Managerial Acc. Video/Hw problems

If the company eliminates the Western Division and the Eastern Division sales increase by 10% as a result, how much will the company's net operating income decrease?

fixed overhead costs

favorable variance

A variance that causes operating income to be higher than budgeted

When the number of units produced is greater than the number of units sold, variable costing net operating income will be

less than absorption costing net operating income

batch level

performed every time a company produces another batch of a product

Dollar sales for a segment to break even

segment traceable fixed expenses / segment CM ratio

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

For a production budget, the ______ is the beginning inventory for the year.

Beginning inventory for the 1st quarter

Sales Budget Formula

Budget Unit sales X Unit selling price = Sales revenue

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?

($28,000 − $25,000)= 3,000. Because the actual costs are higher, the variance is unfavorable.

Absorption Costing

(Fixed Manufacturing Overhead/Units Produced) = Then add + Unit Product Cost OR Add Fixed manufacturing overhead cost to units produced

Dollar sales for company to break even

(traceable fixed expenses + common fixed expenses) / overall CM ratio

All of the following are reasons for revenue variances

-A change in discount structure -A change in product mix -A change in selling price

Budget Maintenance Expense EXAMPLE: Pinnacle Corporation is a manufacturing company operating numerous machines, which require regular maintenance to keep them operational. The fixed portion of maintenance expense is $3,000 per month. Maintenance costs are also incurred at the rate of $5 per batch and $0.50 per unit produced. The company produced 23,000 units in 800 batches during a particular month. What budgeted maintenance expense for this month?

3,000 + 5 x 0.50 + 23,000 x 800 = 18,500

Budget Maintenance Expense formula

= fixed portion + ( per batch × batches) + ( per unit produced × units produced) =

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.

All of the following are reasons for revenue variances EXCEPT

A change in input prices

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 is Smarton's budgeted net income?

Budgeted net income = Gross margin - Selling and administrative expenses - Interest expense Budgeted net income = $90,000 - $30,000 - $12,000 = $48,000

The following is a schedule of the projected unit sales of Western Company, which manufactures casual wear. Each unit sells for $25. The company began the period with a beginning accounts receivable balance of $10,000. Choose the correct answer from the options provided. Quarter Year First Second Third Fourth Budgeted unit sales1,5001,3001,4001,3005,500 Percentage of sales collected in the quarter of the sale 75%Percentage of sales collected in the quarter after the sale 25% What is the amount of budgeted sales revenue for the fourth quarter?

Budgeted sales revenue for the fourth quarter = 1,300 units × $25 = $32,500

CM Ratio

CM/Sales

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

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

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

Perry, Incorporated 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?

Desired units of ending raw materials inventory in first quarter = Second quarter's raw materials needs of 50,000 units × 40% = 20,000 units Units of raw materials to be purchased = Units of raw materials needed to meet production of 60,000 units + Desired units of ending raw materials inventory of 20,000 units - Units of beginning raw materials inventory of 16,000 units = 64,000 units Cost of raw materials to be purchased in the first quarter = Units of raw materials to be purchased of 64,000 units × $5 per unit = $320,000

Product Cost

Direct Labor, Variable Manufacturing Overhead

Unit product cost

Direct materials used in production + Direct labor cost + Variable manufacturing overhead cost

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. Fourth quarter total direct labor cost = 40,000 hours × $12 = $480,000

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 would be the utility expenses on the company's flexible budget if actual unit sales for April were 6,000 units?

The amount of utility expenses on the flexible budget for 6,000 units would be $14.000 $2,000 + ($2 × 6,000 units) = 14,000

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?

Excess (deficiency) of cash available over disbursements = Beginning cash balance + Cash receipts − Cash disbursements Excess (deficiency) of cash available over disbursements = $5,000 + $80,000 − $70,000 = $15,000Amount to be borrowed = Minimum cash balance − Excess (deficiency) of cash available over disbursements Amount to be borrowed = $40,000 − $15,000 = $25,000

What is the amount of cash that is expected to be collected during the second quarter as a result of sales made during the first quarter?

First quarter sales = 1,500 units × $25 per unit = $37,500 Amount of cash expected to be collected during the second quarter from sales made during the first quarter = First quarter sales of $37,500 × 25% = $9,375

Period cost

Fixed Manufacturing Overhead, Fixed Selling and Administrative Expenses, Variable selling and Administrative Expenses

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. What is the predetermined overhead rate for the year?

Predetermined overhead rate = (Variable manufacturing overhead + Fixed manufacturing overhead) ÷ Total machine-hours required Predetermined overhead rate = [($4 × 100,000 machine-hours) + ($50,000 per quarter × 4 quarters)] ÷ 100,000 machine-hours or ($400,000 + $200,000) / 100,000 machine-hours = $6 per machine hour

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year 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?

Production needs for the first quarter = Budgeted sales of 200,000 bottles + Ending inventory of 15,000 bottles - Beginning inventory of 20,000 bottles = 195,000 bottles

The difference between the actual total revenue and budgeted total revenue at the actual level of activity is called a

Revenue variance

Cost of Goods Sold (Absorption)

Sales - Fixed Manufacturing Overhead

Contribution Margin

Sales - Variable Costs

The budgeting process begins with the preparation of the

Sales Budget

What is the total amount of expected cash collections for the third quarter?

Second quarter sales = 1,300 units × $25 per unit = $32,500 Third quarter sales = 1,400 units × $25 per unit = $35,000 Total expected cash collections during the third quarter =Amount collected from second quarter sales of $8,125 (or $32,500 × 25%) + Amount collected from third quarter sales of $26,250 (or $35,000 × 75%) = $34,375

The difference between the actual cost and budgeted cost at the actual level of activity is called a

Spending Variance

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year 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?

The desired ending inventory for the second quarter = Third quarter sales of 250,000 bottles × Ending inventory percentage of 10% = 25,000 bottles

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

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?

Total direct labor cost for the fourth quarter = 35,000 units × 0.50 DLHs per unit × $18 = $315,000

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

Unit product cost

Which of the following costing approaches is best suited for cost-volume-profit analysis?

Variable

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. What is the budgeted variable manufacturing overhead for the year?

Variable manufacturing overhead for the year = Variable manufacturing overhead rate per machine-hour × Total machine-hours required for the year Variable manufacturing overhead for the year = $4 × 100,000 machine-hours = $400,000

unfavorable variance

a variance that causes operating income to be lower than budgeted

Absorption costing income statements ignore

variable and fixed cost distinctions

Organization-sustaining activity

actions taken to maintain the operations of a business

Unit level

activities that are related to producing each unit

revenue spending variance

actual budget - flexible budget

Companies prepare direct labor budgets to ________.

avoid labor shortages

In a budgeted income statement, _________ is subtracted from sales to arrive at gross margin.

cost of goods sold