redit hours per student per yearPPPPP. x ";Total credit hoursPPPPPPPPPPPP.. 2(:#(;;Tuition rate per hourPPPPPPPPPPP. x D)/orecasted tuition reenuePPPPPPPP. D1:#,";#;;;

2. /aculty needed to coer classes%Total student bodyPPPPPPPPPPPPPP. :#(;;4lasses per student per year Q&1) credit hours R "

credit hours' x 2 semestersSPPPPPPP. x 1;Total student class enrollments to be coeredP. :(#;;;tudents per classPPPPPPPPPPPPPP. R 2)4lasses to be taughtPPPPPPPPPPPPP. "#",;4lasses taught per professorPPPPPPPPP. R )/aculty neededPPPPPPPPPPPPPPPP ,2


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". 7ossible actions might include%

• Nire part-time instructors

• !se graduate teaching assistants

• +ncrease the teaching load for each professor

• +ncrease class size and reduce the number of sections to be offered

• Nae students take an +nternet-based course offered by another uniersity

• hift courses to a summer session

(. Bo. >hile the number of faculty may be a key drier# the number of faculty is highlydependent on the number of students. tudents &and tuition reenue' are akin tosalesthe starting point in the budgeting process.

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1. chedule of cash collections%Canuary /ebruary 6arch

4ollection of accounts receiable%D))#;;; x 2;KPPPPPPPPPP... D 11#;;;

4ollection of Canuary sales &D1);#;;;'%,;K in CanuaryU ")K in /ebruary P.. 9;#;;; D )2#);;

4ollection of /ebruary sales &D1:;#;;;'%,;K in /ebruaryU ")K in 6archPP.. 1;:#;;; D ,"#;;;

4ollection of 6arch sales &D1:)#;;;'%,;K in 6archU ")K in AprilPPPP.. 111#;;;

ale of euipmentPPPPPPPPPP. )#;;;Total cash collectionsPPPPPPP D1;1#;;; D1,;#);; D19#;;;

2. chedule of cash disbursements%Canuary /ebruary 6arch

7ayment of accounts payablePPPPPP... D 22#;;;7ayment of Canuary purchases &D9;#;;;'%

;K in CanuaryU ";K in /ebruaryPPP.. ,"#;;; D 2#;;;7ayment of /ebruary purchases &D1;;#;;;'%

;K in /ebruaryU ";K in 6archPPPP.. ;#;;; D ";#;;;7ayment of 6arch purchases &D1(;#;;;'%

;K in 6archU ";K in AprilPPPPPP.. 9:#;;;4ash operating costsPPPPPPPPPP.. "1#;;; 2(#;;; ()#;;;

Total cash disbursementsPPPPPP... D11,#;;; D121#;;; D1"#;;;


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". chedule of cash needs%Canuary /ebruary 6arch

3eginning cash balancePPPPPPPPP. D 2;#;;; D 2;#;;; D ((#";;Total receiptsPPPPPPPPPPPPPP. 1;1#;;; 1,;#);; 19#;;;

ubtotalPPPPPPPPPPPPPPP. D121#;;; D1:;#);; D22"#";;8ess% Total disbursementsPPPPPPPP 11,#;;; 121#;;; 1"#;;;4ash excess &deficiency' before financingP D )#;;; D )9#);; D );#";;/inancing%

3orrowing to maintain D2;#;;; balance.. 1)#;;;8oan principal repaidPPPPPPPPP &1)#;;;'8oan interest paidPPPPPPPPPP.. &2;;'H

5nding cash balancePPPPPPPPPPP D 2;#;;; D ((#";; D );#";;

H D1)#;;; x :K x 2G12

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1. ales are collected oer a two-month period# (;K in the month of sale and ,;K in thefollowing month. @ecember receiables of D21,#;;; eual ,;K of @ecemberLs salesUthus# @ecember sales total D",;#;;; &D21,#;;; R .,'. ince the selling price is D(;per unit# 3adlands sold 9#;;; units &D",;#;;; R D(;'.

2. ince the company expects to sell 1;#;;; units# sales reenue will total D(;;#;;;&1;#;;; units x D(;'.

". 3adlands collected (;K of /ebruaryLs sales in /ebruary# or D1),#:;;. Thus#/ebruaryLs sales total D"92#;;; &D1),#:;; R .('. 4ombining Canuary sales &D1)2#;;; FD22:#;;;'# /ebruary sales &D"92#;;;'# and 6arch sales &D(;;#;;;'# the company willreport reenue of D1#12#;;;.

(. ixty percent of 6archLs sales will be outstanding# or D2(;#;;; &D(;;#;;; x ,;K'.

). /inished-goods inentories are maintained at 2;K of the following monthLs sales.Canuary sales total D":;#;;; &D1)2#;;; F D22:#;;;'# or 9#);; units &D":;#;;; R D(;'.Thus# the @ecember "1 inentory is 1#9;; units &9#);; x 2;K'.


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,. /ebruary sales will total 9#:;; units &D"92#;;; R D(;'# giing rise to a Canuary "1inentory of 1#9,; units &9#:;; x 2;K'. 8etting denote production# then%

12G"1Gx; inentory F I Canuary 2;x1 sales E 1G"1Gx1 inentory1#9;; F - 9#);; E 1#9,; I #,;; E 1#9,; E 9#),;

. /inancing reuired is D#;;; &D";#;;; minimum balance - D2"#;;; ending balance'%4ash balance# Canuary 1PPPPPPPPPP D ()#;;;Add% Canuary receipts &D21,#;;; F D1)2#;;;'.. ",:#;;;

ubtotalPPPPPPPPPPPPPPPP D(1"#;;;8ess% Canuary paymentsPPPPPPPPPP "9;#;;;

4ash balance beforefinancingPPPPPPP.

D 2"#;;;


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1. The cash budget for Alpha-Tech for the second uarter of 2;x) is presented below.upporting calculations follow.

A'P.A-TE).)as5 Budget

/or the econd uarter of 2;x)

April 6ay Cune3eginning balance................................................. D );;#;;; D );;#;;; D 1#2";#;;;

4ollections%a

/ebruary sales.................................................6arch sales......................................................April sales.........................................................

6ay sales..........................................................

(#;;;#;;;)#(;;#;;; "#,;;#;;;

,#9;;#;;; (#,;;#;;;

#);;#;;;Add% Total receipts................................................. D9#(;;#;;; D1;#);;#;;; D12#1;;#;;;

Total cash aailable............................................... D9#9;;#;;; D11#;;;#;;; D1"#"";#;;;

@isbursements%Accounts payableb...........................................>agesc..............................................................*eneral and administratied............................7roperty taxes..................................................+ncome taxese...................................................

D(#1))#;;;"#();#;;;

9;;#;;;

1#2:;#;;;

D (#")#;;;"#);#;;;

9;;#;;;

D )#2:)#;;;(#2;;#;;;

9;;#;;;"(;#;;;

@educt% Total disbursements................................ D9#:)#;;; D 9#":)#;;; D1;#2)#;;;

4ash balance.......................................................... D 11)#;;; D 1#,1)#;;; D 2#,;)#;;;4ash borrowed....................................................... ":)#;;;4ash repaid &":)#;;;'

5nding balance...................................................... D );;#;;; D 1#2";#;;; D 2#,;)#;;;

a ,;K of sales in first month after saleU (;K of sales in second month after sale.bee next page.c";K of current month sales.d&Total# less property taxes and depreciation' diided by 12.e(;K V D"#2;;#;;;.


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Managerial Accounting, 7/e 9-#"


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703856 9-", &4BT+B!5@'

bAccounts payable%

TotalH 7ercentage /ebruary 6arch April 6ay Cune

4ost of goods sold%/ebruary.... D(#;;;#;;; ."; D1#2;;#;;;6arch......... "#,;;#;;; .; 2#)2;#;;;6arch......... "#,;;#;;; ."; D1#;:;#;;;April........... (#,;;#;;; .; "#22;#;;;April........... (#,;;#;;; ."; D1#":;#;;;6ay............ )#;;;#;;; .; "#);;#;;;6ay............ )#;;;#;;; ."; D1#);;#;;;Cune........... )#,;;#;;; .; "#92;#;;;

D"#2;#;;; D(#";;#;;; D(#::;#;;; D)#(2;#;;;

7ayments%

/ebruary.... D"#2;#;;; .2) D 9";#;;;6arch......... (#";;#;;; .) "#22)#;;;6arch......... (#";;#;;; .2) D1#;)#;;;April........... (#::;#;;; .) "#,,;#;;;April........... (#::;#;;; .2) D1#22;#;;;6ay............ )#(2;#;;; .) (#;,)#;;;

D ; D ; D(#1))#;;; D(#")#;;; D)#2:)#;;;

H/or cost of goods sold# this amount is eual to (;K of sales. /or payments# this amount iseual to the cost of goods sold.

2. 4ash budgeting is important for Alpha-Tech because as sales grow# so willexpenditures for inputs. ince these expenditures generally precede cash receipts#the company must plan for possible financing to coer the gap between paymentsand receipts. The cash budget shows the probable cash position at certain points intime# allowing the company to plan for borrowing# as Alpha-Tech must do in April.

4ash budgeting also facilitates the control of excess cash. The company may belosing inestment opportunities if excess cash is left idle. The cash budget alertsmanagement to periods when there will be excess cash aailable for inestment#thus facilitating financial planning and cash control.


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703856 9-" &(; 6+B!T5'

1. The use of alternatie accounting methods to manipulate reported earnings is unethicalbecause it iolates the tandards of 5thical 4onduct for 6anagement Accountants. Thecompetence standard is iolated because of failure to comply with technical standards

and lack of appropriate analysis. The integrity standard is iolated because this actioninduces people to carry out duties unethically due to extreme management pressure#suberts the attainment of an organization$s ob


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703856 9-": &2) 6+B!T5'

1. ales budget

April 6ay Cune

ales &in sets'.............................................. 1;#;;; 12#;;; 1)#;;;ales price per set......................................

× D); × D); × D);

ales reenue.............................................. D);;#;;; D,;;#;;; D);#;;;

2. 7roduction budget &in sets'

April 6ay Cuneales............................................................ 1;#;;; 12#;;; 1)#;;;Add% @esired ending inentory.................. 2#(;; "#;;; "#;;;

Total reuirements...................................... 12#(;; 1)#;;; 1:#;;;8ess% 7ro


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703856 9-": &4BT+B!5@'

(. @irect-labor budget

April 6ay Cune

7lanned production &sets'............................. 1;#(;; 12#,;; 1)#;;;@irect-labor hours per set.............................

× 1.) × 1.) × 1.)

@irect-labor hours reuired........................... 1)#,;; 1:#9;; 22#);;4ost per hour.................................................

× D2; × D2; × D2;

7lanned direct-labor cost.............................. D"12#;;; D":#;;; D();#;;;

). preadsheet is shown on this chapterLs solutions manual opening screen.

703856 9-"9 &(; 6+B!T5'

1. 5mpire 4hemical 4ompanyLs production budget &in gallons' for the three productsfor 2;x2 is calculated as follows%

?arex @arol Borexales for 2;x2............................................. ,;#;;; (;#;;; 2)#;;;Add% +nentory# 12G"1Gx2

&.;: V 2;x" sales'................................... )#2;; 2#:;; 2#(;;Total reuired............................................. ,)#2;; (2#:;; 2#(;;@educt% +nentory# 12G"1Gx1

&.;: V 2;x2 sales'................................. (#:;; "#2;; 2#;;;0euired production in 2;x2..................... ,;#(;; "9#,;; 2)#(;;

2. The companyLs conersion cost budget for 2;x2 is shown in the following schedule%

4onersion hours reuired%?arex &,;#(;; V .;'.................................... (#22:@arol &"9#,;; V .1;'.................................... "#9,;Borex &2)#(;; V .1,'................................... (#;,(Total hours................................................. 12#2)2

4onersion cost budget &12#2)2 V D2;'.... D2()#;(;


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Managerial Accounting, 7/e 9-#&


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703856 9-"9 &4BT+B!5@'

". ince the 2;x1 usage of +slin is 1;;#;;; gallons# the firmLs raw-material purchasesbudget &in dollars' for +slin for 2;x2 is as follows%

uantity of +slin reuired for production in 2;x2 &in gallons'%?arex &,;#(;; V 1'.....................................................................@arol &"9#,;; V .'....................................................................Borex &2)#(;; V .)'...................................................................

,;#(;;2#2;

12#;;ubtotal.......................................................................................... 1;;#:2;Add% 0euired inentory# 12G"1Gx2 &1;;#:2; V .1;'...................... 1;#;:2ubtotal.......................................................................................... 11;#9;2@educt% +nentory# 1G1Gx2 &1;;#;;; V .1;'...................................... 1;#;;;0euired purchases &gallons'....................................................... 1;;#9;27urchases budget &1;;#9;2 gallons V D) per gallon'.................. D);(#)1;

(. The company should continue using +slin# because the cost of using 7hilin is D,#"1,greater than using +slin# calculated as follows%

4hange in material cost from substituting 7hilin for +slin%2;x2 production reuirements%

7hilin &1;;#:2; V D) V 1.2'........................................................+slin &1;;#:2; V D)'...................................................................

D,;(#92; );(#1;;

+ncrease in cost of raw material.................................................... D1;;#:2;4hange in conersion cost from substituting 7hilin for +slin%

7hilin &12#2)2 V D2; V .9'.......................................................... D22;#)",+slin &12#2)2 V D2;'................................................................... 2()#;(;@ecrease in conersion cost........................................................ D&2(#);( 'Bet increase in production cost................................................... D ,#"1,

703856 9-(; &,; 6+B!T5'

1. ales budget for 2;x;%

!nits 7rice Total

8ight coils................................................................ ,;#;;; D,) D"#9;;#;;;Neay coils.............................................................. (;#;;; D9)

"#:;;#;;;7ro


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703856 9-(; &4BT+B!5@'

2. 7roduction budget &in units' for 2;x;%

8ight 4oils Neay 4oils

7ro


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703856 9-(; &4BT+B!5@'

). @irect-labor budget for 2;x;%

7ro


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703856 9-(1 &() 6+B!T5'

1. The benefits that can be deried from implementing a budgeting system include thefollowing%

• The preparation of budgets forces management to plan ahead and to establishgoals and ob


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703856 9-(1 &4BT+B!5@'

2.a. chedule b. ubseuent chedule

ales 3udget 7roduction 3udget

elling 5xpense 3udget3udgeted +ncome tatement

5nding +nentory 3udget &units' 7roduction 3udget

7roduction 3udget &units' @irect-6aterial 3udget@irect-8abor 3udget6anufacturing-erhead 3udget

@irect-6aterial 3udget 4ost-of-*oods-6anufactured 3udget

@irect-8abor 3udget 4ost-of-*oods-6anufactured 3udget

6anufacturing-erhead 3udget 4ost-of-*oods-6anufactured 3udget

4ost-of-*oods-6anufactured 3udget 4ost-of-*oods-old 3udget

4ost-of-*oods-old 3udget &includesending inentory in dollars'

3udgeted +ncome tatement3udgeted 3alance heet

elling 5xpense 3udget 3udgeted +ncome tatement

0esearch and @eelopment 3udget 3udgeted +ncome tatement

Administratie 5xpense 3udget 3udgeted +ncome tatement

3udgeted +ncome tatement 3udgeted 3alance heet3udgeted tatement of 4ash /lows

4apital 5xpenditures 3udget 4ash 0eceipts and @isbursements 3udget3udgeted 3alance heet3udgeted tatement of 4ash /lows

4ash 0eceipts and @isbursements3udget

3udgeted 3alance heet3udgeted tatement of 4ash /lows

3udgeted 3alance heet 3udgeted tatement of 4ash /lows

3udgeted tatement of 4ash /lows


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703856 9-(2 &() 6+B!T5'

1. The reised operating budget for Toronto 3usiness Associates for thefourth uarter is presented below. upporting calculations follow%

TORONTO B!SINESS ASSO)IATESREVISE1 OPERATIN B!1ET

0OR T.E 0O!RT. !ARTER O0 #3("

0eenue%4onsulting fees%

4omputer system consulting......................................................... D(:#12)6anagement consulting................................................................. (,:#;;;

Total consulting fees............................................................... D9(,#12)ther reenue......................................................................................... 1;#;;;

Total reenue................................................................................... D9),#12)

5xpenses%4onsultant salary expensesH................................................................. D)1;#,);Trael and related expenses.................................................................. )#:)*eneral and administratie expenses................................................... 9"#;;;@epreciation expense............................................................................. (;#;;;4orporate expense allocation................................................................ )#;;;

Total expenses................................................................................. D,#)2)perating income.......................................................................................... D19#,;;

HD)1;#,); E D2()#;;; F D2,)#,);. &ee supporting calculations.'


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Managerial Accounting, 7/e 9-$"


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703856 9-(2 &4BT+B!5@'

upporting calculations%

• chedule of pro


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703856 9-(2 &4BT+B!5@'

• chedules of pro


34/59


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9-$% Solutions Manual


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703856 9-(" &,; 6+B!T5'

1. ales budget%

3ox 4 3ox 7 Total

ales &in units' );;#;;; );;#;;;ales price per unit

× D.9; × D1.";

ales reenue D();#;;; D,);#;;; D1#1;;#;;;

2. 7roduction budget &in units'%

3ox 4 3ox 7ales...................................................................................... );;#;;; );;#;;; Add% @esired ending inentory........................................... )#;;; 1)#;;;

Total units needed................................................................ );)#;;;

)1)#;;;

@educt% 3eginning +nentory.............................................. 1;#;;; 2;#;;; 7roduction reuirements..................................................... (9)#;;; (9)#;;;

". 0aw-material budget%

PAPERBOAR1

3ox 4 3ox 7 Total7roduction reuirement &number of boxes'........... (9)#;;; (9)#;;;0aw material reuired per box &pounds'................

×

."×

.0aw material reuired forproduction &pounds'............................................ 1(:#);; "(,#);; (9)#;;;

Add% @esired endingraw-material inentory......................................... )#;;;

Total raw-material needs......................................... );;#;;;@educt% 3eginning raw-material inentory............ 1)#;;;0aw material to be purchased................................. (:)#;;;7rice &per pound'.....................................................

× D.2;

4ost of purchases &paperboard'............................. D 9#;;;


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703856 9-(" &4BT+B!5@'

)ORR!ATIN /E1I!/

3ox 4 3ox 7 Total

7roduction reuirements &number of boxes'......... (9)#;;; (9)#;;;0aw material reuired per box &pounds'................× .2 × ."

0aw material reuired forproduction &pounds'............................................ 99#;;; 1(:#);; 2(#);;

Add% @esired endingraw-material inentory......................................... 1;#;;;

Total raw-material needs......................................... 2)#);;@educt% 3eginning raw-material inentory............ )#;;;0aw material to be purchased................................. 2)2#);;7rice &per pound'.....................................................

× D.1;

4ost of purchases &corrugating medium'.............. D 2)#2);Total cost of raw-material purchases&D9#;;; F D2)#2);'............................................... D122#2);

(. @irect-labor budget%

3ox 4 3ox 7 Total7roduction reuirements &number of boxes' (9)#;;; (9)#;;;@irect labor reuired per box &hours'.....................

× .;;2) × .;;)

@irect labor reuired for production &hours' 1#2".) 2#() "#12.)

@irect-labor rate....................................................... × D12Total direct-labor cost.............................................. D((#));

). 6anufacturing-oerhead budget%

+ndirect material........................................................................................... D 1;#);; +ndirect labor................................................................................................ );#;;;!tilities.......................................................................................................... 2)#;;;7roperty taxes.............................................................................................. 1:#;;;+nsurance...................................................................................................... 1,#;;;

@epreciation................................................................................................. 29#;;;Total oerhead.............................................................................................. D 1(:#);;


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9-$* Solutions Manual


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703856 9-(" &4BT+B!5@'

,. elling and administratie expense budget%

alaries and fringe benefits of sales personnel........................................ D )#;;;

Adertising................................................................................................... 1)#;;;6anagement salaries and fringe benefits.................................................. 9;#;;;4lerical wages and fringe benefits............................................................. 2,#;;;6iscellaneous administratie expenses.................................................... (#;;;Total selling and administratie expenses................................................. D 21;#;;;

. 3udgeted income statement%

ales reenue Qfrom sales budget# re. &1'S............................................... D1#1;;#;;;8ess% 4ost of goods sold%

3ox 4% );;#;;; × D.21H...............................................................D1;)#;;;3ox 7% );;#;;; × D.("H .............................................................. 21)#;;; "2;#;;;

*ross margin................................................................................................ D :;#;;;elling and administratie expenses.......................................................... 21;#;;;+ncome before taxes..................................................................................... D );#;;;+ncome tax expense &(;K'........................................................................... 22:#;;;Bet income.................................................................................................... D "(2#;;;

H4alculation of manufacturing cost per unit%

&a' 7redetermined oerhead rate Ehourslabor-directofolumeoerheadingmanufacturbudgeted

E .;;)'&(9)#;;;'&.;;2)'&(9)#;;;'&D1(:#);;

+

E hourperD(; hours"#912.)

D1(:#);;


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Managerial Accounting, 7/e 9-$+


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703856 9-(" &4BT+B!5@'

&b' 4alculation of manufacturing cost per unit%

3ox 4 3ox 7

@irect material%7aperboard

." lb. × D.2; per lb......................................... D.;,

. lb. × D.2; per lb......................................... D.1(

4orrugating medium

.2 lb. × D.1; per lb......................................... .;2

." lb. × D.1; per lb......................................... .;"

@irect labor%

.;;2) hr. × D12 per hr.................................... .;"

.;;) hr.×

D12 per hr...................................... .;,Applied manufacturing oerhead%

.;;2) hr. × D(; per hr.................................... .1;

.;;) hr. × D(; per hr...................................... JJJ .2;

6anufacturing cost per unit..................................... D.21 D.("

703856 9-(( &(; 6+B!T5'

1. trategic planning identifies the oerall ob


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703856 9-(( &4BT+B!5@'

2. /or each of the financial obinslowLs budget attains these ob


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703856 9-() &12; 6+B!T5'

1. ales budget%

2;x; 2;x1

@ecember Canuary /ebruary 6arch/irst

uarter

Total sales........................ D(;;#;;; D((;#;;; D(:(#;;; D)"2#(;; D1#(),#(;;4ash salesH...................... 1;;#;;; 11;#;;; 121#;;; 1""#1;; ",(#1;;ales on accountM............ ";;#;;; "";#;;; ","#;;; "99#";; 1#;92#";;

H2)K of total sales.M)K of total sales.

2. 4ash receipts budget%

2;x1

Canuary /ebruary 6arch/irst

uarter4ash sales............................................. D11;#;;; D121#;;; D1""#1;; D ",(#1;;4ash collections from credit

sales made during currentmonthH............................................... ""#;;; ",#";; "9#9"; 1;9#2";

4ash collections from creditsales made during preceding

monthM

................................................ 2;#;;; 29#;;; "2,#;; :9"#;; Total cash receipts............................... D(1"#;;; D()(#";; D(99#"; D1#",#;";

H1;K of current month$s credit sales.M9;K of preious month$s credit sales.


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9-%3 Solutions Manual


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703856 9-() &4BT+B!5@'

". 7urchases budget%

2;x; 2;x1

@ecember Canuary /ebruary 6arch/irst

uarter

3udgeted cost ofgoods sold.................. D2:;#;;; D";:#;;; D"":#:;; D"2#,:; D1#;19#(:;

Add% @esiredending inentory........ 1)(#;;; 1,9#(;; 1:,#"(; 1:,#"(;H 1:,#"(; M

Total goodsneeded......................... D("(#;;; D(#(;; D)2)#1(; D))9#;2; D1#2;)#:2;

8ess% 5xpectedbeginning

inentory..................... 1(;#;;;MM 1)(#;;; 1,9#(;; 1:,#"(; 1)(#;;;HH7urchases........................ D29(#;;; D"2"#(;; D"))#(; D"2#,:; D1#;)1#:2;

Hince April$s expected sales and cost of goods sold are the same as the pro


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703856 9-() &4BT+B!5@'

(. 4ash disbursements budget%

2;x1


uarter

+nentory purchases%4ash payments for purchases

during the current monthH........ D129#",; D1(2#29, D1(9#;2 D (2;#2:4ash payments for purchases

during the precedingmonthM........................................ 1,#(;; 19(#;(; 21"#((( ):"#::(

Total cash payments forinentory purchases...................... . D";)#,; D"",#"", D",2#)1, D1#;;(#,12

ther expenses%ales salaries................................... D 21#;;; D 21#;;; D 21#;;; D ,"#;;; Adertising and promotion............. 1,#;;; 1,#;;; 1,#;;; (:#;;;Administratie salaries................... 21#;;; 21#;;; 21#;;; ,"#;;;+nterest on bondsHH......................... 1)#;;; -;- -;- 1)#;;;7roperty taxesHH............................... -;- )#(;; -;- )#(;;ales commissions......................... (#(;; (#:(; )#"2( 1(#),(

Total cash payments for other

expenses.......................................... D #(;; D ,:#2(; D ,"#"2( D 2;:#9,( Total cash disbursements.................... D":"#1,; D(;(#), D(2)#:(; D 1#21"#),

H(;K of current monthLs purchases Qsee reuirement &"'S.M,;K of the prior month$s purchases Qsee reuirement &"'S.HH3ond interest is paid eery six months# on Canuary "1 and Culy "1. 7roperty taxes alsoare paid eery six months# on /ebruary 2: and August "1.


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9-%# Solutions Manual


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703856 9-() &4BT+B!5@'

). ummary cash budget%

2;x1


uarter

4ash receipts Qfrom re. &2'S................ D (1"#;;; D ()(#";; D (99#"; D1#",#;";4ash disbursements

Qfrom re. &('S................................... &":"#1,;' &(;(#),' &(2)#:(;' &1#21"#),'4hange in cash balance

during period due to operations. .. . D 29#:(; D (9#2( D "#:9; D 1)"#()(ale of marketable securities

&1G2Gx1'.............................................. 1)#;;; 1)#;;;7roceeds from bank loan

&1G2Gx1'.............................................. 1;;#;;; 1;;#;;;7urchase of euipment........................ &12)#;;;' &12)#;;;'0epayment of bank loan

&"G"1Gx1'............................................ &1;;#;;;' &1;;#;;;'+nterest on bank loanH.......................... &2#);;' &2#);;'7ayment of diidends........................... &);#;;;' &);#;;;'

4hange in cash balance duringfirst uarter...................................... D &9#;(,'

4ash balance# 1G1Gx1............................. ")#;;;

4ash balance# "G"1Gx1........................... D 2)#9)(

HD1;;#;;; × 1;K per year × 1G( year E D2#);;

,. Analysis of short-term financing needs%

7ro


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703856 9-() &4BT+B!5@'

. INTER)OASTA' E'E)TRONI)S )O/PAN4B!1ETE1 IN)O/E STATE/ENT


ales reenue......................................................................... D1#(),#(;;8ess% 4ost of goods sold...................................................... 1#;19#(:;*ross margin......................................................................... D (",#92;elling and administratie expenses%

ales salaries.................................................................... D,"#;;;ales commissions.......................................................... 1(#),(Adertising and promotion.............................................. (:#;;;Administratie salaries.................................................... ,"#;;;@epreciation..................................................................... )#;;;

+nterest on bonds............................................................. #);;+nterest on short-term bank loan..................................... 2#);;7roperty taxes.................................................................. 2#;;

Total selling and administratie expenses.......................... 2,#2,(Bet income............................................................................. D 1,;#,),

:. INTER)OASTA' E'E)TRONI)S )O/PAN4B!1ETE1 STATE/ENT O0 RETAINE1 EARNINS


0etained earnings# 12G"1Gx;........................................................................ D 1;#);;Add% Bet income........................................................................................... 1,;#,),@educt% @iidends........................................................................................ );#;;;0etained earnings# "G"1Gx1.......................................................................... D 21:#1),


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703856 9-() &4BT+B!5@'

9. INTER)OASTA' E'E)TRONI)S )O/PAN4B!1ETE1 BA'AN)E S.EET

/AR). $", #3("

4ash................................................................................................................ D 2)#9)( Accounts receiableH.................................................................................... ")9#";+nentory........................................................................................................ 1:,#"(;3uildings and euipment &net of accumulated depreciation'M................... ,,#;;;Total assets.................................................................................................... D1#2(#,,(

Accounts payableHH....................................................................................... D 22"#,;:3ond interest payable................................................................................... )#;;;7roperty taxes payable.................................................................................. 9;;

3onds payable &1;KU due in 2;x,'............................................................... ";;#;;;4ommon tock.............................................................................................. );;#;;;0etained earnings.......................................................................................... 21:#1),Total liabilities and stockholders$ euity..................................................... D 1#2(#,,(

HAccounts receiable# 12G"1Gx;..................................................................... D 2;#;;;ales on account Qre. &1'S............................................................................ 1#;92#";;Total cash collections from credit sales Qre. &2'S

&D1;9#2"; F D:9"#;;'................................................................................ &1#;;2#9";'Accounts receiable# "G"1Gx1........................................................................ D ")9#";

M3uildings and euipment &net'# 12G"1Gx;.................................................... D ,2,#;;;4ost of euipment acuired......................................................................... 12)#;;;@epreciation expense for first uarter......................................................... &)#;;;'3uildings and euipment &net'# "G"1Gx1....................................................... D ,,#;;;

HHAccounts payable# 12G"1Gx;....................................................................... D 1,#(;;7urchases Qre. &"'S....................................................................................... 1#;)1#:2;4ash payments for purchases Qre. &('S...................................................... &1#;;(#,12'Accounts payable# "G"1Gx1............................................................................ D 22"#,;:


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SO'!TIONS TO )ASES

4A5 9-(, &,; 6+B!T5'

1. ?es# 4ity 0auetball 4lub &404' should be better able to plan its cash receipts with

the new membership plan and fee structure. The cash flows should be morepredictable and certain because the large# prepaid membership fee becomes the onlyfactor affecting cash receipts. The hourly court fees# which were dependent upon a ariable that could fluctuate daily# are eliminated.

2. a. /actors that 404Ls management should consider before adopting the newmembership plan and fee structure include%

• 4osts associated with the plan changeoer

•

7ublic acceptance of the new proposal

• The expected number of memberships by classes that can be sold for each

plan at the specified rates

• The anticipated rate of return for excess cash or cost of borrowing funds in

periods of cash shortages

b. /inancial analyses conducted by 404 could include a forecast of pro


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4A5 9-( &") 6+B!T5'

1. ome of the operational and behaioral benefits that are generally attributed to a participatory budgeting process are as follows%

!tilization of the best knowledge of actiities in a specific area# because theparticipants are close to daily operations.

*oals that are more realistic and acceptable.

+mproed communication and group cohesieness.

A sense of commitment and willingness to be held accountable for the budget.

2. /our deficiencies in 7atricia 5klundLs participatory policy for planning andperformance ealuation# along with recommendations of how the deficiencies can becorrected%

@eficiencies 0ecommendations

The setting of constraints on fixedexpenditures includes uncontrollable fixedcosts# thereby mitigating the positie effectsof participatory budgeting.

0ewards should be based on meetingbudget andGor organizational goals orob


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4A5 9-(: &12; 6+B!T5'

1. ales budget%

2;x; 2;x1

(thuarter

1stuarter

2nduarter

"rduarter

(thuarter

5ntire?ear

frame unitsales..................... );#;;; ))#;;; ,;#;;; ,)#;;; ;#;;; 2);#;;;

× sales price...... × D1; × D1; × D1; × D1; x D1; × D1;

frame salesreenue................ D );;#;;; D ));#;;; D ,;;#;;; D ,);#;;; D ;;#;;; D2#);;#;;;

8 frame unit

sales..................... (;#;;; ()#;;; );#;;; ))#;;; ,;#;;; 21;#;;;× 8 sales price...... × D1) × D1) × D1) × D1) × D1) × D1)

8 frame salesreenue................ D ,;;#;;; D ,)#;;; D );#;;; D :2)#;;; D 9;;#;;; D"#1);#;;;

Total salesreenue................ D1#1;;#;;; D1#22)#;;; D1#");#;;; D1#()#;;; D1#,;;#;;; D)#,);#;;;

4ash salesH........... D ((;#;;; D (9;#;;; D )(;#;;; D)9;#;;; D,(;#;;; D2#2,;#;;;

ales onaccountM............... ,,;#;;; ")#;;; :1;#;;; ::)#;;; 9,;#;;; "#"9;#;;;

H(;K of total sales.M,;K of total sales.


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4A5 9-(: &4BT+B!5@'

2. 4ash receipts budget%

2;x1

1stuarter

2nduarter

"rduarter

(thuarter

5ntire?ear

4ash sales..........................................D (9;#;;; D )(;#;;; D )9;#;;; D ,(;#;;; D2#2,;#;;;4ash collections from credit

sales made during currentuarterH............................................)::#;;; ,(:#;;; ;:#;;; ,:#;;; 2#12#;;;

4ash collections from creditsales made during preiousuarterM............................................1"2#;;; 1(#;;; 1,2#;;; 1#;;; ,1:#;;;

Total cash receipts.............................D1#21;#;;; D1#"")#;;; D1#(,;#;;; D1#):)#;;; D)#)9;#;;;

H:;K of current uarter$s credit sales.M2;K of preious uarter$s credit sales.


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4A5 9-(: &4BT+B!5@'

". 7roduction budget%

2;x; 2;x1

(thuarter

1stuarter

2nduarter

"rduarter

(thuarter

5ntire?ear

frames%ales &in units'................. );#;;; ))#;;; ,;#;;; ,)#;;; ;#;;; 2);#;;;Add% @esired ending

inentory........................ 11#;;; 12#;;; 1"#;;; 1(#;;; 1)#;;; 1)#;;;Total units needed............... ,1#;;; ,#;;; "#;;; 9#;;; :)#;;; 2,)#;;;8ess% 5xpected

beginning inentory......... 1;#;;; 11#;;; 12#;;; 1"#;;; 1(#;;; 11#;;;!nits to be produced.......... )1#;;; ),#;;; ,1#;;; ,,#;;; 1#;;; 2)(#;;;

8 frames%ales &in units'................. (;#;;; ()#;;; );#;;; ))#;;; ,;#;;; 21;#;;;

Add% @esired endinginentory........................ 9#;;; 1;#;;; 11#;;; 12#;;; 1"#;;; 1"#;;;

Total units needed............... (9#;;; ))#;;; ,1#;;; ,#;;; "#;;; 22"#;;;8ess% 5xpected

beginning inentory......... :#;;; 9#;;; 1;#;;; 11#;;; 12#;;; 9#;;; !nits to be produced.......... (1#;;; (,#;;; )1#;;; ),#;;; ,1#;;; 21(#;;;


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4A5 9-(: &4BT+B!5@'

(. @irect-material budget%H

2;x; 2;x1

(thuarter

1stuarter

2nduarter

"rduarter

(thuarter

5ntire?ear

6etal strips% frames to be

produced........................ )1#;;; ),#;;; ,1#;;; ,,#;;; 1#;;; 2)(#;;;

× 6etal uantity per

unit &ft.'...........................× 2 × 2 × 2 × 2 × 2 × 2

Beeded for frameproduction..................... 1;2#;;; 112#;;; 122#;;; 1"2#;;; 1(2#;;; );:#;;;

8 frames to be

produced........................ (1#;;; (,#;;; )1#;;; ),#;;; ,1#;;; 21(#;;;× 6etal uantity per

unit &ft.'...........................× " × " × " × " × " × "

Beeded for 8 frameproduction..................... 12"#;;; 1":#;;; 1)"#;;; 1,:#;;; 1:"#;;; ,(2#;;;

Total metal neededfor productionU tobe purchased &ft.'.......... 22)#;;; 2);#;;; 2)#;;; ";;#;;; "2)#;;; 1#1);#;;;

× 7rice per foot.................× D1 × D1 × D1 × D1 × D1 × D1

4ost of metal strips to

be purchased%................D22)#;;; D2);#;;; D2)#;;; D";;#;;; D"2)#;;; D1#1);#;;;

H@irect-material budget continued on next page.


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4A5 9-(: &4BT+B!5@'

2;x; 2;x1(th

uarter1st

uarter2nd

uarter"rd

uarter(th

uarter5ntire?ear

*lass sheets%.................... frames to be

produced........................ )1#;;; ),#;;; ,1#;;; ,,#;;; 1#;;; 2)(#;;;

× *lass uantity per

unit &sheets'................... × .2) × .2) × .2) × .2) × .2) × .2)

Beeded for frameproduction..................... 12#); 1(#;;; 1)#2); 1,#);; 1#); ,"#);;

8 frames to beproduced........................ (1#;;; (,#;;; )1#;;; ),#;;; ,1#;;; 21(#;;;

× *lass uantity per

unit &sheets'................... × .)

× .)

× .)

× .)

× .)

× .)

Beeded for 8 frameproduction..................... 2;#);; 2"#;;; 2)#);; 2:#;;; ";#);; 1;#;;;

Total glass neededfor production&sheets'.......................... ""#2); "#;;; (;#); ((#);; (:#2); 1;#);;

Add% @esired endinginentory........................ #(;; :#1); :#9;; 9#,); 1;#(;; 1;#(;;

Total glass needs............. (;#,); ()#1); (9#,); )(#1); ):#,); 1:;#9;;8ess% 5xpected

beginning inentory...... ,#,);

#(;;

:#1);

:#9;;

9#,);

#(;; *lass to be

purchased...................... "(#;;; "#); (1#);; ()#2); (9#;;; 1"#);;

× 7rice per glass

sheet............................... × D: × D: × D: × D: × D: × D:

4ost of glass to bepurchased......................D22#;;; D";2#;;; D""2#;;; D",2#;;; D"92#;;; D1#"::#;;;

Total raw-materialpurchases &metaland glass'................ .. .. ..D(9#;;; D))2#;;; D,;#;;; D,,2#;;; D1#;;; D2#)":#;;;


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4A5 9-(: &4BT+B!5@'

). 4ash disbursements budget%H

2;×1

1stuarter

2nduarter

"rduarter

(thuarter

5ntire?ear

0aw-material purchases%4ash payments for

purchases duringthe current uarterM.......... D((1#,;; D (:)#,;; D )29#,;; D )"#,;; D2#;";#(;;

4ash payments forpurchases during thepreceding uarterHH.......... 99#(;; 11;#(;; 121#(;; 1"2#(;; (,"#,;;

Total cash payments for

raw-material purchases.. . D)(1#;;; D )9,#;;; D ,)1#;;; D ;,#;;; D2#(9(#;;;

@irect labor%/rames produced

& and 8'............................ 1;2#;;; 112#;;; 122#;;; 1"2#;;; (,:#;;;

× @irect-labor hours per

frame................................. × .1 × .1 × .1 × .1 × .1

@irect-labor hours to beused.................................. 1;#2;; 11#2;; 12#2;; 1"#2;; (,#:;;

× 0ate per direct-labor

hour................................... × D2;

× D2;

× D2;

× D2;

× D2;

Total cash payments fordirect labor....................... D2;(#;;; D 22(#;;; D 2((#;;; D 2,(#;;; D 9",#;;;

H4ash disbursements budget continued on next page.M :;K of current uarterLs purchases

HH2;K of preious uarterLs purchases


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4A5 9-(: &4BT+B!5@'

2;;11st

uarter2nd

uarter"rd

uarter(th

uarter5ntire?ear

6anufacturing oerhead%+ndirect material.................... D 1;#2;; D 11#2;; D 12#2;; D 1"#2;; D (,#:;; +ndirect labor......................... (;#:;; ((#:;; (:#:;; )2#:;; 1:#2;;ther...................................... "1#;;; ",#;;; (1#;;; (,#;;; 1)(#;;;Total cash payments for

manufacturingoerhead........................... D :2#;;; D 92#;;; D 1;2#;;; D 112#;;; D "::#;;;

4ash payments for sellingand administratie

expenses........................... D1;;#;;; D 1;;#;;; D 1;;#;;; D 1;;#;;; D (;;#;;;Total cash disbursements.... .. .. D92#;;; D1#;12#;;; D1#;9#;;; D1#1:2#;;; D(#21:#;;;


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4A5 9-(: &4BT+B!5@'

,. ummary cash budget%

2;x1

1stuarter

2nduarter

"nduarter

(thuarter

5ntire?ear

4ash receipts Qfrom re. &2'S.......... D1#21;#;;; D1#"")#;;; D1#(,;#;;; D1#):)#;;; D)#)9;#;;;

8ess% 4ash disbursementsQfrom re. &)'S.............................. 92#;;;

1#;12#;;; 1#;9#;;; 1#1:2#;;; (#21:#;;;

4hange in cash balance due tooperations................................... D 2:"#;;; D "2"#;;; D ","#;;; D (;"#;;; D1#"2#;;;

7ayment of diidends..................... &);#;;;' &);#;;;' &);#;;;' &);#;;;' &2;;#;;;'7roceeds from bank loan &1G2Gx1'.. 1#;;;#;;; 1#;;;#;;;

7urchase of euipment.................. &1#;;;#;;;' &1#;;;#;;;'uarterly installment on loan

principal...................................... &2);#;;;' &2);#;;;' &2);#;;;' &2);#;;;' &1#;;;#;;;'uarterly interest paymentH...........

&2)#;;;'

&1:#);'

&12#);;'

&,#2);'

&,2#);;'4hange in cash balance during

the period............ ......... .. .. ... .. .. .. .. D &(2#;;;' D (#2);

D );#);;

D 9,#);

D 1;9#);;

4ash balance# beginning of period 9)#;;; )"#;;; )#2); 1;#); 9)#;;;

4ash balance# end of period.......... D )"#;;;

D )#2); D 1;#); D 2;(#);; D 2;(#);;

HD1#;;;#;;;×

1;K×

Z E D2)#;;;

D);#;;;×

1;K×

Z E D1:#);

D);;#;;;×

1;K×

Z E D12#);;

D2);#;;;×

1;K×

Z E D,#2);

McGraw-Hill/Irwin 2008 The McGraw-Hill Companies, Inc.

Managerial Accounting, 7/e 9-&&


56/59

4A5 9-(: &4BT+B!5@'

. 0RA/E-IT )O/PAN4B!1ETE1 S).E1!'E O0 )OST O0 OO1S /AN!0A)T!RE1 AN1 SO'1

0OR T.E 4EAR EN1E1 1E)E/BER $", #3("

@irect material%0aw-material inentory# 1G1Gx1................................................. D )9#2;; Add% 7urchases of raw material Qre. &('S................................ 2#)":#;;;0aw material aailable for use................................................. D2#)9#2;;

@educt% 0aw-material inentory# 12G"1Gx1

&Qre. &('S 1;#(;; × D:'........................................................... :"#2;;

0aw material used D2#)1(#;;;

@irect labor Qre. &)'S....................................................................... 9",#;;;

6anufacturing oerhead%+ndirect material......................................................................... D (,#:;;+ndirect labor............................................................................. 1:#2;;ther oerhead.......................................................................... 1)(#;;;@epreciation.............................................................................. :;#;;;Total manufacturing oerhead................................................. (,:#;;; H

4ost of goods manufactured.......................................................... D"#91:#;;; M

Add% /inished-goods inentory# 1G1Gx1.......................................... 1,#;;;4ost of goods aailable for sale.................................................... D(#;:)#;;;

@educt% /inished-goods inentory# 12G"1Gx1................................. 2")#;;; HH

4ost of goods sold.......................................................................... D"#:);#;;; MM

HIn the budget # budgeted and applied manufacturing oerhead are eual. The applied manufacturing oerhead may be erified independently as follows%

Total number of frames produced............................................ (,:#;;;

× @irect-labor hours per frame................................................ × .1

Total direct-labor hours............................................................ (,#:;;

× 7redetermined oerhead rate per hour................................ × D1;

Total manufacturing oerhead applied.................................... D(,:#;;;

Mee next page.HHee next page.MMee next page.


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4A5 9-(: &4BT+B!5@'

MThe cost of goods manufactured may be erified independently as follows%

/rames 8 /rames

/rames produced................................................................... 2)(#;;; 21(#;;;× 6anufacturing cost per unit.............................................. × D × D1;

Total manufacturing cost...................................................... D1#:#;;; D2#1(;#;;;*rand total & frames and 8 frames'.................................... D"#91:#;;;

HHThe finished-goods inentory on 12G"1Gx1 may be erified independently as follows%

/rames 8 /rames7ro


58/59

4A5 9-(: &4BT+B!5@'

9. 0RA/E-IT )O/PAN4B!1ETE1 STATE/ENT O0 RETAINE1 EARNINS

0OR T.E 4EAR EN1E1 1E)E/BER $", #3("

0etained earnings# 12G"1Gx;........................................................................ D"#")"#:;;Add% Bet income........................................................................................... 1#""#);;@educt% @iidends........................................................................................ 2;;#;;;0etained earnings# 12G"1Gx1........................................................................ D(#(91#";;

1;. 0RA/E-IT )O/PAN4B!1ETE1 BA'AN)E S.EET

1E)E/BER $", #3("

4ash.............................................................................................................. D 2;(#);;Accounts receiableH................................................................................... 192#;;;+nentory%

0aw materialM......................................................................................... :"#2;;/inished goods...................................................................................... 2")#;;;

7lant and euipment &net of accumulated depreciation'HH....................... :#92;#;;;Total assets................................................................................................... D9#,"(#;;

Accounts payableMM...................................................................................... D 1("#(;;4ommon stock............................................................................................. )#;;;#;;;0etained earnings........................................................................................

(#(91#";;Total liabilities and stockholders$ euity.................................................... D9#,"(#;;

H/ourth-uarter sales on account × 2;K E D9,;#;;; × 2;KM1;#(;; units × D:

HHD:#;;;#;;; F D1#;;;#;;; I D:;#;;;MM/ourth-uarter purchases on account × 2;K E D1#;;; × 2;K


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0O)!S ON ET.I)S 6See 7age $++ in t5e te8t9:

+s padding the budget unethical[ ome accountants argue that budget padding is a icious cycle% budgets are padded by lower-leel managers because they beliee topmanagement will cut the budget# and budgets are cut by top management because theybeliee the submitted budget has been padded by lower-leel managers. This situationcontains an unfortunate array of elements# which raise serious obstacles to effectiecost management. +t is regrettable that the budget process is intermingled with theemployee incentie scheme ia the bonus system in this way# since it is hinderingtransparent cost management. Noweer# gien the situation# there are seeral possiblescenarios for the diision controller to deal with.

+n cutting expenses# top corporate managers may be reealing one of two things. Theymay be more focused on the use of the budget data to drie incenties than as accuratecost control tools# and thus may cut budgeted expenses specifically to proide a

\stretchL goal for the diision. Alternatiely# top management may beliee that thebudget has been padded by the diision# possibly based on preious budgetsubmissions# and thus beliee they are handing back a more accurate expense budgetthan was submitted to them.

Bo matter what the situation# the controller should make eery effort to proide accuratecost forecasts for the budgeting purpose. To do otherwise would be to compromise hisor her own integrity and authority within the organization. /urther# inaccurateinformation creates a poor basis for cost management. +f greater \stretchL goals arereuired by top management# then the diisional team could establish these for

themseles. +f there is doubt at corporate leel about the accuracy of the forecasts# thenit should be dispelled. /or example# the controller could proide supportingdocumentation with the budget to alidate the estimates and to discourage topcorporate managers from cutting the expense budget.

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Hilton7e SM CH92