ACCT 212 chapters 8,9,10,15

Precision Company estimates its machine-hour requirements for the four quarters to be 35,000 hours, 20,000 hours, 15,000 hours, and 30,000 hours respectively. The variable manufacturing overhead rate is $4 per machine-hour. The fixed manufacturing overhead is $50,000 per quarter, which includes $20,000 of depreciation expense. find Predetermined overhead rate

(100,000*4) + (50,000*4) / 100,000 = $6

How to find the amount of sales cash collected in the second quarter

(First quarter sales * unit sales price) * % of sales collected in the quarter after the sale ex. (1500*25) * .25 = 9,375

predetermined overhead rate

(VMOH + Fixed MOH) / total machine hours required

Chapter 8

Master Budgeting

Chapter 10

standard costs

A company determines that the number of units sold is the cost driver for its variable selling and administrative expense budget. The product of its variable selling and administrative rate and budgeted unit sales will be ________.

total budgeted variable selling and administrative expenses

utility expense on the flexible budget =

utility expense * units produced * $$ extra per unit ex) $2,000 (ut. expense) + (6,000 units * $2 per unit) = 14,000

When computing variable manufacturing overhead variances, the standard rate represents the ________.

variable portion of the predetermined overhead rate.

Assume that direct labor-hours are used as the overhead allocation base. If the direct labor efficiency variance is unfavorable, the variable overhead efficiency variance ________.

will be unfavorable

Budget Solutions has determined from its flexible budget that selling costs for actual level activity for a period should have been $25,000. Actual selling costs incurred during the period were $28,000. What is the amount and direction of variance in selling costs? (AKA what is the excess and is it favorable or unfavorable)

$3,000 unfavorable because the actual costs are higher, the variance/difference is unfavorable. if the actual was less, then the difference would be favorable

Precision Company estimates its machine-hour requirements for the four quarters to be 35,000 hours, 20,000 hours, 15,000 hours, and 30,000 hours respectively. The variable manufacturing overhead rate is $4 per machine-hour. The fixed manufacturing overhead is $50,000 per quarter, which includes $20,000 of depreciation expense.

(35,000 + 20,000 + 15,000 + 30,000 ) * 4 per machine hour = 400,000

how to compute the spending variance

(AH * AR) - (SH * SR)

How to find the amount of cash collected in the third quarter

- (Second quarter sales * sales unit price), (third quarter sales * sales unit price) - 2nd q sales * 25% + 3rd q sales * 75% (% of sales collected in the q of the sales)

What are some benefits or self-imposed budgets

- A manger who is not able to meet a budget that has been imports from above can always say that the budget was unrealistic and impossible to meet - Budget estimates prepared by front-line managers are often more accurate and reliable - Motivation is generally higher

Why do organizations use budgets

- The budgets communicate financial goals throughout the organization - Budgets evaluate and reward employees

total direct labor cost for fourth quarter

1. 4th quarter produced units (35,000) * required DLH per unit (.5) * cost of DL per hour

Excess (deficiency) of cash available over disbursements and desired amount of cash borrowed

1. Beginning cash balance + cash receipts - cash disbursements 2. minimum cash balance - excess (deficiency) of cash available over disbursements

Cost of raw materials to be purchased in the first quarter

1. second quarter's raw materials needs (50,000 units) * (given % for ending inventory of raw materials) 2. unit of raw materials needed to meet production of x units + desired units of ending raw materials inventory (# we just solved for in step 1) - units of beginning raw materials inventory of x units 3. unit of raw materials to be purchased (number we found in step 2) * unit cost of raw materials

Zeta Corporation is a manufacturer of sports caps, which require soft fabric. The standards for each cap allow 2.00 yards of soft fabric, at a cost of $2.00 per yard. During the month of January, the company purchased and used 25,000 yards of soft fabric at $2.10 per yard, to produce 12,000 caps. What is Zeta Corporation's materials price variance for the month of January?

25,000(2.10 - 2.00 per yard) = $2,500U

ex. Pro Clean Company, a manufacturer of hand sanitizers, intends to produce 40,000 units in the third quarter and 35,000 units in the fourth quarter. Each unit requires 0.50 direct labor-hours (DLHs) and the cost of direct labor per hour is $18. What would be the total direct labor cost for the fourth quarter?

35,000* .5 * 18 = 315,000

net operating income on the planning budget for 5,000 units would be...

49,000 ~ contribution margin * # of units - fixed expenses

Khan Corporation has budgeted the unit sales for April to be 5,000 units. The sales price is $25 per unit, and production costs are $10 per unit. Monthly utility expenses are estimated to be $2,000 plus $2 per unit, whereas selling expenses are estimated to be $12,000. The company pays a monthly rent of $2,000. What is the net operating income in the company's planning budget?

49,000 = $13 (contribution margin ($25 - $12) * 5,000 units - (fixed expenses) 16,000 (SA&E + utility + rent)

Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected cash disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum cash balance of $40,000. How much cash will the company need to borrow?

80,000 + 5,000 - 70,000 = 15,000 40,000 - 15,000 = 25,000

Which of the following scenarios demonstrates the leverage effect on net operating income due to the existence of fixed costs? - A 25% increase in sales resulting in a 30% decrease in net operating income. - A 15% increase in sales resulting in a 15% increase in cost of goods sold. - A 25% increase in sales resulting in a 30% increase in net operating income. - A 25% increase in sales resulting in a 30% increase in fixed costs.

A 25% increase in sales resulting in a 30% increase in net operating income. Reason: Fixed costs do not change with the level of activity, they cause a leverage effect. A 25% increase in sales would be expected to increase the net operating income by more than 25%.

revenue variance

A revenue variance is the difference between actual total revenue and what the revenue should have been, given the actual level of activity for the period.

Labor Rate Variance

AH(AR-SR)

material price variance

AQ(AP-SP)

activity variance

An activity variance is the difference between a revenue or cost item in the flexible budget and the same item in the static planning budget.

For a production budget, the____ is the beginning inventory for the year

Beginning inventory for the first quarter

Production needs for the first quarter

Budgeted sales of 200,000 + ending inventory - beginning inventory

How to find budgeted sales for specific quarter

Budgeted unit sales (for quarter) * unit sales price

Operating budgets generally span 1 year because...

Companies choose 1 year because it corresponds with their fiscal years

Which of the following is a major factor that should be taken into consideration while planning for a desired level or inventories

Costs of carrying inventory

In a direct materials budget, the desired ending raw materials inventory for the year is equal to

Desired ending raw materials inventory for the last period

The purpose of preparing a direct materials budget is to

Estimate the quantity of raw materials to be purchased

William Corporation has a contract with the labor union which guarantees its workers pay for at least 40,000 hours every quarter. Based on its direct labor budget for the current year, the company estimated it will need 39,000 direct labor-hours during the fourth quarter to produce 13,000 units of finished goods. Each unit requires 3 direct labor-hours (DLHs) and the cost of direct labor per hour is $12 per hour. What is the total direct labor cost for the fourth quarter?

Even though the total direct labor-hours worked in the fourth quarter were 39,000 hours, William's contract with the labor union guarantees its workers pay for at least 40,000 hours every quarter. As a result: Fourth quarter total direct labor cost = 40,000 hours × $12 = $480,000

what is a variance

In general, a variance is described as favorable or unfavorable when actual and budgeted amounts are being compared.

net cash provided by (used in) operating activities

Net cash provided by (used in) operating activities = Net income + Depreciation − Increases in current assets + Decreases in current assets + Increases in current liabilities − Decreases in current liabilities − Gains on sales of assets + Losses on sales of assets

Chapter 9

Preparing a planning budget and flexible budget and understand how they differ from one another

The budget process begins with the.....budget

Sales budget

Desired inventory for second quarter

Third quarter sales * ending inventory percentage

T/F: A flexible budget performance report that is based on more than one cost driver will be more accurate than a flexible budget performance report that is based on just one cost driver.

True

variable manufacturing overhead for the year

Variable MOH * total machine hours

all of the following are reasons for revenue variances EXCEPT - a change in discount structure - a change in the input prices - a change in product mix - a change in selling price

a change in the input prices. Possible reasons for revenue variances can be changes in selling price, product mix, discount structure, poor accounting controls, and so on. Possible explanations for such spending variances can be changes in input prices, changes in usage, a change in technology, and so on.

Paradise Company's planning budget for 10,000 units showed sales of $500,000. The flexible budget for 12,000 units showed sales of $600,000. What is the variance of $100,000 called if this variance was due only to an increase in unit sales?

activity variance because variances caused solely by the difference in the level of activity are called activity variances

an unfavorable variance of $5,000 in sales is determined by comparing the flexible budget and the planning budget. What type of variance is described?

activity variance. What revenues should have been at the actual level of activity are compared with planned activity revenues. This variance is called the activity variance.

Luddington, Incorporated, reported a $100,000 loss on the sale of equipment on its income statement. Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method?

add back 100,000 to net income

when the indirect method is used to adjust net income to net cash provided by operating activities, the first step is to

add depreciation charges to net income

the standard quantity unit defines the

amount of direct materials that should be used for each unit of finished product including an allowance for normal inefficiencies, such as scrap and spoilage

companies prepare direct labor budgets to

avoid labor shortages

how to find amount of depreciation charged during a given period

beginning balance - Debits + credits = ending balance

Ending retained earnings =

beginning retained earnings + net income - dividends

a flexible budget performance report for variable manufacturing costs shows

both the activity variances and spending variances

total current assets =

cash + accounts receivable + finished goods inventory + Raw materials inventory

in a budget income statement, ______ is subtracted from sales to arrive at a gross margin

cost of goods sold

which of the following is deducted from the total selling and administrative expense budget to determine the cash disbursements for selling and administrative expense budget

depreciation expense

the income statement is reconstructed on a cash basis from top to bottom when the _____ method is used to prepare the operating activities section of the statement of cash flows

direct method

Most companies use the indirect method to prepare the statement of cash flows for external reporting purposes because the

direct method requires more work

these activities generate cash inflows and outflows related to creditors and expense transactions with the company's owners

financing activities

Budgeted maintenance expense =

fixed portion + ($ per batch * batches) + ($ per unit + units produced)

budgeted net income =

gross margin - S&AE - interest expense

these activities generate cash inflows and outflows related to acquiring or disposing of noncurrent assets, long-term investments, and loans to another entity

investing activities

all of the following are reasons for preparing a flexible budget with multiple cost drivers EXCEPT - multiple cost drivers can lead to more accurate variances - cost formulas are likely to be more accurate - an expense may be expected to vary for more than one reason - it eliminated the need for performing variance analysis

it eliminates the need for performing variance analysis

free cash flow =

net cash provided by operating activities - capital expenditures - cash dividends 'capital expenditures' = property, plant, and equipment

which of the following is not a column in a flexible budget performance report - actual results - planning budget - net operating income - activity variances

net operating income. The flexible budget performance report has the following columns: actual results, revenue and spending variances, flexible budgets, activity variances, and planning budget.

start up companies often have negative net cash provided by

operating activities

these activities generate cash inflows and outflows related to revenue and expense transactions that affect net income

operating activities

Chapte 15

organizations of cash flows

most companies compute the materials price variance when raw materials are

received from suppliers and transported to raw materials inventory

an unfavorable variance of $5,000 in cost of goods sold is determined by comparing the actual result and the flexible budget. What type of variance is described?

spending variance. - Since actual costs are being compared with the costs that should have been ideally incurred at the actual level of activity. This is a spending variance.

the difference between the actual cost and budgeted costs at the actual level of activity is called a(n)

spending variance. A spending variance is the difference between the actual amount of cost and how much a cost should have been, given the actual level of activity.

the standard quantity allowed is

the amount of an input that should have been used to complete the actual output for the period.

Freemont Company's Accounts Payable decreased by $4,000 and its Income Taxes Payable increased by $3,000 during the year. Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method?

the change in accounts payable is subtracted from the net income; the changes in income taxes payable is added to net income - increases in current liabilities are added to net income and decreases are subtracted from current liabilities

Freemont Company's Accounts Receivable decreased by $4,000 and its Inventory decreased by $3,000 during the year. Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method?

the change in accounts receivable is added to net income and the change in inventory is added to net income - increases in current assets are subtracted and decreases to current assets are added to net income

the Standard Hour Allowed

the direct-labor hours that should have been used to compute the actual output for the period

the value of the ending inventory is calculated by multiplying the number of units in the ending inventory by the....

unit product cost