Chapters 22, 23, & 24

When using the return on investment (ROI) formula,

controllable margin is divided by average investment center operating assets

Joan K. is a manager with Steel Works, Inc. Joan would love to beat the budget this year. She believes that revenues for the coming year will be $200,000 and expenses will be $120,000. To build in budgetary slack, Joan is LEAST likely to budget for

$110,000 of expenses.

Rose Company is preparing its direct labor budget for May. Projections for the month are that 8,350 units are to be produced and that direct labor time is three hours per unit. If the labor cost per hour is $9, what is the total budgeted direct labor cost for May?

$225,450. Why? (8,350 x 3) = 25,050(25,050 x 9) = 225,450

On January 1, Scarlett Company has a beginning cash balance of $21,000. During the year, the company expects cash disbursements of $170,000 and cash receipts of $145,000. If Scarlett requires an ending cash balance of $20,000, the Scarlett Company must borrow:

$24,000.

Dobbins Resources pays sales commissions of $2 per unit and shipping costs of $0.75 per unit. If Dobbins expects to sell 12,000 units in the third quarter, what will their total variable expenses be?

$33,000.

When they made their master budget, Vann Enterprises had direct material per unit costs of $12.43, direct labor per unit costs of $8.46, and manufacturing overhead per unit costs of $14.29. They planned to sell 16,000 units in the first quarter. However, in the first week of the first quarter, the direct material per unit costs rose to $16.12, which increased the selling price of the finished product. Therefore, Vann Enterprises only sold 15,500 units. What would the difference in cost of goods sold be between the budgeted income statement and the actual income statement?

$39,605 increase. Why? (Before first quarter). DM: $12.43 x 16,000 = $198,880. DL: $8.46 x 16,000 = $135,560. MO: $14.29 x 16,000 = $228,640. (After first quarter). DM: $16.12 x 15,500 = $249,860. DL: $8.46 x 15,500 = $131,130. MO: $14.29 x 15,500 = $221,495. ($198,880 + $135,560 + $228,640) = $562,880. ($249,860 + $131,130 + $221,495) = $602,485. Then... ($602,485 - $562,880) = $39,605 increase.

James Company determines that 13,500 pounds of direct materials are needed for production in July. There are 800 pounds of direct materials on hand at July 1 and the desired ending inventory is 700 pounds. If the cost per pound of direct materials is $3, what is the budgeted total cost of direct materials purchases?

$40,200. Why? (13,500 - [800 - 700] x 3)

A purchases budget is used instead of a production budget by

Merchandising companies

Chapter 22

Needs -definitions from chapter homework -adaptive practice

A country's political environment will likely affect

both budgeting and long-range planning.

Coordinating the preparation of the budget is the responsibility assigned to the

budget committee.

A budget that is based on research and analysis will likely result in a budget that

will likely result in realistic goals.

The Brenneman Company's direct materials budget shows total cost of direct materials purchases for January $125,000, February $150,000 and March $175,000. Cash payments are 60% in the month of purchase and 40% in the following month. The budgeted cash payments for March are

$165,000

The Eccleston Company has the following budgeted sales: January $40,000, February $60,000, and March $50,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 50% are collected in the month of sale, and 50% the next month. The total expected cash receipts during March are

$53,000.

The Crawford Company has 3,000 units in beginning finished goods. The sales budget shows expected sales to be 12,000 units. If the production budget shows that 14,000 units are required for production, what was the desired ending finished goods?

5,000. Why? (3,000-12,000+14,000).

The Burlington Company has 12,000 units in beginning finished goods. If sales are expected to be 60,000 units for the year and Burlington desires ending finished goods of 15,000 units, how many units must Burlington produce?

63,000.

City Mission is a not-for-profit organization that provides hot meals, living quarters, and showers for homeless people. Based on their yearly budget, they expect to spend $450,000 on food expenses, $350,000 on housing expenses, $280,000 on staff salaries, $90,000 on utilities, and $118,000 on other expenses. How much will City Mission need to raise in donations?

At least 1,288,000

As an accountant, you were asked to collect financial data for the past three years from the sales, production, research, and marketing departments. Based on this information, at what point is the company in its budgeting process?

At the beginning.

Which of the following statements is correct?

In the budget process for not-for-profit organizations, the emphasis is on cash flow rather than on revenue and expenses.

Toledo Manufacturing has the following variable overhead costs: Indirect materials: $2.18/hour. Indirect labor: $3.26/hour. Utilities: $0.90/hour. Maintenance: $0.33/hour. Direct labor hours: 14,500. If Toledo decides that they need to increase their indirect materials to $2.25 per hour, how much will this increase their total variable costs?

$1,015.

Joan King, a manager with Steel Works, Inc., would love to "beat the budget" this year. She believes that revenues for the coming year will be $200,000 and expenses will be $120,000. To build in budgetary slack, Joan is most likely to budget for

$130,000 of expenses.

Which of the following is a characteristic of long-range planning?

It is used to review progress rather than as a basis for control.

Madison is the CEO of a large company. He has always produced the master budget with the help of the CFO. As his company has grown, his employees and managers seem more resistant to adhering to the budget. What would you suggest to help Madison's company have an effective budget?

Madison should employ a bottom-to-top approach in planning the budget.

Peter is helping the CFO develop the master budget. Which of the following budgets are they LEAST likely to develop?

Hiring budget

For the past three years, Apex Industries has employed top-down budgeting. Throughout that entire period, the firm's budgeted costs and revenues have differed significantly from its actual numbers. Apex's CEO believes the best way to remedy this issue is to switch to bottom-to-top budgeting, and he asks your opinion of his idea. What is your best response?

"Bottom-to-top budgeting will likely produce more accurate numbers, but only if you take care to ensure that the firm's lower-level managers are not manipulating their forecasts to make their performance look better than it really is. Also, it's important to remember that bottom-up budgeting is usually more time consuming than top-down budgeting."

Operating budgets include the 1. Production budget 2. Cash budget

1. only

In the Progressa Company required production for June is 44,000 units. To make one unit of finished product, three pounds of direct material Z are required. Actual beginning and desired ending inventories of direct material Z are 100,000 and 110,000 pounds, respectively. How many pounds of direct material Z must be purchased?

142,000. Why? (44,000 x 3) = 132,000.(100,000 - 132,000) = -32,000.(-32,000 + 32,000 + 32,000 + 110,000) = 142,000.

Katie's Cleaning Service has cleaning contracts for 15 apartments, 45 family homes, and 25 office buildings. She estimates that an apartment takes 4 hours to clean, a home takes 6 hours to clean, and an office building takes 10 hours to clean. Katie pays her cleaning staff $12.50/hour. If each location is cleaned once per week, how much does Katie need to budget for direct labor each month? Assume there are four weeks per month.

29,000

Which of the following represents the flow of budget data under participative budgeting?

Department Manager to Plant Manager to Vice President of Production.

Inclusion of "budgetary slack" is more common in a top-down budgeting environment than it is in a bottom-up budgeting environment.

False

Ellen is a manager who helps develop sales promotions, targets customers for upselling, and searches for potential new customers. Which of the following budgets would Ellen MOST likely help develop?

Sales budget.

Hailey has been tasked with overseeing the development of the company's master budget. This is the first time Hailey has had this role, and she's not sure where to start. What advice would you give her? Why?

She should help develop the sales budget before the production budget because production will depend on the number of sales.

In order to assure better management acceptance, the flow of input data for budgeting should begin with the

lower levels of management.

Budgets are more closely associated with the management function of

planning