BFound Final
Oscar Company has an accounts payable balance of $50,000 in the beginning of the first quarter. Oscar pays for 60 percent of the purchases in the period of the purchase of materials and the rest in the quarter following the period of purchase. What would be the expected cash disbursements for purchases of materials in the second quarter?
= (cost of raw materials to be purchased;quarter 2 * 60%) + (cost of raw materials to be purchased;quarter 1 * 40%) = ($151,500 × 60%) + ($142,500 × 40%) = $147,900
Total Current Assets section
= Cash + Accounts Receivable + Inventory
Net Plant and Equipments Balance
= New Plant and Equipments Balance - New Accumulated Depreciation Balance
Total DL cost
=(Total direct labor hours needed)* DL cost per hour or =(units * DLH) * $ per DLH
Summary of the Types of Cost Classifications
Assigning Costs to Cost Objects predicting cost behavior financial reporting Making Business Decisions
Direct costs
can easily be traced to product
Total Selling and Administrative Expenses
variable Selling and Administrative Expenses + fixed Selling and Administrative Expenses
Excess/Deficiency of Cash
= Total Cash Available - disbursements
Striker Company determines its expected receipts for the period to be $80,000 and expected disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum balance of $40,000. What is the required borrowing assuming that the bank lends only in multiples of $10,000?
=$30,000 =(5,000+80,000) =(85,000)-70,000 =15,000 ---->40,000-15,000=25,000 can only lend in 10,000s =30,000
For the budget period ending December 31, 2015, Aaron Corporation estimates its ending balances for cash as $4,000, accounts receivable as $16,000, finished goods inventory as $12,000, and raw materials inventory as $8,000. Raw materials worth $14,000 will be unpaid. Determine the amount of total current assets that will be reported on the budgeted balance sheet.
=$40,000 =4,000+16,000+12,000+8,000 Total Current Assets = Cash + Accounts Receivable + Inventory
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. Calculate Precision Surgical Company's predetermined overhead rate for the year.
=$6 per machine hour = (($4 × 100,000 machine-hours) + ($50,000 per quarter × 4 quarters)) / 100,000 machine-hours =(400,000+200,000)/100,000 predetermined overhead rate=variable manufacturing overhead + Fixed manufacturing overhead/ total budgeted production units
sales revenue
=Budgeted unit sales * Unit selling price
Net Operating Income
=Gross Margin- Selling and Admin. Expenses
Net Income
=Net Operating Income- Non operating expenses
Liabilities section
Accounts payable: From schedule of expected disbursements for purchases of materials
Which of the following is a major factor that should be taken into consideration while planning the desired level of inventories?
Costs of carrying inventory
Common costs
Indirect costs incurred to support a number of cost objects. These costs cannot be traced to any individual cost object.
Which of the following is true of a self-imposed budget?
Managers at all levels participate in preparing the budget.
Periodic Review
Many companies divide budgets into quarters and relevant quarters are divided into monthly budgets
Sales Budget
Starting point in preparing the master budget other budgets depend on the sales budget
Identify the major sections of the cash budget from the following.
The cash excess or deficiency section The disbursements section The financing section The receipts section
Which of the following is a reason that companies prepare direct labor budgets?
To avoid labor shortages
What is the purpose of preparing a direct materials budget?
To estimate the quantity of raw materials to be purchased
Activity Rate
=Estimated Overhead Costs ($) / Activity Measure (hrs)
Indirect costs
Costs that cannot be easily and conveniently traced to a unit of product
Departmental Overhead Rates
a different predetermined rate is used by each production department, the nature of the work performed by the department will form the departments's allocation base.
non-cash expenses and do not cause cash outflows;
depreciation/amortization expense
In a direct materials budget, the desired ending raw materials inventory for the year is equal to:
the desired ending raw materials inventory for the last period
In a production budget, the production needs for the year equals ______.
the sum of production needs for the four quarters
Vineyard Corporation, a manufacturer of fine wines, began the year 2016 with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of 2016 to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What is the desired ending inventory for the second quarter?
25,000 bottles The desired ending inventory for the second quarter is 25,000 bottles (third quarter sales of 250,000 bottles × ending inventory percentage of 10% = 25,000 bottles).
total manufacturing overhead
=(variable manufacturing overhead) +fixed manufacturing overhead or =(budgeted production units * variable manufacturing overhead rate) +fixed manufacturing overhead
Gross Margin
=Sales- COGS
Budget
A detailed plan for the future that is usually expressed in formal quantitative terms 2 goals: planning & control
Plantwide Overhead rates
Assings overhead costs to products spreads overhead costs uniformly over products and proportion to the allocation based used.
Budgeted Balance Sheet
Determines total current assets! Get beginning cash balance from cash budget Accounts receivable: From schedule of expected cash collections; amount uncollected at the end of the period Inventory: Is either finished goods or raw material inventory; finished goods come from ending finished goods inventory budget and raw materials come from the DM budget
The budgeting process begins with the preparation of the production budget. (T/F)
F
Some manufacturing overhead costs such as depreciation are non-cash expenses and are not considered in the preparation of the manufacturing overhead budget. (T/F)
False
merchandise purchases budget
determines required purchases
The most successful budgets occur when...
managers at all levels participate in preparing their own budgets
control
monitoring to ensure adaptability and proper execution of plans
In a budgeted income statement, _________ is subtracted from net operating income to arrive at net income.
non operating expenses aka. interest expense
Batch-Level Activities
occur each time a batch of units is processed
Unit-Level Activities
performed each time a unit is produced
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 to produce, and the cost of direct labor per hour is $18. What would be the total direct labor cost for the fourth quarter?
$315,000 = units * DLH * $ per DLH =35,000*.50*18 =315,000
Types of Activities in Designing an ABC system
1 Unit-Level Activities 2 Batch-Level Activities 3 Product-Level Activities 4 Facility-Level Activities
Unit Product Cost can be determined by...
1 absorption costing 2 variable costing determined using the data from budgets form DL, DM, and Manufacturing overhead
Success of a budgeting program depends on...
1 acceptance of the budget 2 usage of budget data by people in key management positions
The Schedule of Expected Cash Disbursements for Materials
1 payment for prior purchases 2 payment for current purchases ex. paying 70% in current quarter, 30% after
Manufacturing overhead
1 variable costs; vary with level of activity 2 fixed costs; do not vary with level of activity
Continuous budgets
12 month budgets in which 1 month or quarter is added as each month of quarter comes to a close
Vineyard Corporation, a manufacturer of fine wines, began the year 2016 with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of 2016 to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What are the production needs for the first quarter?
195,000 bottles Production needs for the first quarter are 195,000 bottles (budgeted sales of 200,000 bottles + ending inventory of 15,000 bottles - beginning inventory of 20,000 bottles = 195,000 bottles)
Perry, Inc. desires to maintain the ending inventory of raw materials at 40 percent of the next quarter's raw material needs. What is the cost of raw materials to be purchased in the first quarter?
= raw materials needed to meet production schedule; current + (raw materials needed to meet production schedule; next period * .40) - beginning inventory = 60,000+ (50,000*.40)-16,000 =320,000
Film Studio, Inc. has beginning retained earnings of $80,000 and expects to earn a net income of $70,000 during the budget period. What would be the budgeted closing retained earnings balance if the company pays dividends of $50,000?
=$100,000 =80,000+70,000-50,000 Retained earnings= beginning RE + net income - dividends paid
For the budget period ending December 31, 2015, Aaron Corporation estimates its ending balances for cash as $4,000, accounts receivable as $16,000, finished goods inventory as $12,000, and raw materials inventory as $8,000. Raw materials worth $14,000 will be unpaid. What would be the amount of accounts payable reported on the budgeted balance sheet?
=$14,000 accounts payable=From schedule of expected disbursements for purchases of materials
Striker Company determines its expected receipts for the period to be $80,000 and expected disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum balance of $40,000. What is the required borrowing?
=$25,000 =(5,000+80,000) =(85,000)-70,000 =15,000 ---->40,000-15,000=25,000
Smarton Company is in the process of preparing its budgeted income statement. It has determined its estimated gross margin to be $90,000. The company also expects to incur selling and administrative expenses of $30,000 and interest expense of $12,000. What would be Smarton's budgeted net income?
=$48,000 =$90,000 - $30,000 - $12,000 Net Income=Net Operating Income- Non operating expenses
What is the total direct labor cost for the fourth quarter, if William has a contract with the labor union which guarantees its workers pay for at least 40,000 hours every quarter?
=$480,000 =40,000 *12 The total direct labor cost for the fourth quarter is $480,000 (40,000 hours × $12). Even though the total direct labor-hours worked in the fourth quarter were 39,000 hours, William's contract with the labor union requires it to pay for at least 40,000 hours.
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. Calculate the variable manufacturing overhead for the year.
=400,000 =(35,000+ 20,000+ 15,000+ 30,000)*4 =(100,000)*4 variable manufacturing overhead=budgeted production units * variable manufacturing overhead rate
Variable Selling and Administrative Expenses
=Budgeted unit sales * variable Selling and Administrative rate
Cash Disbursements toward Selling and Administrative Expenses
=Total Selling and Administrative Expenses - non cash expenses aka. depreciation
Total Cash Available
=beginning cash balance + receipts
variable manufacturing overhead
=budgeted production units * variable manufacturing overhead rate
Total Liabilities and Stockholder's Equity
=liabilities + stockholders equity
cash disbursements for manufacturing overhead
=total manufacturing overhead - depreciation or =((budgeted production units * variable manufacturing overhead rate) +fixed manufacturing overhead) - depreciation
Total direct labor hours needed
=units of production * DLH per unit
POHR (Predetermined overhead rate)
=variable manufacturing overhead + Fixed manufacturing overhead/ total budgeted production units
In an activity-based costing system, the _____ expresses how much of the activity is carried out and is used as the allocation base for assigning overhead costs.
Activity Measure
Facility-Level Activities
Arbitrarily allocated to products using DLH or another measure. aka. Organization sustaining Activities and are carried out regardless of how many units are produced and include: management salaries, insurance, property taxes, and building depreciation
Cash Budget
Combines data from previous budgets 4 diff sections: 1 Receipt Section; lists all cash inflows except from financing activities 2 Disbursements Section; lists all cash outflows except financing activities 3 Cash or Excess Deficiency Section; computes the excess cash based on the beginning balance and expected cash inflows and outflows. ------->deficiency: funds need to be borrowed -------> excess: can be used to invest or repay borrowed money 4 Financing Section
Which of the following explains why operating budgets generally span a period of one year?
Companies choose a span of one year to correspond to their fiscal years.
Disbursements ex.
DM, DL, Manuf. Overhead, Selling and Admin, Asset purchases, dividends
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
Cash balance, ending
Excess/Deficiency of Cash + Borrowings - repayments - interest on borrowings
Ending Finished Goods Inventory Budget
Helps determine the value of ending inventory Used to make budgeted income statement and budgeted balance sheet =unit product cost * # of units in ending inventory
Continuous budgets ensure that managers do not become too narrowly focused on short-term results and keep them focused for at least one year ahead. (T/F)
T
Activity Based Costing
Technique that attempts to assign overhead costs to products by identifying the activities that cause overhead costs Activity -->community cost pool -->Accumulated Costs -->Activity Measure -->Allocation Base for assigning overhead 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 variable selling and administrative expense budget When variable selling and administrative expense budget depend on the number of units sold, the variable selling and administrative rate multiplied by the budgeted sales give the total variable selling and administrative expense budget.
Self imposed budget
a budget that is prepared with a full cooperation and participation of managers at all levels advantageous approach limitation: managers might allow too much budgetary slack
For a production budget, the ______ is the beginning inventory for the year.
beginning inventory for the first quarter
schedule of expected cash collections is made up of...
current and prior sales
planning
determining goals and preparing budgets to achieve these goals
Classifications of Manufacturing Costs
direct labor direct materials manufacturing overhead
Plantwide Overhead rates lead to...
high overhead costs to higher allocation bases low overhead costs to lower allocation bases *can lead to distorted costs and distorted prices
Which of the following is a reason for the popularity of plantwide overhead rates to allocate overhead costs?
its simplicity
Without the Direct labor budget companies suffer from...
labor shortages having to fire people at awkward times low morale inefficiency
Direct Labor Budget
made from direct materials budget Determines # of DLH to meet production needs by determining the labor needs, management can adjust the labor force accordingly
Direct Materials Budget
made from production budget; determines raw materials to be purchased for the required level of production and to maintain certain levels of ending inventory
instead of having too much pressure to meet the budget, a budget should be a...
positive instrument for establishing goals measuring performance isolating specific areas
Production Budget
prepared after sales budget ascertain the number of units to be produced to satisfy sales needs and maintain a desired level of ending inventory Budgeted unit sales + Desired Ending Inventory = total needs - beginning inventory = production needs
Selling and Administrative Expense Budget
prepared for non-manufacturing expenses in many cases it is the summary of marketing, accounting, tax, and facilities budget Can be: 1 variable expenses 2 fixed expenses
Budgeted Income Statement
prepared from data in previous budgets shows the company's planned profit and serves as a benchmark in which performance will be measured
Manufacturing Overhead Budget
prepared to determine the expected cash disbursements and predetermined overhead rate for the period
Stockholder's Equity section
previous period balance and adjust it to changes during the period Retained earnings= beginning RE + net income - dividends paid Total Stockholder's Equity= common stock + retained earnings
Product-Level Activities
relate to specific products and typically must be carried out regardless of how many units are manufactured ex. maintaining inventories of parts for a product, issuing engineering change notices to modify a product to meet a customer's specifications, developing special test routines for new products
Sales revenue is used to prepare the...
schedule of expected cash collections
Desired Ending Inventory
should be planned carefully costs: excess inventory & cost of loss sales caused y insufficient inventory
master budget
summary of companies plans it sets specific guidelines for sales, production, distribution, and financing activities
Responsibility Accounting
system of accountability in which managers are held responsible for items of revenue and cost over which they have significant control Necessary for profit planning and control
In a direct materials budget, the beginning raw materials inventory for the year is the same as:
the beginning raw materials inventory for the first period
The schedule of expected cash disbursements for raw materials helps in the preparation of:
the cash budget
