ACCY 121 - Chapter 6 hw

CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING 6-17

(5 min.)

Sales and production budget.

Budgeted sales in units Add target ending finished goods inventory Total requirements Deduct beginning finished goods inventory Units to be produced 6-19

200,000 25,000 225,000 15,000 210,000

(10 min.) Budgeting material purchases. Production Budget:

Budgeted sales Add target ending finished goods inventory Total requirements Deduct beginning finished goods inventory Units to be produced

Finished Goods (units) 45,000 18,000 63,000 16,000 47,000

Direct Materials Purchases Budget: Direct materials needed for production (47,000  3) Add target ending direct materials inventory Total requirements Deduct beginning direct materials inventory Direct materials to be purchased

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Direct Materials (in gallons) 141,000 50,000 191,000 60,000 131,000

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(15 min.) Responsibility and controllability. 1. (a) Salesman (b) VP of Sales Permit the salesman to offer a reasonable discount to customers, but require that he clear bigger discounts with the VP. Also, base his bonus/performance evaluation not just on revenues generated, but also on margins (or, ability to meet budget). 2. (a) VP of Sales (b) VP of Sales VP of Sales should compare budgeted sales with actuals, and ask for an analysis of all the sales during the quarter. Discuss with salespeople why so many discounts are being offered—are they really needed to close each sale. Are our prices too high (i.e., uncompetitive)? 3. (a) Manager, Shipping department (b) Manager or Director of Operations (including shipping) Shipping department manager must report delays more regularly and request additional capacity in a timely manner. Operations manager should ask for a review of shipping capacity utilization, and consider expanding the department. 4. (a) HR department (b) Production supervisor The production supervisor should devise his or her own educational standards that all new plant employees are held to before they are allowed to work on the plant floor. Offer remedial in-plant training to those workers who show promise. Be very specific about the types of skills required when using the HR department to hire plant workers. Test the workers periodically for required skills. 5. (a) Production supervisor (b) Production supervisor Get feedback from the workers, analyze it, and act on it. Get extra coaching and training from experienced mentors. 6. (a) Maintenance department (b) Production supervisor First, get the requisite maintenance done on the machines. Make sure that the maintenance department head clearly understands the repercussions of poor maintenance. Discuss and establish maintenance standards that must be met (frequency of maintenance and tolerance limits, for example). Test and keep a log of the maintenance work.

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(30 min.) Cash flow analysis, chapter appendix.

1.

The cash that TabComp, Inc., can expect to collect during April 2006 is calculated below. April cash receipts: April cash sales ($400,000  .25) April credit card sales ($400,000  .30  .96) Collections on account: March ($480,000  .45  .70) February ($500,000  .45  .28) January (uncollectible-not relevant) Total collections

$100,000 115,200 151,200 63,000 0 $429,400

2. (a) The projected number of the MZB-33 computer hardware units that TabComp, Inc., will order on January 25, 2006, is calculated as follows.

March sales Plus: Ending inventorya Total needed Less: Beginning inventoryb Projected purchases in units a

MZB-33 Units 110 27 137 33 104

0.30  90 unit sales in April 0.30  110 unit sales in March

b

(b) Selling price = $2,025,000  675 units, or for March, $330,000 110 units = $3,000 per unit $ 1,800 Purchase price per unit, 60%  $3,000 Projected unit purchases x 104 $187,200 Total MZB-33 purchases, $1,800  104 3. Monthly cash budgets are prepared by companies such as TabComp, Inc., in order to plan for their cash needs. This means identifying when both excess cash and cash shortages may occur. A company needs to know when cash shortages will occur so that prior arrangements can be made with lending institutions in order to have cash available for borrowing when the company needs it. At the same time, a company should be aware of when there is excess cash available for investment or for repaying loans.

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6-30

(30–40 min.) Revenue and production budgets.

This is a routine budgeting problem. The key to its solution is to compute the correct quantities of finished goods and direct materials. Use the following general formula:  Budgeted   Target   Budgeted   production  =  ending  +  sales or  – Beginning   inventory       or purchases inventory materials used 1.

Scarborough Corporation Revenue Budget for 2010

Thingone Thingtwo Budgeted revenues 2.

Units 60,000 40,000

Total $ 9,900,000 10,000,000 $19,900,000

Scarborough Corporation Production Budget (in units) for 2010

Budgeted sales in units Add target finished goods inventories, December 31, 2010 Total requirements Deduct finished goods inventories, January 1, 2010 Units to be produced 3.

Price $165 250

Thingone 60,000

Thingtwo 40,000

25,000 85,000

9,000 49,000

20,000 65,000

8,000 41,000

Scarborough Corporation Direct Materials Purchases Budget (in quantities) for 2007 Direct Materials A B Direct materials to be used in production • Thingone (budgeted production of 65,000 units times 4 lbs. of A, 2 lbs. of B) • Thingtwo (budgeted production of 41,000 units times 5 lbs. of A, 3 lbs. of B, 1 lb. of C) Total Add target ending inventories, December 31, 2010 Total requirements in units Deduct beginning inventories, January 1, 2010 Direct materials to be purchased (units)

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C

260,000

130,000

--

205,000 465,000 36,000 501,000 32,000 469,000

123,000 253,000 32,000 285,000 29,000 256,000

41,000 41,000 7,000 48,000 6,000 42,000

4.

Scarborough Corporation Direct Materials Purchases Budget (in dollars) for 2010

Direct material A Direct material B Direct material C Budgeted purchases 5.

Expected Purchase Price per unit $12 5 3

Total $5,628,000 1,280,000 126,000 $7,034,000

Scarborough Corporation Direct Manufacturing Labor Budget (in dollars) for 2010

Thingone Thingtwo Total 6.

Budgeted Purchases (Units) 469,000 256,000 42,000

Direct Budgeted Manufacturing Production Labor-Hours per Unit (Units) 65,000 2 41,000 3

Total Hours 130,000 123,000

Rate per Hour $12 16

Total $1,560,000 1,968,000 $3,528,000

Scarborough Corporation Budgeted Finished Goods Inventory at December 31, 2010 Thingone: Direct materials costs: A, 4 pounds × $12 $48 B, 2 pounds × $5 10 Direct manufacturing labor costs, 2 hours × $12 Manufacturing overhead costs at $20 per direct manufacturing labor-hour (2 hours × $20) Budgeted manufacturing costs per unit Finished goods inventory of Thingone $122 × 25,000 units Thingtwo: Direct materials costs: A, 5 pounds × $12 $60 B, 3 pounds × $5 15 C, 1 each × $3 3 Direct manufacturing labor costs, 3 hours × $16 Manufacturing overhead costs at $20 per direct manufacturing labor-hour (3 hours × $20) Budgeted manufacturing costs per unit Finished goods inventory of Thingtwo $186 × 9,000 units Budgeted finished goods inventory, December 31, 2010

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$ 58 24 40 $122 $3,050,000

$ 78 48 60 $186 1,674,000 $4,724,000

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(60 min.) Comprehensive problem with ABC costing

1. Revenue Budget For the Month of April

Cat-allac Dog-eriffic Total

Units Selling Price Total Revenues 500 $160 $ 80,000 300 250 75,000 $155,000

2. Production Budget For the Month of April

Budgeted unit sales Add target ending finished goods inventory Total required units Deduct beginning finished goods inventory Units of finished goods to be produced

Product Cat-allac Dog-eriffic 500 300 35 15 535 315 15 30 520 285

3a. Direct Material Usage Budget in Quantity and Dollars For the Month of April Material Plastic Metal Physical Units Budget Direct materials required for Cat-allac (520 units × 4 lbs. and 0.5 lb.) Dog-errific (285 units × 6 lbs. and 1 lb.) Total quantity of direct material to be used

2,080 lbs. 1,710 lbs. 3,790 lbs.

Cost Budget Available from beginning direct materials inventory (under a FIFO cost-flow assumption) Plastic: 250 lbs. × $3.80 per lb. $ 950 Metal: 60 lbs. × $3 per lb. To be purchased this period . Plastic: (3,790 – 250) lbs.  $4 per lb. 14,160 Metal: (545 – 60) lbs.  $3 per lb. __ ____ Direct materials to be used this period $15,110

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Total

260 lbs. 285 lbs. 545 lbs.

$ 180

1,455 $ 1,635

$16,745

Direct Material Purchases Budget For the Month of April Material Plastic Metal Physical Units Budget To be used in production (requirement 3) Add target ending inventory Total requirements Deduct beginning inventory Purchases to be made Cost Budget Plastic: 3,920 lbs.  $4 Metal: 540 lbs.  $3 Purchases

3,790 lbs. 380 lbs. 4,170 lbs. 250 lbs. 3,920 lbs.

$15,680 ______ $15,680

Total

545 lbs. 55 lbs. 600 lbs. 60 lbs. 540 lbs.

$ 1,620 $ 1,620

$ 17,300

4. Direct Manufacturing Labor Costs Budget For the Month of April

Cat-allac Dog-errific Total

Output Units Produced (requirement 2) 520 285

DMLH per Unit 3 5

Total Hours 1,560 1,425

Hourly Wage Rate $10 10

Total $15,600 14,250 $29,850

5. Machine Setup Overhead Units to be produced Units per batch Number of batches Setup time per batch Total setup time

Cat-allac 520 ÷ 20 26  1.5 hrs. 39 hrs.

Dog-errific 285 ÷15 19  1.75 hrs. 33.25 hrs.

Total

72.25 hrs.

Budgeted machine setup costs = $100 per setup hour  72.25 hours = $7,225 Processing Overhead Budgeted machine-hours (MH) = (10 MH per unit × 520 units) + (18 MH per unit × 285 units) = 5,200 MH + 5,130 MH = 10,330 MH Budgeted processing costs = $5 per MH × 10,330 MH = $51,650 Inspection Overhead Budgeted inspection-hours = (0.5  26 batches) + (0.6  19 batches) = 13 + 11.4 = 24.4 inspection hrs. Budgeted inspection costs = $16 per inspection hr.  24.4 inspection hours = $390.40 6-7

Manufacturing Overhead Budget For the Month of April Machine setup costs $ 7,225 Processing costs 51,650 Inspection costs 390 Total costs $59,265 6. Unit Costs of Ending Finished Goods Inventory April 30, 20xx Product Cat-allac Dog-errific Cost per Input per Input per Unit of Unit of Unit of Input Output Total Output Total Plastic $ 4 4 lbs. $ 16.00 6 lbs. $ 24.00 Metal 3 0.5 lbs. 1.50 1 lb. 3.00 Direct manufacturing labor 10 3 hrs. 30.00 5 hrs. 50.00 Machine setup 100 0.075 hrs. 1 7.50 0.1167 hr1 11.67 Processing 5 10 MH 50.00 18 MH 90.00 2 2 0.40 0.04 hr. 0.64 Inspection 16 0.025 hr Total $105.40 $179.31 1 2

39 setup-hours ÷ 520 units = 0.075 hours per unit; 33.25 setup-hours ÷ 285 units = 0.1167 hours per unit 13 inspection hours ÷ 520 units = 0.025 hours per unit; 11.4 inspection hours ÷ 285 units = 0.04 hours per unit

Ending Inventories Budget April 30, 20xx Quantity Direct Materials Plastic Metals Finished goods Cat-allac Dog-errific Total ending inventory

Cost per unit

Total

380 55

$4 3

$1,520 165

35 15

$105.40 179.31

$3,689 2,690

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$1,685

6,379 $8,064

7. Cost of Goods Sold Budget For the Month of April, 20xx Beginning finished goods inventory, April, 1 ($1,500 + $5,580) Direct materials used (requirement 3) Direct manufacturing labor (requirement 4) Manufacturing overhead (requirement 5) Cost of goods manufactured Cost of goods available for sale Deduct: Ending finished goods inventory, April 30 (reqmt. 6) Cost of goods sold

$ $16,745 29,850 59,265

8. Nonmanufacturing Costs Budget For the Month of April, 20xx Salaries ($36,000 ÷ 2  1.05) $18,900 Other fixed costs ($36,000 ÷ 2) 18,000 Sales commissions ($155,000  1%) 1,550 Total nonmanufacturing costs $38,450 9. Budgeted Income Statement For the Month of April, 20xx Revenues $155,000 Cost of goods sold 106,561 Gross margin 48,439 Operating (nonmanufacturing) costs 38,450 Operating income $ 9,989

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7,080

105,860 112,940 6,379 $106,561