搜档网
当前位置:搜档网 › managerial account (9)

managerial account (9)

managerial account  (9)
managerial account  (9)

Chapter 9 Profit Planning Solutions to Questions

9-1 A budget is a detailed plan outlining the acquisition and use of financial and other re-sources over a given time period. As such, it represents a plan for the future expressed in formal quantitative terms. Budgetary control involves the use of budgets to control the actual activities of a firm.

9-2

1. Budgets provide a means of communicat-ing management’s plans throughout the organ i-zation.

2. Budgets force managers to think about and plan for the future.

3. The budgeting process provides a means of allocating resources to those parts of the or-ganization where they can be used most effec-tively.

4. The budgeting process can uncover po-tential bottlenecks before they occur.

5. Budgets coordinate the activities of the entire organization. Budgeting helps to ensure that everyone in the organization is pulling in the same direction.

6. Budgets define goals and objectives that can serve as benchmarks for evaluating subse-quent performance.

9-3Responsibility accounting is a system in which a manager is held responsible for those items of revenues and costs—and only those items—that the manager can control to a signifi-cant extent. Each line item in the budget is made the responsibility of a manager who is then held responsible for differences between budgeted and actual results.

9-4 A master budget represents a summary of all of management’s plans and goals for the future, and outlines the way in which these plans are to be accomplished. The master budg-et is composed of a number of smaller, specific budgets encompassing sales, production, raw materials, direct labor, manufacturing overhead, selling and administrative expenses, and inven-tories. The master budget generally also con-tains a budgeted income statement, budgeted balance sheet, and cash budget.

9-5The level of sales impacts virtually every other aspect of the firm’s activities. It dete r-mines the production budgets, cash collections, cash disbursements, and selling and administra-tive budgets that in turn determine the cash budget and budgeted income statement and balance sheet.

9-6No. Planning and control are different, although related, concepts. Planning involves developing objectives and formulating steps to achieve those objectives. Control, by contrast, involves the means by which management en-sures that the objectives set down at the plan-ning stage are attained.

9-7The flow of information moves in two directions—upward and downward. The initial flow should be from the bottom of the organiza-tion upward. Each person having responsibility over revenues or costs should prepare the budget data against which his or her subsequent performance will be measured. As the budget data are communicated upward, higher-level managers should review the budgets for consis-tency with the overall goals of the organization and the plans of other units in the organization. Any issues should be resolved in discussions between the individuals who prepared the budgets and their managers.

All levels of an organization should par-ticipate in the budgeting process—not just top management or the accounting department. Generally, the lower levels will be more familiar with detailed, day-to-day operating data, and for

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

this reason will have primary responsibility for developing the specifics in the budget. Top le-vels of management will have a better perspec-tive concerning the company’s strategy.

9-8 A self-imposed budget is one in which persons with responsibility over cost control prepare their own budgets, i.e., the budget is not imposed from above. The major advantages are: (1) the views and judgments of persons from all levels of an organization are represented in the final budget document; (2) budget estimates generally are more accurate and reliable, since they are prepared by those who are closest to the problems; (3) managers generally are more motivated to meet budgets which they have participated in setting; (4) self-imposed budgets reduce the amount of upward ―blaming‖ resulting from inability to meet budget goals. One caution must be exercised in the use of self-imposed budgets. The budgets prepared by lower-level managers should be carefully re-viewed to prevent too much slack. 9-9Budgeting can assist a firm in its em-ployment policies by providing information on probable future staffing needs. Budgeting can also assist in stabilizing a company’s work force. By careful planning through the budget process, a company can often ―smooth out‖ its activities and avoid erratic hiring and laying off employees.

9-10No, although this is clearly one of the purposes of the cash budget. The principal pur-pose is to provide information on probable cash needs during the budget period, so that bank loans and other sources of financing can be an-ticipated and arranged well in advance.

9-11Zero-based budgeting requires that managers start at zero levels every year and justify all costs as if all programs were being proposed for the first time. In traditional bud-geting, by contrast, budgets are usually based on the previous year’s data.

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

1. April May June Total

February sales:

$230,000 × 10%.......... $ 23,000 $ 23,000 March sales: $260,000

× 70%, 10% ............... 182,000 $ 26,000 208,000 April sales: $300,000 ×

20%, 70%, 10% .......... 60,000 210,000 $ 30,000 300,000 May sales: $500,000 ×

20%, 70% .................. 100,000 350,000 450,000 June sales: $200,000 ×

20%........................... 40,000 40,000 Total cash collections....... $265,000 $336,000 $420,000 $1,021,000 Observe that even though sales peak in May, cash collections peak in June. This occurs because the bulk of the company’s customers pay in the month following sale. The lag in collections that this creates is even more pronounced in some companies. Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest.

2. Accounts receivable at June 30:

From May sales: $500,000 × 10%......................... $ 50,000

From June sales: $200,000 × (70% + 10%) ........... 160,000

Total accounts receivable at June 30 ...................... $210,000

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

April May June Quarter Budgeted sales in units ............. 50,000 75,000 90,000 215,000 Add desired ending inventory* ... 7,500 9,000 8,000 8,000 Total needs.............................. 57,500 84,000 98,000 223,000 Less beginning inventory ........... 5,000 7,500 9,000 5,000 Required production.................. 52,500 76,500 89,000 218,000 *10% of the following month’s sales in units.

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

Solutions Manual, Chapter 9

495

Year 2 Year 3 First Second Third

Fourth

First

Required production in bottles ...................... 60,000 90,000 150,000 100,000 70,000 Number of grams per bottle ......................... × 3 × 3 × 3 × 3 × 3 Total production needs —grams ..................... 180,000 270,000 450,000 300,000 210,000

Year 2 First Second

Third

Fourth

Year

Production needs —grams (above) ................. 180,000 270,000 450,000 300,000 1,200,000 Add desired ending inventory —grams ............ 54,000 90,000 60,000 42,000 42,000 Total needs —grams .................................... Less beginning inventory —grams .................. 36,000 54,000 90,000 60,000 36,000 Raw materials to be purchased — grams ......... 198,000 306,000 420,000

282,000

1,206,000

Cost of raw materials to be purchased at 150 roubles per kilogram ................................. 29,700 45,900 63,000 42,300 180,900

? The McGraw-Hill Companies, Inc., 2006. All rights reserved. 496

Managerial Accounting, 11th Edition

1. Assuming that the direct labor workforce is adjusted each quarter, the direct labor budget would be:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Year Units to be produced ...................................... 8,000 6,500 7,000 7,500 29,000 Direct labor time per unit (hours) ..................... × 0.35 × 0.35 × 0.35 × 0.35 × 0.35 Total direct labor-hours needed ....................... Direct labor cost per hour ............................... × $12.00 × $12.00 × $12.00 × $12.00 × $12.00 Total direct labor cost..................................... $ 33,600 $ 27,300 $ 29,400 $ 31,500 $121,800

2. Assuming that the direct labor workforce is not adjusted each quarter and that overtime wages are paid, the direct labor budget would be:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Year

Units to be produced..................................... 8,000 6,500 7,000 7,500 29,000 Direct labor time per unit (hours) .................... × 0.35 × 0.35 × 0.35 × 0.35 × 0.35 Total direct labor-hours needed ...................... 2,800 2,275 2,450 2,625 10,150 Regular hours paid ....................................... 2,600 2,600 2,600 2,600 10,400 Overtime hours paid . (200)

-

-

25

225

Wages for regular hours (@ $12.00 per hour) ... $31,200 $31,200 $31,200 $31,200 $124,800 Overtime wages (@ $12.00 per hour × 1.5) ..... 3,600 - - 450 4,050 Total direct labor cost ................................... $34,800 $31,200 $31,200 $31,650 $128,850

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

Solutions Manual, Chapter 9

497

1.

Yuvwell Corporation

Manufacturing Overhead Budget

1st Quarter 2nd Quarter 3rd Quarter 4th

Quarter

Year

Budgeted direct labor-hours ................................ 8,000 8,200 8,500 7,800 32,500 Variable overhead rate ....................................... × $3.25 × $3.25 × $3.25 × $3.25 × $3.25 Variable manufacturing overhead ......................... $26,000 $26,650 $27,625 $25,350 $105,625 Fixed manufacturing overhead............................. 48,000 48,000 48,000 48,000 192,000 Total manufacturing overhead ............................. Less depreciation ............................................... 16,000 16,000 16,000 16,000 64,000 Cash disbursements for manufacturing overhead .... $58,000

$58,650 $59,625 $57,350 $233,625

2. Total budgeted manufacturing overhead for the year (a) .... $297,625 Total budgeted direct labor-hours for the year (b) ............. 32,500 Manufacturing overhead rate for the year (a) ÷ (b) ........... $ 9.16

? The McGraw-Hill Companies, Inc., 2006. All rights reserved. 498

Managerial Accounting, 11th Edition

Weller Company

Selling and Administrative Expense Budget

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Year

Budgeted unit sales........................................... 15,000 16,000 14,000 13,000 58,000 Variable selling and administrative expense per

unit .............................................................. × $2.50 × $2.50 × $2.50 × $2.50 × $2.50 Variable expense .............................................. $ 37,500 $ 40,000 $ 35,000 $ 32,500 $145,000

Fixed selling and administrative expenses: Advertising .................................................... 8,000 8,000 8,000 8,000 32,000 Executive salaries ........................................... 35,000 35,000 35,000 35,000 140,000 Insurance...................................................... 5,000 5,000 10,000 Property taxes ............................................... 8,000 8,000 Depreciation .................................................. 20,000 20,000 20,000 20,000 80,000 Total fixed expense ........................................... 68,000 71,000 68,000 63,000 270,000 Total selling and administrative expenses ............. 105,500 111,000 103,000 95,500 415,000 Less depreciation .............................................. 20,000 20,000 20,000 20,000 80,000 Cash disbursements for selling and administra-tive expenses................................................. $ 85,500 $ 91,000 $ 83,000 $ 75,500 $335,000

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

Solutions Manual, Chapter 9

499

Quarter (000 omitted) 1 2 3 4

Year

Cash balance, beginning .............................. $ 6 * $ 5 $ 5 $ 5 $ 6

Add collections from customers..................... 65 70 96 * 92 323 * Total cash available ..................................... 71 * 75 101 97 329

Less disbursements: Purchase of inventory ............................... 35 * 45 * 48 35 * 163 Operating expenses .................................. 28 30 * 30 * 25 113 * Equipment purchases................................ 8 * 8 * 10 * 10 36 * Dividends ................................................ 2 * 2 * 2 * 2 * 8 Total disbursements .................................... 73 85 * 90 72 320 Excess (deficiency) of cash available over

disbursements ......................................... (2) * (10) 11 * 25 9

Financing: Borrowings .............................................. 7 15 * — — 22 Repayments (including interest) ................. — — (6) (17) * (23) Total financing ........................................... 7 15 (6) (17) (1) Cash balance, ending $ 5 $ 5 $ 5 $ 8

$ 8

*Given.

1. The budget at Springfield is an imposed ―top-down‖ budget that fails to

consider both the need for realistic data and the human interaction es-sential to an effective budgeting/control process. The President has not given any basis for his goals, so one cannot know whether they are rea-listic for the company. True participation of company employees in prep-aration of the budget is minimal and limited to mechanical gathering and manipulation of data. This suggests there will be little enthusiasm for implementing the budget.

The sales by product line should be based on an accurate sales forecast of the potential market. Therefore, the sales by product line should have been developed first to derive the sales target rather than the reverse.

The initial meeting between the Vice President of Finance, Executive Vice President, Marketing Manager, and Production Manager should be held earlier. This meeting is held too late in the budget process.

2. Springfield should consider adopting a ―bottom-up‖ budget process. This

means that the people responsible for performance under the budget would participate in the decisions by which the budget is established. In addition, this approach requires initial and continuing involvement of sales, financial, and production personnel to define sales and profit

goals that are realistic within the constraints under which the company operates. Although time consuming, the approach should produce a

more acceptable, honest, and workable goal-control mechanism.

The sales forecast should be developed considering internal sales-

forecasts as well as external factors. Costs within departments should be divided into fixed and variable, controllable and noncontrollable, discre-tionary and nondiscretionary. Flexible budgeting techniques could then allow departments to identify costs that can be modified in the planning process.

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

3. The functional areas should not necessarily be expected to cut costs

when sales volume falls below budget. The time frame of the budget (one year) is short enough so that many costs are relatively fixed. For costs that are fixed, there is little hope for a reduction as a consequence of short-run changes in volume. However, the functional areas should be expected to cut costs should sales volume fall below target when:

a. control is exercised over the costs within their function.

b. budgeted costs were more than adequate for the originally targeted

sales, i.e., slack was present.

c. budgeted costs vary to some extent with changes in sales.

d. there are discretionary costs that can be delayed or omitted with no

serious effect on the department.

(Adapted unofficial CMA Solution)

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

1. Schedule of expected cash collections:

Month

July August September Quarter From accounts receivable:

May sales

$250,000 × 3% .......... $ 7,500 $ 7,500 June sales

$300,000 × 70% ........ 210,000 210,000 $300,000 × 3% .......... $ 9,000 9,000 From budgeted sales:

July sales

$400,000 × 25% ........ 100,000 100,000 $400,000 × 70% ........ 280,000 280,000 $400,000 × 3% .......... $ 12,000 12,000 August sales

$600,000 × 25% ........ 150,000 150,000 $600,000 × 70% ........ 420,000 420,000 September sales

$320,000 × 25% ........ 80,000 80,000 Total cash collections........ $317,500 $439,000 $512,000 $1,268,500

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

2. Cash budget:

Month July August Septem-

ber Quarter

Cash balance, beginning .... $ 44,500 $ 28,000 $ 23,000 $ 44,500 Add receipts:

Collections from cus-

tomers........................ 317,500 439,000 512,000 1,268,500 Total cash available ........... 362,000 467,000 535,000 1,313,000 Less disbursements:

Merchandise purchases .... 180,000 240,000 350,000 770,000 Salaries and wages ......... 45,000 50,000 40,000 135,000 Advertising .................... 130,000 145,000 80,000 355,000 Rent payments ............... 9,000 9,000 9,000 27,000 Equipment purchases ...... 10,000 —— 10,000 Total disbursements........... 374,000 444,000 479,000 1,297,000 Excess (deficiency) of re-

ceipts over disburse-

ments ........................... (12,000) 23,000 56,000 16,000 Financing:

Borrowings .................... 40,000 ——40,000 Repayments ................... ——(40,000) (40,000) Interest ......................... —— (1,200) (1,200) Total financing .................. 40,000 — (41,200) (1,200) Cash balance, ending......... $ 28,000 $ 23,000 $ 14,800 $ 14,800 3. If the company needs a $20,000 minimum cash balance to start each

month, then the loan cannot be repaid in full by September 30. If the loan is repaid in full, the cash balance will drop to only $14,800 on Sep-tember 30, as shown above. Some portion of the loan balance will have to be carried over to October, at which time the cash inflow should be sufficient to complete repayment.

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

1. a. The reasons that Marge Atkins and Pete Granger use budgetary slack

include the following:

?These employees are hedging against the unexpected (reducing un-certainty/risk).

?The use of budgetary slack allows employees to exceed expectations and/or show consistent performance. This is particularly important

when performance is evaluated on the basis of actual results versus budget.

?Employees are able to blend personal and organizational goals through the use of budgetary slack as good performance generally

leads to higher salaries, promotions, and bonuses.

b. The use of budgetary slack can adversely affect Atkins and Granger

by:

?limiting the usefulness of the budget to motivate their employees to top performance.

?affecting their ability to identify trouble spots and take appropriate corrective action.

?reducing their credibility in the eyes of management.

Also, the use of budgetary slack may affect management decision-

making as the budgets will show lower contribution margins (lower

sales, higher expenses). Decisions regarding the profitability of prod-uct lines, staffing levels, incentives, etc., could have an adverse effect on Atkins’ and Granger’s departments.

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

2. The use of budgetary slack, particularly if it has a detrimental effect on

the company, may be unethical. In assessing the situation, the specific standards contained in ―Standards of Ethical Conduct for Management Accountants‖ that should be considered are listed below.

Competence

Clear reports using relevant and reliable information should be prepared.

Confidentiality

The standards of confidentiality do not apply in this situation.

Integrity

?Any activity that subverts the legitimate goals of the company should be avoided.

?Favorable as well as unfavorable information should be communi-cated.

Objectivity

?Information should be fairly and objectively communicated.

?All relevant information should be disclosed.

(Unofficial CMA Solution)

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

1. Production budget: July August Septem-

ber October

Budgeted sales (units)............. 35,000 40,000 50,000 30,000 Add desired ending inventory ... 11,000 13,000 9,000 7,000 Total needs ............................ 46,000 53,000 59,000 37,000 Less beginning inventory ......... 10,000 11,000 13,000 9,000 Required production ................ 36,000 42,000 46,000 28,000

2. During July and August the company is building inventories in anticipa-

tion of peak sales in September. Therefore, production exceeds sales during these months. In September and October inventories are being reduced in anticipation of a decrease in sales during the last months of the year. Therefore, production is less than sales during these months to cut back on inventory levels.

3. Raw direct materials budget:

July August

Sep-

tember

Third

Quarter

Required production (units)...... 36,000 42,000 46,000 124,000 Material H300 needed per

unit .................................... × 3 cc × 3 cc × 3 cc × 3 cc Production needs (cc) ............. 108,000 126,000 138,000 372,000 Add desired ending inventory

(cc) .................................... 63,000 69,000 42,000 * 42,000 Total material H300 needs ....... 171,000 195,000 180,000 414,000 Less beginning inventory (cc) ... 54,000 63,000 69,000 54,000 Material H300 purchases (cc) ... 117,000 132,000 111,000 360,000 * 28,000 units (October production) × 3 cc per unit = 84,000 cc;

84,000 cc × 1/2 = 42,000 cc.

As shown in part (1), production is greatest in September; however, as shown in the raw direct materials budget, purchases of materials are greatest a month earlier—in August. The reason for the large purchases of materials in August is that the materials must be on hand to support the heavy production scheduled for September.

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

Solutions Manual, Chapter 9

507

1.

Zan Corporation Direct Materials Budget

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Required production (units)............ 5,000 8,000 7,000 6,000 26,000 Raw materials per unit (grams)....... × 8 × 8 × 8 × 8 × 8 Production needs (grams) .............. Add desired ending inventory

(grams) .................................... 16,000 14,000 12,000 8,000 8,000 Total needs (grams)...................... 56,000 78,000 68,000 56,000 216,000 Less beginning inventory (grams) ... 6,000 16,000 14,000 12,000 6,000 Raw materials to be purchased

(grams) .................................... 50,000 62,000 54,000 44,000 210,000 Cost of raw materials to be

purchased at $1.20 per gram ....... $60,000 $74,400 $64,800 $52,800 $252,000 Schedule of Expected Cash Disbursements for Materials Accounts payable, beginning

balance..................................... $ 2,880 $ 2,880 1st Quarter purchases ................... 36,000 $24,000 60,000 2nd Quarter purchases .................. 44,640 $29,760 74,400 3rd Quarter purchases................... 38,880 $25,920 64,800 4th Quarter purchases ................... 31,680 31,680 Total cash disbursements for

materials................................... $38,880 $68,640 $68,640 $57,600 $233,760

? The McGraw-Hill Companies, Inc., 2006. All rights reserved. 508

Managerial Accounting, 11th Edition

2.

Zan Corporation Direct Labor Budget

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Required production (units)............ 5,000 8,000 7,000 6,000 26,000 Direct labor-hours per unit ............. × 0.20 × 0.20 × 0.20 × 0.20 × 0.20 Total direct labor-hours needed ...... Direct labor cost per hour .............. × $11.50 × $11.50 × $11.50 × $11.50 × $11.50 Total direct labor cost.................... $ 11,500 $ 18,400 $ 16,100 $ 13,800 $ 59,800

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

Solutions Manual, Chapter 9

509

1.

Hruska Corporation

Direct Labor Budget

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Units to be produced ..................... 12,000 10,000 13,000 14,000 49,000 Direct labor time per unit (hours) .... 0.2 0.2 0.2 0.2 0.2 Total direct labor-hours needed ...... Direct labor cost per hour .............. $12.00 $12.00 $12.00 $12.00 $12.00 Total direct labor cost.................... $28,800 $24,000 $31,200 $33,600 $117,600 2.

Hruska Corporation

Manufacturing Overhead Budget

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Budgeted direct labor-hours ........... 2,400 2,000 2,600 2,800 9,800 Variable overhead rate .................. $1.75 $1.75 $1.75 $1.75 $1.75 Variable manufacturing overhead .... $ 4,200 $ 3,500 $ 4,550 $ 4,900 $ 17,150 Fixed manufacturing overhead........ 86,000 86,000 86,000 86,000 344,000 Total manufacturing overhead ........ 90,200 89,500 90,550 90,900 361,150 Less depreciation .......................... 23,000 23,000 23,000 23,000 92,000 Cash disbursements for

manufacturing overhead.............. $67,200 $66,500 $67,550 $67,900 $269,150

1. December cash sales................................... $ 83,000

Collections on account:

October sales: $400,000 × 18% ................. 72,000

November sales: $525,000 × 60% .............. 315,000

December sales: $600,000 × 20% .............. 120,000

Total cash collections ................................ $590,000

2. Payments to suppliers:

November purchases (accounts payable) ..... $161,000

December purchases: $280,000 × 30% ....... 84,000

Total cash payments ................................. $245,000

3. ASHTON COMPANY

Cash Budget

For the Month of December

Cash balance, beginning ............................... $ 40,000 Add cash receipts: Collections from customers . 590,000 Total cash available before current financing ....

Less disbursements:

Payments to suppliers for inventory .............. $245,000

Selling and administrative expenses* ............ 380,000

New web server ........................................ 76,000

Dividends paid .......................................... 9,000

Total disbursements ..................................... 710,000 Excess (deficiency) of cash available over

disbursements .......................................... (80,000) Financing:

Borrowings ............................................... 100,000 Repayments ............................................. —

Interest.................................................... —

Total financing ............................................ 100,000 Cash balance, ending ................................... $ 20,000 *$430,000 – $50,000 = $380,000.

? The McGraw-Hill Companies, Inc., 2006. All rights reserved.

相关主题