CHAPTER 21 (FIN MAN); CHAPTER 6 (MAN) BUDGETING

Transcription

1 CHAPTER 21 (FIN MAN); CHAPTER 6 (MAN) BUDGETING Number Objective Description Difficulty Time AACSB IMA SS GL EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation EO21(6) Easy 5 min Analytic Budget Preparation PE21(6)-1A 21-2 Flexible budgeting Easy 5 min Analytic Budget Preparation PE21(6)-1B 21-2 Flexible budgeting Easy 5 min Analytic Budget Preparation PE21(6)-2A 21-4 Production budget Easy 5 min Analytic Budget Preparation PE21(6)-2B 21-4 Production budget Easy 5 min Analytic Budget Preparation PE21(6)-3A 21-4 Direct materials purchases budget Easy 5 min Analytic Budget Preparation PE21(6)-3B 21-4 Direct material purchases budget Easy 5 min Analytic Budget Preparation PE21(6)-4A 21-4 Direct labor cost budget Easy 5 min Analytic Budget Preparation PE21(6)-4B 21-4 Direct labor cost budget Easy 5 min Analytic Budget Preparation PE21(6)-5A 21-4 Cost of goods sold Easy 10 min Analytic Budget Prepara- budget PE21(6)-5B 21-4 Cost of goods sold budget tion Easy 10 min Analytic Budget Preparation 263

2 Number Objective Description Difficulty Time AACSB IMA SS GL PE21(6)-6A 21-5 Cash budget Easy 5 min Analytic Budget Preparation PE21(6)-6B 21-5 Cash budget Easy 5 min Analytic Budget Preparation Ex21(6) , 21-5 Personal cash budget Easy 15 min Analytic Budget Prepara- Exl Ex21(6) , 21-4 Flexible budget for selling and administrative expenses Ex21(6) , 21-4 Static budget vs. flexible budget Ex21(6) Flexible budget for Fabrication Department Ex21(6) Sales and production budgets Ex21(6) Professional fees earned budget Ex21(6) Professional labor cost budget Ex21(6) Direct materials purchases budget Ex21(6) Direct materials purchases budget Ex21(6) Direct materials purchases budget Ex21(6) Direct labor cost budget Ex21(6) Direct labor budget service business Ex21(6) Production and direct labor cost budgets Ex21(6) Factory overhead cost budget Ex21(6) Cost of goods sold budget Ex21(6) Cost of goods sold budget Ex21(6) Schedule of cash collections of accounts receivable Ex21(6) Schedule of cash collections of accounts receivable Ex21(6) Schedule of cash payments Ex21(6) Schedule of cash payments Ex21(6) Capital expenditures budget Pr21(6)-1A 21-4 Forecast sales volume and sales budget Pr21(6)-2A 21-4 Sales, production, direct materials purchases, and direct labor cost budgets Pr21(6)-3A 21-4 Budgeted income statement and supporting budgets tion Easy 20 min Analytic Budget Preparation Easy 20 min Analytic Budget Preparation Easy 15 min Analytic Budget Preparation Easy 20 min Analytic Budget Preparation Easy 10 min Analytic Budget Preparation Easy 10 min Analytic Budget Preparation Moderate 20 min Analytic Budget Preparation Moderate 20 min Analytic Budget Preparation Moderate 20 min Analytic Budget Preparation Moderate 20 min Analytic Budget Preparation Moderate 20 min Analytic Budget Preparation Moderate 30 min Analytic Budget Preparation Moderate 20 min Analytic Budget Preparation Moderate 20 min Analytic Budget Preparation Difficult 30 min Analytic Budget Preparation Easy 15 min Analytic Budget Preparation Easy 15 min Analytic Budget Preparation Easy 15 min Analytic Budget Preparation Moderate 20 min Analytic Budget Preparation Difficult 30 min Analytic Budget Preparation Moderate 1 1/2 Analytic Budget Preparation hr Moderate 1 3/4 Analytic Budget Preparation hr Difficult 2 1/4 hr Analytic Budget Preparation Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl Exl KA 264

3 Number Objective Description Difficulty Time AACSB IMA SS GL Pr21(6)-4A 21-5 Cash budget Difficult 2 hr Analytic Budget Preparation Exl Pr21(6)-5A 21-4, 21-5 Budgeted income Difficult 2hr Analytic Budget Preparation Exl statement and balance sheet Pr21(6)-1B 21-4 Forecast sales vol- Moderate 1 1/2 Analytic Budget Prepara- Exl ume and sales budget Pr21(6)-2B 21-4 Sales, production, direct materials purchases, and direct labor cost budgets Pr21(6)-3B 21-4 Budgeted income statement and supporting budgets hr Moderate 1 3/4 hr Difficult 2 1/4 hr Analytic Analytic tion Budget Preparation Budget Preparation Pr21(6)-4B 21-5 Cash budget Difficult 2 hr Analytic Budget Preparation Pr21(6)-5B 21-4, 21-5 Budgeted income Difficult 2hr Analytic Budget Preparation statement and balance sheet SA21(6) Ethics and professional conduct in business SA21(6) , 21-2 Evaluating budgeting systems SA21(6) Service company static decision making SA21(6) Objectives of the master budget SA21(6) Integrity and evaluating budgeting systems SA21(6) Objectives of budgeting SA21(6) Budget for a state government Moderate 20 min Ethics Ethical Considerations Moderate 20 min Analytic Budget Preparation Moderate 15 min Analytic Budget Preparation Easy 15 min Analytic Budget Preparation Moderate 20 min Analytic Budget Preparation Difficult 45 min Analytic Budget Preparation Moderate 1 hr Analytic Budget Preparation Exl Exl Exl Exl 265

4 EYE OPENERS 1. The three major objectives of budgeting are (1) to establish specific goals for future operations, (2) to direct and coordinate plans to achieve the goals, and (3) to periodically compare actual results with the goals. 2. Managers are given authority and responsibility for responsibility center performance. They are then accountable for the performance of the responsibility center. 3. If goals set by the budgets are viewed as unrealistic or unachievable, management may become discouraged and may not be committed to the achievement of the goals, resulting in the budget becoming less effective as a planning and control tool. 4. Involving all levels of management and all departments in preparing and submitting budget estimates heightens awareness of each department s importance to company goals and to the control of operations. It also encourages cooperation both within and among departments. 5. Budgeting more resources for travel than requested by department personnel is an example of budgetary slack. 6. A budget that is set too loosely may fail to motivate managers and other employees to perform efficiently. In addition, a loose budget may cause a spend it or lose it mentality, where excess budget resources are spent in order to protect the budget from future reductions. 7. Conflicting goals can cause employees or department managers to act in their own selfinterests to the detriment of the organization s objectives. 8. Zero-based budgeting is used when an organization wishes to take a clean slate view of operations. It is often used when the organization wants to cut costs by reevaluating the need for and usefulness of all operations. 9. A static budget is most appropriate in situations where costs are not variable to an underlying activity level. As a result, it is reasonable to plan spending on the basis of a fixed quantity of resources for the year. This will occur in some administrative functions, such as human resources, accounting, or public relations. 10. Computers not only speed up the budgeting process, but they also reduce the cost of budget preparation when large quantities of data need to be processed. In addition, by using computerized simulation models, management can determine the impact of various operating alternatives on the master budget. 11. The first step in preparing a master budget is estimating the sales levels of each product by regions or territories. 12. The production requirements must be carefully coordinated with the sales budget to ensure that production and sales are kept in balance during the period. Ideally, manufacturing operations should be maintained at 100% of capacity, with no idle time or overtime, and there should be neither excessive inventories nor inventories insufficient to fill sales orders. 13. Purchases of direct materials should be closely coordinated with the production budget so that inventory levels can be maintained within reasonable limits. 14. Direct materials purchases budget, direct labor cost budget, and factory overhead cost budget. 15. a. The cash budget contributes to effective cash planning. This involves advance planning so that a cash shortage does not arise and excess cash is not permitted to remain idle. b. The excess cash can be invested in readily marketable income-producing securities or used to reduce loans. 16. The schedule of collections from sales is used to determine the amount of cash collected from current and prior period sales, based on collection history. The schedule is used to help determine the estimated cash receipts portion of the cash budget. 17. The plans for financing the capital expenditures budget may affect the cash budget. 266

5 PE 21 1A (FIN MAN); PE 6 1A (MAN) PRACTICE EXERCISES Variable cost: Direct labor (10,000 hours $13* per hour)... $130,000 Fixed cost: Property tax... 50,000 Total department costs... $180,000 *$110,500/8,500 hours PE 21 1B (FIN MAN); PE 6 1B (MAN) Variable cost: Direct labor (700 hours $23* per hour)... $ 16,100 Fixed cost: Equipment depreciation... 14,000 Total department costs... $ 30,100 *$18,400/800 hours PE 21 2A (FIN MAN); PE 6 2A (MAN) Expected units to be sold ,000 Plus desired ending inventory, December 31, ,000 Total ,000 Less estimated beginning inventory, January 1, ,000 Total units to be produced ,000 PE 21 2B (FIN MAN); PE 6 2B (MAN) Expected units to be sold... 95,000 Plus desired ending inventory, December 31, ,000 Total... 98,000 Less estimated beginning inventory, January 1, ,400 Total units to be produced... 95,

6 PE 21 3A (FIN MAN); PE 6 3A (MAN) Square feet required for production: Schedule planner (216, sq. ft.)... 19,440,000 Plus desired ending inventory, December 31, ,000 Total... 19,600,000 Less estimated beginning inventory, January 1, ,000 Total square feet to be purchased... 19,500,000 Unit price (per square foot)... $0.08 Total direct materials to be purchased... $1,560,000 PE 21 3B (FIN MAN); PE 6 3B (MAN) Pounds of wax required for production: Candle [(95,600 8 oz.)/16 oz.]... 47,800 Plus desired ending inventory, December 31, ,100 Total... 48,900 Less estimated beginning inventory, January 1, ,400 Total pounds to be purchased... 47,500 Unit price (per pound)... $3.60 Total direct materials to be purchased... $171,000 PE 21 4A (FIN MAN); PE 6 4A (MAN) Hours required for assembly: Schedule planner (216, min.)... 3,240,000 min. Convert minutes to hours... / 60 min. Assembly hours... 54,000 hrs. Hourly rate... $12.50 Total direct labor cost... $ 675,000 PE 21 4B (FIN MAN); PE 6 4B (MAN) Hours required for assembly: Candle (95, min.)... 1,147,200 min. Convert minutes to hours... / 60 min. Molding hours... 19,120 hrs. Hourly rate... $14.00 Total direct labor cost... $ 267,

7 PE 21 5A (FIN MAN); PE 6 5A (MAN) Finished goods inventory, January 1, $ 43,000 Work in process inventory, January 1, $ 22,000 Direct materials: Direct materials inventory, January 1, 2008 (100,000 $0.08)... $ 8,000 Direct materials purchases (from PE 21 3A)... 1,560,000 Cost of direct materials available for use... $1,568,000 Less direct materials inventory, December 31, 2008 (160,000 $0.08)... 12,800 Cost of direct materials placed in production... $1,555,200 Direct labor (from PE 21 4A) ,000 Factory overhead ,000 Total manufacturing costs... 2,475,200 Total work in process during period... $2,497,200 Less work in process inventory, December 31, ,000 Cost of goods manufactured... 2,472,200 Cost of finished goods available for sale... $2,515,200 Less finished goods inventory, December 31, ,000 Cost of goods sold... $2,475,200 PE 21 5B (FIN MAN); PE 6 5B (MAN) Finished goods inventory, January 1, $ 14,000 Work in process inventory, January 1, $ 6,300 Direct materials: Direct materials inventory, January 1, 2008 (1,400 $3.60)... $ 5,040 Direct materials purchases (from PE 21 3B) ,000 Cost of direct materials available for use... $176,040 Less direct materials inventory, December 31, 2008 (1,100 $3.60)... 3,960 Cost of direct materials placed in production... $172,080 Direct labor (from PE 21 4B) ,680 Factory overhead... 95,000 Total manufacturing costs ,760 Total work in process during period... $541,060 Less work in process inventory, December 31, ,000 Cost of goods manufactured ,060 Cost of finished goods available for sale... $548,060 Less finished goods inventory, December 31, ,000 Cost of goods sold... $536,

8 PE 21 6A (FIN MAN); PE 6 6A (MAN) July Collections from June sales (70% $400,000)... $280,000 Collections from July sales (30% $360,000) ,000 Total receipts from sales on account... $388,000 PE 21 6B (FIN MAN); PE 6 6B (MAN) September Payments for August purchases (90% $14,000)... $ 12,600 Payments for September purchases (10% $16,000)... 1,600 Total payments for purchases on account... $ 14,

9 Ex (FIN MAN); Ex. 6 1 (MAN) EXERCISES a. A B C D E MONROE BAKER Cash Budget For the Four Months Ending December 31, 2008 September October November December 1 Estimated cash receipts from: 1 2 Part-time job $ 800 $ 800 $ 800 $ Deposit Total cash receipts $ 800 $ 800 $ 800 $ 1, Estimated cash payments for: 5 6 Season football tickets $ Additional entertainment 225 $ 225 $ 225 $ Tuition 3, Rent Food Deposit Total cash payments $ 5,030 $ 790 $ 790 $ Cash increase (decrease) $ (4,230) $ 10 $ 10 $ Cash balance at beginning of 14 month 6,500 2,270 2,280 2, Cash balance at end of month $ 2,270 $ 2,280 $2,290 $ 2, b. The four-month budgets do not change with any identified activity level; thus, they are static budgets. c. While Baker s budget might first appear satisfactory, Baker must earn enough cash in order to pay for the spring semester tuition. His present budget shows that he will be $600 short of the tuition amount ($3,500 $2,900). Thus, Baker will likely need to adjust the plan before the fall term even begins. Some possibilities would be to rent a lower cost apartment or to get a roommate so that the rental cost is cut in half. An additional $175 per month would yield $700 by the end of December, which would be sufficient to cover the $600 spring tuition shortfall and provide a little extra. Other considerations include increasing his part-time job hours and reducing his monthly entertainment and food allowance, or making up the income difference with additional hours during Christmas break. The budget gives Baker time to adjust his plans to future events. In this case, Baker can see that his present plan will not provide sufficient cash, thus giving him four months to adjust. If Baker did not budget but went ahead with the original plan, he would be $600 short at the end of December with no time left to adjust. 271

10 Ex (FIN MAN); Ex. 6 2 (MAN) A B C D MASTER ELECTRONICS COMPANY Flexible Selling and Administrative Expenses Budget For the Month Ending January 31, Total sales $100,000 $120,000 $140, Variable cost: 2 3 Sales commissions $ 7,000 $ 8,400 $ 9, Advertising expense 18,000 21,600 25, Miscellaneous selling expense 4,000 4,800 5, Office supplies expense 5,000 6,000 7, Miscellaneous administrative expense 2,000 2,400 2, Total variable cost $ 36,000 $ 43,200 $ 50, Fixed cost: 9 10 Miscellaneous selling expense $ 1,750 $ 1,750 $ 1, Office salaries expense 12,000 12,000 12, Miscellaneous administrative expense 1,400 1,400 1, Total fixed cost $ 15,150 $ 15,150 $ 15, Total selling and administrative expenses $ 51,150 $ 58,350 $ 65,

11 Ex (FIN MAN); Ex. 6 3 (MAN) a. A B C D LANDERS COMPANY MACHINING DEPARTMENT Flexible Production Budget For the Three Months Ending March 31, 2008 January February March 1 Units of production 60,000 55,000 50, Wages $ 768,000 $704,000 $640, Utilities 240, , , Depreciation 60,000 60,000 60, Total $1,068,000 $984,000 $900, Supporting calculations: 8 9 Units of production 60,000 55,000 50, Hours per unit Total hours of production 48,000 44,000 40, Wages per hour $16.00 $16.00 $ Total wages $ 768,000 $704,000 $640, Total hours of production 48,000 44,000 40, Utility cost per hour $5.00 $5.00 $ Total utilities $ 240,000 $220,000 $200, Depreciation is a fixed cost, so it does not flex with changes in production. Since it is the only fixed cost, the variable and fixed costs are not classified in the budget. b. January February March Total flexible budget... $ 1,068,000 $ 984,000 $ 900,000 Actual cost... 1,090,000 1,050,000 1,000,000 Excess of actual cost over budget... $ (22,000) $ (66,000) $ (100,000) The excess of actual cost over the flexible budget suggests that the Machining Department has not performed as well as originally thought. Indeed, the department is spending more than would be expected, and it s getting worse, given the level of production for the first three months. 273

12 Ex (FIN MAN); Ex. 6 4 (MAN) A B C D STEELCASE INC. FABRICATION DEPARTMENT Flexible Production Budget October 2008 (assumed data) 1 Units of production 12,000 15,000 18, Variable cost: 3 4 Direct labor $ 57,600 1 $ 72,000 2 $ 86, Direct materials 750, , ,125, Total variable cost $ 807,600 $ 1,009,500 $ 1,211, Fixed cost: 8 9 Supervisor salaries $ 130,000 $ 130,000 $ 130, Depreciation 20,000 20,000 20, Total fixed cost $ 150,000 $ 150,000 $ 150, Total department cost $ 957,600 $ 1,159,500 $ 1,361, ,000 18/60 $ ,000 18/60 $ ,000 18/60 $ , $ , $ , $

13 Ex (FIN MAN); Ex. 6 5 (MAN) a. A B C D Product and Area MELODY AUDIO COMPANY Sales Budget For the Month Ending September 30, 2007 Unit Sales Volume Unit Selling Price Total Sales 1 Model DL: 1 2 East Region 4,400 $120 $ 528, West Region 2, , Total 7,350 $ 882, Model XL: 5 6 East Region 3,200 $170 $ 544, West Region 2, , Total 5,300 $ 901, Total revenue from sales $1,783,000 9 b. A B C MELODY AUDIO COMPANY Production Budget For the Month Ending September 30, 2007 Units Model DL Model XL 1 Expected units to be sold 7,350 5, Plus desired inventory, September 30, Total 7,800 5, Less estimated inventory, September 1, Total units to be produced 7,420 5,

14 Ex (FIN MAN); Ex. 6 6 (MAN) A B C D KIMBLE AND SANCHEZ, CPAs Professional Fees Earned Budget For the Year Ending December 31, 2008 Billable Hourly Total Hours Rate Revenue 1 Audit Department: 1 2 Staff 34,500 $120 $ 4,140, Partners 5, ,248, Total 39,700 $ 5,388, Tax Department: 5 6 Staff 27,700 $120 $ 3,324, Partners 4, , Total 31,850 $ 4,320, Small Business Accounting Department: 9 10 Staff 22,800 $120 $ 2,736, Partners 6, ,512, Total 29,100 $ 4,248, Total professional fees earned $13,956, Ex (FIN MAN); Ex. 6 7 (MAN) A B C KIMBLE AND SANCHEZ, CPAs Professional Labor Cost Budget For the Year Ending December 31, 2008 Staff Partners 1 Audit Department 34,500 5, Tax Department 27,700 4, Small Business Accounting Department 22,800 6, Total 85,000 15, Average compensation per hour $75.00 $ Total professional labor cost $6,375,000 $2,191,

15 Ex (FIN MAN); Ex. 6 8 (MAN) A B C D E ROMA FROZEN PIZZA INC. Direct Materials Purchases Budget For the Month Ending November 30, 2008 Dough Tomato Cheese Total 1 Units required for production: pizza 16, , , pizza 38, , , Plus desired inventory, 4 November 30, Total 55,280 33,130 46,775 5 Less estimated inventory, 6 November 1, Total units to be purchased 54,605 32,940 46, Unit price $1.20 $2.40 $ Total direct materials to be 9 purchased $65,526 $79,056 $131,813* $276, ,400 1 lb , lb , lb , lbs , lb , lbs *Rounded to the nearest dollar

16 Ex (FIN MAN); Ex. 6 9 (MAN) A B C D COCA-COLA ENTERPRISES CHATTANOOGA PLANT Direct Materials Purchases Budget For the Month Ending June 30, 2009 (assumed data) Concentrate 2-Liter Bottles Carbonated Water 1 Materials required for production: 1 2 Coke 768* lbs. 192,000 btls. 384,000 ltrs. 2 3 Sprite 444* 148, , Total materials 1,212 lbs. 340,000 btls. 680,000 ltrs. 4 5 Direct material unit price $75 $0.07 $ Total direct materials to be purchased $90,900 $ 23,800 $ 34,000 6 Coke Sprite *Production in liters (bottles 2 liters/bottle) , ,000 Divide by / 100 / 100 3,840 2,960 Multiply by concentrate pounds per 100 liters Concentrate pounds required for production

17 Ex (FIN MAN); Ex (MAN) A B C D GOODSTONE TIRE COMPANY Direct Materials Purchases Budget For the Year Ending December 31, 2008 Rubber Steel Belts Total 1 Pounds required for production: 1 2 Passenger tires 1 1,222,500 lbs. 163,000 lbs. 2 3 Truck tires 2 1,088, , Plus desired inventory, Dec. 31, ,000 9, Total 2,356,250 lbs. 322,750 lbs. 5 6 Less estimated inventory, Jan. 1, ,000 6, Total units purchased 2,284,250 lbs. 316,750 lbs. 7 8 Unit price $2.90 $ Total direct materials to be purchased $6,624,325 $1,108,625 $7,732, Rubber: 40,750 units 30 lbs. per unit = 1,222,500 lbs Steel belts: 40,750 units 4 lbs. per unit = 163,000 lbs Rubber: 16,750 units 65 lbs. per unit = 1,088,750 lbs Steel belts: 16,750 units 9 lbs. per unit = 150,750 lbs. 14 Errors: 1. The sales should be adjusted by the desired ending inventory in the finished goods in order to determine the number of units to be produced [40,750 (38, ,750) for passenger tires and 16,750 (14, ,750) for truck tires]. The desired ending inventory should be added to the sales figures to determine the current period production requirements. 2. The materials used to satisfy current period production should be adjusted by the estimated beginning materials inventory and desired ending materials inventory to determine materials to be purchased. 279

18 Ex (FIN MAN); Ex (MAN) A B C MATCH POINT RACKET COMPANY Direct Labor Cost Budget For the Month Ending March 31, 2008 Forming Assembly Department Department 1 Hours required for production: 1 2 Junior 1 1,825 3, Pro Striker 2 7,360 11, Total 9,185 14, Hourly rate $18.00 $ Total direct labor cost $ 165,330 $ 186, Junior: 0.25 hour 7,300 = 1,825 hours hour 7,300 = 3,285 hours Pro Striker: 0.40 hour 18,400 = 7,360 hours hour 18,400 = 11,040 hours

19 Ex (FIN MAN); Ex (MAN) A B C NIGHT REST INN INC. Direct Labor Cost Budget For a Weekday or a Weekend Day Weekday Weekend Day 1 Room occupancy 1 2 Room capacity Occupied percent (occupancy) 75% 50% 3 4 (a) Rooms occupied Housekeeping 5 6 (b) No. of minutes to clean a room Total minutes [(a) (b)] 8,100 5, Total hours (/60 min.) Labor rate per hour $8.00 $ (c) Housekeeping daily labor budget $ 1,080 $ Restaurant staff Base restaurant staff Incremental 30 room blocks [(a)/30] Total staff Total hours ( 8 hours) Labor rate per hour $7.00 $ (d) Restaurant staff daily labor budget $ 616 $ Total daily labor budget [(c) + (d)] $ 1,696 $ 1,

20 Ex (FIN MAN); Ex (MAN) a. A B C LEVI STRAUSS & CO. Production Budget March 2008 (assumed data) Dockers 501 Jeans 1 Expected units to be sold 23,800 46, Plus March 31 desired inventory 520 2, Total units 24,320 48, Less March 1 estimated inventory 320 1, Total units to be produced 24,000 47,000 5 b. A B C D E LEVI STRAUSS & CO. Direct Labor Cost Budget March 2008 (assumed data) Inseam Outerseam Pockets Zipper 1 Dockers 43,200* 52,800* 16,800* 24,000* Jeans 56,400** 70,500** 42,300** 28,200** 2 3 Total minutes 99, ,300 59,100 52,200 3 Total direct labor hours 4 (/60 minutes) 1,660 2, Direct labor rate $12.00 $12.00 $14.00 $ Total direct labor cost $ 19,920 $ 24,660 $ 13,790 $ 12, *(24,000/10 pairs) 18 min. = 43,200 minutes 8 9 (24,000/10 pairs) 22 min. = 52,800 minutes 9 10 (24,000/10 pairs) 7 min. = 16,800 minutes (24,000/10 pairs) 10 min. = 24,000 minutes **(47,000/10 pairs) 12 min. = 56,400 minutes (47,000/10 pairs) 15 min. = 70,500 minutes (47,000/10 pairs) 9 min. = 42,300 minutes (47,000/10 pairs) 6 min. = 28,200 minutes

21 Ex (FIN MAN); Ex (MAN) A B C FRESH MINT CANDY COMPANY Factory Overhead Cost Budget For the Month Ending July 31, Variable factory overhead costs: 1 2 Manufacturing supplies $ 14, Power and light 42, Production supervisor wages 125, Production control salaries 33, Materials management salaries 29, Total variable factory overhead costs $243, Fixed factory overhead costs: 8 9 Factory insurance $ 23, Factory depreciation 17, Total fixed factory overhead costs 40, Total factory overhead costs $283, Note: Advertising expenses, sales commissions, and executive officer salaries are selling and administrative expenses. 283

22 Ex (FIN MAN); Ex (MAN) A B C D DOVER CHEMICAL COMPANY Cost of Goods Sold Budget For the Month Ending June 30, 20 1 Finished goods inventory, June 1 $ 17, Work in process inventory, June 1 $ 11, Direct materials: 3 4 Direct materials inventory, June 1 $ 15, Direct materials purchases 840, Cost of direct materials available for use $ 855, Less direct materials inventory, June 30 12, Cost of direct materials placed in production $ 843, Direct labor 150, Factory overhead 275, Total manufacturing costs 1,268, Total work in process during the period $1,279, Less work in process inventory, June 30 10, Cost of goods manufactured 1,269, Cost of finished goods available for sale $1,287, Less finished goods inventory, June 30 17, Cost of goods sold $1,269, $8,700 + $9, $30,000 barrels $28 per barrel $8,300 + $9,

23 Ex (FIN MAN); Ex (MAN) A B C D MORAVIAN CERAMICS INC. Cost of Goods Sold Budget For the Month Ending April 30, Finished goods inventory, April 1, 2008 $ 9, Work in process inventory, April 1, 2008 $ 2, Direct materials: 3 4 Direct materials inventory, April 1, 2008 $ 8, Direct materials purchases 151, Cost of direct materials available for use $159, Less direct materials inventory, April 30, , Cost of direct materials placed in production $149, Direct labor 171, Factory overhead 76, Total manufacturing costs 397, Total work in process during the period $400, Less work in process inventory, April 30, , Cost of goods manufactured 398, Cost of finished goods available for sale $408, Less finished goods inventory, April 30, , Cost of goods sold $397,

24 Ex (FIN MAN); Ex (MAN) A B C D HAPPY TAILS WHOLESALE INC. Schedule of Collections from Sales For the Three Months Ending May 31, 2008 March April May 1 Receipts from cash sales: 1 2 Cash sales (10% current month s sales) $ 45,000 $ 52,000 $ 56, March sales on account: 3 4 Collected in March ($405, %) 202, Collected in April ($405,000 40%) 162, Collected in May ($405,000 10%) 40, April sales on account: 7 8 Collected in April ($468, %) 234, Collected in May ($468,000 40%) 187, May sales on account: Collected in May ($504, %) 252, Total cash collected $ 247,500 $ 448,000 $ 535, $450,000 90% = $405, $520,000 90% = $468, $560,000 90% = $504,

25 Ex (FIN MAN); Ex (MAN) A B C D OFFICE WAREHOUSE SUPPLIES INC. Schedule of Collections from Sales For the Three Months Ending March 31, 2008 January February March 1 Receipts from cash sales: 1 2 Cash sales (40% current month s sales) $ 88,000 $ 110,000 $ 104, December sales on account: 3 4 Collected in January (accounts receivable balance) 180, January sales on account: 5 6 Collected in January ($132, %) 39, Collected in February ($132,000 70%) 92, February sales on account: 8 9 Collected in February ($165, %) 49, Collected in March ($165,000 70%) 115, March sales on account: Collected in March ($156, %) 46, $ 307,600 $ 251,900 $ 266, $220,000 60% = $132, $275,000 60% = $165, $260,000 60% = $156,

26 Ex (FIN MAN); Ex (MAN) A B C D A+ LEARNING SYSTEMS INC. Schedule of Cash Payments for Selling and Administrative Expenses For the Three Months Ending August 31, 2008 June July August 1 June expenses: 1 2 Paid in June ($94, %) $71, Paid in July ($94,800 25%) $ 23, July expenses: 4 5 Paid in July ($104, %) 78, Paid in August ($104,500 25%) $ 26, August expenses: 7 8 Paid in August ($109, %) 81, Total cash payments $71,100 $102,075 $107, $114,800 $20, $124,500 $20, $129,000 $20, Note: Insurance, property taxes, and depreciation are expenses that do not result in cash payments in June, July, or August. 288

27 Ex (FIN MAN); Ex (MAN) A B C D TOTAL FLEX PHYSICAL THERAPY INC. Schedule of Cash Payments for Operations For the Three Months Ending December 31, 2009 October November December 1 Payments of prior month s expense 1 $ 22,600 $ 19,420 $ 22, Payment of current month s expense 2 77,680 88, , Total payment $100,280 $108,060 $128, $22,600, given as Accrued Expenses Payable, October $19,420 = ($108,200 $11,100) 20% 6 7 $22,160 = ($121,900 $11,100) 20% $77,680 = ($108,200 $11,100) 80% 8 9 $88,640 = ($121,900 $11,100) 80% 9 10 $106,560 = ($144,300 $11,100) 80% 10 Note: Insurance and depreciation are expenses that do not result in cash payments in October, November, and December. Ex (FIN MAN); Ex (MAN) A B C D E GARDEN MASTER TOOLS INC. Capital Expenditures Budget For the Four Years Ending December 31, Building $ 7,000,000 $ 5,000,000 $ 4,800, Equipment 1,500,000 $ 300,000 1,000, Information systems 900, Total $ 7,000,000 $ 6,500,000 $ 1,200,000 $ 5,800, $12, % = $4,800, $1,600, = $900,

28 PROBLEMS Prob. 21 1A (FIN MAN); Prob. 6 1A (MAN) 1. Increase (Decrease) Unit Sales, Year Ended 2008 Actual Over Budget Budget Actual Sales Amount Percent 8 10 Frame: East... 29,000 29, % Central... 22,000 22, % West... 31,500 30,240 (1,260) (4.00)% Frame: East... 16,000 16, % Central... 10,500 10, % West... 15,000 14,325 (675) (4.50)% Percentage Budgeted Actual Increase Units Units (Decrease) (rounded) 8 10 Frame: East... 29, % 30,468 Central... 22, % 23,567 West... 30,240 (4.00)% 29, Frame: East... 16, % 16,974 Central... 10, % 10,924 West... 14,325 (4.50)% 13,

29 Prob. 21 1A (FIN MAN); Prob. 6 1A (MAN) Concluded 3. A B C D REMBRANDT FRAME COMPANY Sales Budget For the Year Ending December 31, 2009 Unit Sales Unit Selling Product and Area Volume Price Total Sales Frame: 1 2 East 30,468 $12.00 $ 365, Central 23, , West 29, , Total 83,065 $ 996, Frame: 6 7 East 16,974 $21.00 $ 356, Central 10, , West 13, , Total 41,578 $ 873, Total revenue from sales $1,869,

30 Prob. 21 2A (FIN MAN); Prob. 6 2A (MAN) 1. A B C D OUTDOOR CHEF GRILL COMPANY Sales Budget For the Month Ending October 31, 2008 Unit Sales Unit Selling Product and Area Volume Price Total Sales 1 Backyard Chef: 1 2 Maine 4,500 $800 $ 3,600, Vermont 3, ,420, New Hampshire 4, ,570, Total 12,500 $ 10,590, Master Chef: 6 7 Maine 1,600 $1,600 $ 2,560, Vermont 1,700 1,450 2,465, New Hampshire 1,800 1,700 3,060, Total 5,100 $ 8,085, Total revenue from sales $ 18,675, A B C OUTDOOR CHEF GRILL COMPANY Production Budget For the Month Ending October 31, 2008 Units Backyard Chef Master Chef 1 Expected units to be sold 12,500 5, Plus desired inventory, October 31, , Total 13,800 5, Less estimated inventory, October 1, , Total units to be produced 12,200 5,

31 Prob. 21 2A (FIN MAN); Prob. 6 2A (MAN) Continued 3. A B C D E F OUTDOOR CHEF GRILL COMPANY Direct Materials Purchases Budget For the Month Ending October 31, 2008 Grates (units) Stainless Steel (lbs.) Burner Subassemblies (units) Shelves (units) Total Required units for 1 production: 1 2 Backyard Chef 36, , , , Master Chef 31, , , , Plus desired inventory, 4 October 31, , Total 68, ,000 46,000 92,650 5 Less estimated inventory, 6 October 1, ,200 2, Total units to be purchased 67, ,700 45,350 92, Unit price $18.00 $5.00 $ $ Total direct materials to be 9 purchased $ 1,215,000 $2,823,500 $5,215,250 $ 552,900 $9,806, ,200 3 grates = 36,600 grates , lbs. = 305,000 lbs ,200 2 subassemblies = 24,400 subassemblies ,200 5 shelves = 61,000 shelves ,200 6 grates = 31,200 grates , lbs. = 260,000 lbs ,200 4 subassemblies = 20,800 subassemblies ,200 6 shelves = 31,200 shelves

32 Prob. 21 2A (FIN MAN); Prob. 6 2A (MAN) Concluded 4. A B C D E OUTDOOR CHEF GRILL COMPANY Direct Labor Cost Budget For the Month Ending October 31, 2008 Stamping Department Forming Department Assembly Department Total 1 Hours required for production: 1 2 Backyard Chef 1 7,320 9,760 18, Master Chef 2 4,160 8,320 13, Total 11,480 18,080 31, Hourly rate $15.00 $12.00 $ Total direct labor cost $172,200 $ 216,960 $ 281,700 $ 670, This line is calculated as 12,200 Backyard Chef units from the production budget 8 9 multiplied by the hours per unit in each department estimated for the Backyard Chef ,320 = 12, ; 9,760 = 12, ; 18,300 = 12, This line is calculated as 5,200 Master Chef units from the production budget multiplied by the hours per unit in each department estimated for the Master Chef. 4,160 = 5, ; 8,320 =5, ; 13,000 = 5,

33 Prob. 21 3A (FIN MAN); Prob. 6 3A (MAN) 1. A B C D BACKYARD HABITAT INC. Sales Budget For the Month Ending December 31, 2008 Unit Sales Unit Selling Volume Price Total Sales 1 Bird House 34,500 $40.00 $1,380, Bird Feeder 25, ,806, Total revenue from sales $3,186, A B C BACKYARD HABITAT INC. Production Budget For the Month Ending December 31, 2008 Units Bird House Bird Feeder 1 Expected units to be sold 34,500 25, Plus desired inventory, December 31, ,300 2, Total 39,800 27, Less estimated inventory, December 1, ,900 2, Total units to be produced 34,900 25,

34 Prob. 21 3A (FIN MAN); Prob. 6 3A (MAN) Continued 3. A B C D BACKYARD HABITAT INC. Direct Materials Purchases Budget For the Month Ending December 31, 2008 Wood Plastic Total 1 Units required for production: 1 2 Bird House 27, , Bird Feeder 30, , Plus desired units of inventory, 4 December 31, ,500 2, Total 61,900 39,300 5 Less estimated units of inventory, 6 December 1, ,600 3, Total units to be purchased 59,300 36, Unit price $6.50 $ Total direct materials to be purchased $ 385,450 $ 32,490 $417, , ft , lb , ft , lb

35 Prob. 21 3A (FIN MAN); Prob. 6 3A (MAN) Continued 4. A B C D BACKYARD HABITAT INC. Direct Labor Cost Budget For the Month Ending December 31, 2008 Fabrication Department Assembly Department Total 1 Hours required for production: 1 2 Bird House 8, , Bird Feeder 11, , Total 20,155 19, Hourly rate $14.00 $ Total direct labor cost $ 282,170 $ 193,600 $475, , hour , hour , hour , hour A B C BACKYARD HABITAT INC. Factory Overhead Cost Budget For the Month Ending December 31, Indirect factory wages $ 650, Depreciation of plant and equipment 165, Power and light 42, Insurance and property tax 15, Total $ 872,

36 Prob. 21 3A (FIN MAN); Prob. 6 3A (MAN) Continued 6. A B C D BACKYARD HABITAT INC. Cost of Goods Sold Budget For the Month Ending December 31, 2008 Finished goods inventory, 1 December 1, 2008 $ 210, Work in process, December 1, 2008 $ 27, Direct materials: 3 4 Direct materials inventory, December 1, 2008 $ 19, Direct materials purchases 417, Cost of direct materials available for use $ 437, Less direct materials inventory, December 31, , Cost of direct materials placed in production $ 412, Direct labor 475, Factory overhead 872, Total manufacturing costs 1,760, Total work in process during period $ 1,787, Less work in process, December 31, , Cost of goods manufactured 1,755, Cost of finished goods available for sale $ 1,965, Less finished goods inventory, 16 December 31, , Cost of goods sold $ 1,762, Bird House (4,900 $25) $ 122, Bird Feeder (2,500 $35) 87, Finished goods inventory, December 1, 2008 $ 210, Wood (2,600 $6.50) $ 16, Plastic (3,200 $0.90) 2, Direct materials inventory, December 1, 2008 $ 19, Wood (3,500 $6.50) $ 22, Plastic (2,800 $0.90) 2, Direct materials inventory, December 31, 2008 $ 25, Bird House (5,300 $24) $ 127, Bird Feeder (2,100 $36) 75, Finished goods inventory, December 31, 2008 $ 202,

37 Prob. 21 3A (FIN MAN); Prob. 6 3A (MAN) Concluded 7. A B C BACKYARD HABITAT INC. Selling and Administrative Expenses Budget For the Month Ending December 31, Selling expenses: 1 2 Sales salaries expense $ 675, Advertising expense 148, Telephone expense selling 5, Travel expense selling 39, Total selling expense $ 868, Administrative expenses: 7 8 Office salaries expense $ 214, Depreciation expense office equipment 4, Telephone expense administrative 1, Office supplies expense 3, Miscellaneous administrative expense 5, Total administrative expense 229, Total operating expenses $1,097, A B C BACKYARD HABITAT INC. Budgeted Income Statement For the Month Ending December 31, Revenue from sales $3,186, Cost of goods sold 1,762, Gross profit $ 1,423, Operating expenses: 4 5 Selling expenses $ 868, Administrative expenses 229, Total operating expenses 1,097, Income from operations $ 325, Other income: 9 10 Interest revenue $ 16, Other expenses: Interest expense 10,600 6, Income before income tax $ 331, Income tax expense 116, Net income $ 215,

38 Prob. 21 4A (FIN MAN); Prob. 6 4A (MAN) 1. A B C D SANTA FE HOUSEWARES INC. Cash Budget For the Three Months Ending October 31, 2008 August September October 1 Estimated cash receipts from: 1 2 Cash sales $ 63,000 $ 71,500 $ 84, Collection of accounts receivable a 485, , , Dividends 1, Total cash receipts $ 549,800 $ 618,400 $ 705, Estimated cash payments for: 6 7 Manufacturing costs b $ 325,000 $ 333,000 $ 375, Selling and administrative expenses 170, , , Capital expenditures 150, Other purposes: Note payable (including interest) 103, Income tax 39, Dividends 12, Total cash payments $ 495,000 $ 577,000 $ 875, Cash increase or (decrease) $ 54,800 $ 41,400 $(170,700) Cash balance at beginning of month 50, , , Cash balance at end of month $ 104,800 $ 146,200 $ (24,500) Minimum cash balance 40,000 40,000 40, Excess or (deficiency) $ 64,800 $ 106,200 $ (64,500)

39 Prob. 21 4A (FIN MAN); Prob. 6 4A (MAN) Concluded 20 Computations: a Collections of accounts receivable: August September October June sales $ 135, July sales 350,000 2 $ 150, August sales 396,900 4 $ 170, September sales 450, Total $ 485,000 $ 546,900 $ 620, $450,000 30% = $135, $500,000 70% = $350, $500,000 30% = $150, $630,000 90% 70% = $396, $630,000 90% 30% = $170, $715,000 90% 70% = $450, b Payments for manufacturing costs: August September October Payment of accounts payable, beginning of month balance* $ 65,000 $ 65,000 $ 67, Payment of current month s cost** 260, , , Total $ 325,000 $ 333,000 $ 375, *Accounts payable, August 1 balance = $65, ($350,000 $25,000) 20% = $65, ($360,000 $25,000) 20% = $67, **($350,000 $25,000) 80% = $260, ($360,000 $25,000) 80% = $268, ($410,000 $25,000) 80% = $308, The budget indicates that the minimum cash balance will not be maintained in October. This is due to the capital expenditures and note repayment requiring significant cash outflows during this month. This situation can be corrected by borrowing and/or by the sale of the marketable securities, if they are held for such purposes. At the end of August and September, the cash balance will exceed the minimum desired balance, and the excess could be considered for temporary investment. 301

40 Prob. 21 5A (FIN MAN); Prob. 6 5A (MAN) 1. A B C D COCONUT GROVE SOAP CO. Budgeted Income Statement For the Year Ending December 31, Sales $ 989, Cost of goods sold: 2 3 Direct materials $ 172, Direct labor 96, Factory overhead 116, Cost of goods sold 385, Gross profit $ 603, Operating expenses: 8 9 Selling expenses: 9 10 Sales salaries and commissions $ 115, Advertising 55, Miscellaneous selling expenses 36, Total selling expenses $ 207, Administrative expenses: Office and officers salaries $ 103, Supplies 15, Miscellaneous administrative expense 21, Total administrative expenses 140, Total operating expenses 347, Income before income tax $ 255, Income tax expense 80, Net income $ 175, ,000 units $ ,000 units $ ,000 units $ (215,000 units $0.30) + $45,000 + $7, (215,000 units $0.35) + $40, (215,000 units $0.15) + $4, (215,000 units $0.17) + $67, (215,000 units $0.06) + $3, (215,000 units $0.09) + $2,

41 Prob. 21 5A (FIN MAN); Prob. 6 5A (MAN) Concluded 2. A B C D COCONUT GROVE SOAP CO. Budgeted Balance Sheet December 31, 2009 Assets 1 Current assets: 1 2 Cash $ 191, Accounts receivable 108, Inventories: 4 5 Finished goods $ 72, Work in process 27, Materials 49, , Prepaid expenses 3, Total current assets $ 453, Property, plant, and equipment: Plant and equipment $ 410, Less accumulated depreciation 175, , Total assets $ 687, Liabilities Current liabilities: Accounts payable $ 57, Stockholders Equity Common stock $ 185, Retained earnings 445, Total stockholders equity 630, Total liabilities and stockholders equity $ 687, Cash balance, December 31, 2009: Balance, January 1, 2009 $ 90, Cash from operations: Net income $ 175, Depreciation of plant and equipment 45, , Less: Dividends to be paid in 2009 $ 59, Plant and equipment to be acquired in ,000 (119,200) Balance, December 31, 2009 $ 191, $350,000 + $60,000 = $410, $130,400 + $45,000 = $175, Retained earnings balance, December 31, 2009: Balance, January 1, 2009 $ 329, Plus net income for , $ 505, Less dividends to be declared in , Balance, December 31, 2009 $ 445,

42 Prob. 21 1B (FIN MAN); Prob. 6 1B (MAN) 1. Increase (Decrease) Unit Sales, Year Ended 2008 Actual Over Budget Budget Actual Sales Amount Percent Home Alert System: United States... 26,400 27,720 1, % Europe... 7,100 6,816 (284) (4.00)% Asia... 5,200 5, % Business Alert System: United States... 13,500 14, % Europe... 5,800 5, % Asia... 3,700 3,589 (111) (3.00)% Percentage Budgeted Actual Increase Units Units (Decrease) (rounded) Home Alert System: United States... 27, % 29,106 Europe... 6,816 (4.00)% 6,543 Asia... 5, % 5,517 Business Alert System: United States... 14, % 14,602 Europe... 5, % 6,034 Asia... 3,589 (3.00)% 3,

43 Prob. 21 1B (FIN MAN); Prob. 6 1B (MAN) Concluded 3. A B C D DETECT AND SECURE DEVICES INC. Sales Budget For the Year Ending December 31, 2009 Unit Sales Unit Selling Product and Area Volume Price Total Sales 1 Home Alert System: 1 2 United States 29,106 $290 $ 8,440, Europe 6, ,897, Asia 5, ,599, Total 41,166 $ 11,938, Business Alert System: 6 7 United States 14,602 $880 $ 12,849, Europe 6, ,309, Asia 3, ,063, Total 24,117 $ 21,222, Total revenue from sales $ 33,161,

44 Prob. 21 2B (FIN MAN); Prob. 6 2B (MAN) 1. A B C D KINGDOM FURNITURE COMPANY Sales Budget For the Month Ending May 31, 2008 Unit Sales Unit Selling Product and Area Volume Price Total Sales 1 King: 1 2 Northern Domestic 5,800 $650 $ 3,770, Southern Domestic 3, ,065, International 1, , Total 10,500 $ 6,675, Prince: 6 7 Northern Domestic 6,700 $420 $ 2,814, Southern Domestic 3, ,824, International 1, , Total 11,500 $ 5,168, Total revenue from sales $ 11,843, A B C KINGDOM FURNITURE COMPANY Production Budget For the Month Ending May 31, 2008 Units King Prince 1 Expected units to be sold 10,500 11, Plus desired inventory, May 31, Total 11,300 11, Less estimated inventory, May 1, Total units to be produced 10,380 11,

45 Prob. 21 2B (FIN MAN); Prob. 6 2B (MAN) Continued 3. A B C D E F KINGDOM FURNITURE COMPANY Direct Materials Purchases Budget For the Month Ending May 31, 2008 Fabric (sq. yds.) Direct Materials Wood Filler (lineal ft.) (cu. ft.) Springs (units) Total Required units for 1 production: 1 2 King 47, , , , Prince 34, , , , Plus desired inventory, 4 May 31, ,400 5,800 3,100 7, Total 87, ,100 79, ,220 5 Less estimated inventory, 6 May 1, ,000 6,500 3,000 7, Total units to be purchased 82, ,600 76, , Unit price $8.00 $7.00 $3.50 $ Total direct materials to be 9 purchased $ 656,544 $4,575,200 $268,772 $1,178,865 $6,679, , sq. yds. = 47,748 sq. yds , lineal ft. = 363,300 lineal ft , cu. ft. = 39,444 cu. ft , springs = 145,320 springs ,640 3 sq. yds. = 34,920 sq. yds , lineal ft. = 291,000 lineal ft , cu. ft. = 37,248 cu. ft , springs = 116,400 springs

46 Prob. 21 2B (FIN MAN); Prob. 6 2B (MAN) Concluded 4. A B C D E KINGDOM FURNITURE COMPANY Direct Labor Cost Budget For the Month Ending May 31, 2008 Framing Department Cutting Department Upholstery Department Total 1 Hours required for production: 1 2 King 1 25,950 15,570 20, Prince 2 20,952 5,820 26, Total 46,902 21,390 47, Hourly rate $12.00 $9.00 $ Total direct labor cost $ 562,824 $ 192,510 $ 712,980 1,468, This line is calculated as 10,380 King chairs from the production budget multiplied by 8 9 the hours per unit in each department estimated for the King chairs. 25,950 = 10, ; 15,570 =10, ; 20,760 = 10, This line is calculated as 11,640 Prince chairs from the production budget multiplied by the hours per unit in each department estimated for the Prince chairs. 20,952 = 11, ; 5,820 = 11, ; 26,772 = 11,