ACCT 3304 Exam 2

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Variable manufacturing overhead is applied to products on the basis of standard direct labor-hours. If the labor efficiency variance is unfavorable, the variable overhead efficiency variance will be:

unfavorable

All the following are considered to be benefits of participative budgeting, except for:

when managers set their own targets for the budget, top management need not be concerned with the overall profitability of operations.

The table below contains the summary of the budgeted cash flows for the upcoming year. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total cash receipts $280,000 $400,000 $330,000 $350,000 Total cash disbursements $344,000 $314,000 $304,000 $324,000 Additional information: A minimum cash balance of $10,000 is required. The company may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company's beginning cash balance for the upcoming fiscal year will be $45,000. The company is permitted to borrow any amount at the beginning of any quarter and is also permitted to repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid (assume that interest is not compounded). Required: Complete the company's cash budget for the upcoming fiscal year. (Cash deficiency, repayments, and interest, should be indicated by a minus sign.)

Cash Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Beginning cash balance $45,000 $10,000 $65,260 $91,260 $45,000 Total cash receipts 280,000 400,000 330,000 350,000 1,360,000 Total cash available 325,000 410,000 395,260 441,260 1,405,000 Less total cash disbursements 344,000 314,000 304,000 324,000 1,286,000 Excess (deficiency) of cash available over disbursements (19,000) 96,000 91,260 117,260 119,000 Financing: Borrowings 29,000 0000 0000 0000 29,000 Repayments 0000 (29,000) 0000 0000 (29,000) Interest (1,740) (1,740) Total financing 29,000 (30,740) 00000 020000 (1,740) Ending cash balance $10,000 $65,260 $91,260 $117,260 $117,260 Explanation: Borrowings (at beginnings of quarters): Since the deficiency of cash available over disbursements is $19,000, the company must borrow $29,000 to maintain the desired ending cash balance of $10,000. Interest: $29,000 × 3% × 2 = $1,740

2. Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date. (Continuation of Silver Company Question)

May sales $116,000 June sales 160,000 Total accounts receivable at June 30 $276,000 Explanation: Accounts receivable at June 30: From May sales: $580,000 × 20% = $116,000 From June sales: $200,000 × (60% + 20%) = $160,000

Which of the following benefits could an organization reasonably expect from an effective budget program? (Increased employee motivation)(Uncover potential bottlenecks) (A) Yes Yes (B) Yes No (C) No Yes (D) No No

Option A

The production manager of Rordan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Units to be produced 11,400 8,500 8,700 11,000 Each unit requires 0.45 direct labor-hours, and direct laborers are paid $20 per hour. Required: 1. Complete the company's direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.

Required production in units 11,400 8,500 8,700 11,000 39,600 Direct labor time per unit (hours) 0.45 0.45 0.45 0.45 0.45 Total direct labor-hours needed 5,130 3,825 3,915 4,950 17,820 Direct labor cost per hour $20 $20 $20 $20 $20 Total direct labor cost $102,600 $76,500 $78,300 $99,000 $356,400

Which of the following represents the normal sequence in which the below budgets are prepared?

Sales Budget, Budgeted Income Statement, Budgeted Balance Sheet

Hoppy Corporation compares monthly operating results to a static budget prepared at the beginning of the month. When the actual level of activity is less than budgeted, which of the following would be true?

Variable costs would show favorable variances.

A static planning budget is:

a budget for a single level of activity.

A flexible budget:

presents the plan for a range of activity so that the plan can be adjusted for changes in activity levels.

Kosakowski Corporation processes sugar beets in batches. A batch of sugar beets costs $74 to buy from farmers and $17 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $31 or processed further for $21 to make the end product, industrial fiber that is sold for $52. The beet juice can be sold as is for $50 or processed further for $28 to make the end product, refined sugar that is sold for $100. How much more profit (loss) does the company make by processing one batch of sugar beets into the end products industrial fiber and refined sugar?

$12 Explanation: Combined final sales value ($52 + $100)=$152 Less costs of producing the end products: Cost of further processing ($21 + $28)=$49 + Cost of crushing $17+ Cost of sugar beets $74 =$140 Profit (loss) $12

Tawstir Corporation has 800 obsolete personal computers that are carried in inventory at a total cost of $1,100,000. If these computers are upgraded at a total cost of $40,000, they can be sold for a total of $750,000. As an alternative, the computers can be sold in their present condition for $690,000. What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition?

$20,000 advantage Sales value of upgraded computers $750,000 Less sales value as is 690,000 Incremental revenue from upgrading 60,000 Less cost of upgrading 40,000 Profit (loss) from upgrading $ 20,000

Kosakowski Corporation processes sugar beets in batches. A batch of sugar beets costs $89 to buy from farmers and $17 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $46 or processed further for $36 to make the end product, industrial fiber that is sold for $82. The beet juice can be sold as is for $65 or processed further for $43 to make the end product, refined sugar that is sold for $130. How much more profit (loss) does the company make by processing one batch of sugar beets into the end products industrial fiber and refined sugar?

$27 Combined final sales value ($82 + $130) $212 Less costs of producing the end products: Cost of further processing ($36 + $43) $79 Cost of crushing $17 Cost of sugar beets $89 $185 Profit (loss) $27

Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40,000 units per month is as follows: Direct materials $ 44.3 Direct labor $ 12.2 Variable manufacturing overhead $ 1.5 Fixed manufacturing overhead $ 20.3 Variable selling & administrative expense $ 2.0 Fixed selling & administrative expense $ 12.6 The normal selling price of the product is $99.1 per unit. An order has been received from an overseas customer for 1,450 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.4 less per unit on this order than on normal sales. Direct labor is a variable cost in this company. What is the contribution margin per unit on normal sales?

$39.10 Direct materials $ 44.30 Direct labor 12.20 Variable manufacturing overhead 1.5 Variable selling & administrative expense 2.00 Variable cost per unit $ 60.00 Normal selling price per unit $ 99.10 Variable cost per unit on normal sales 60.00 Unit contribution margin on normal sales $ 39.10

Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40,000 units per month is as follows: Direct materials $ 43.8 Direct labor $ 10.4 Variable manufacturing overhead $ 1.9 Fixed manufacturing overhead $ 26.0 Variable selling & administrative expense $ 2.4 Fixed selling & administrative expense $ 13.8 The normal selling price of the product is $104.4 per unit. An order has been received from an overseas customer for 1,650 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.8 less per unit on this order than on normal sales. Direct labor is a variable cost in this company. What is the contribution margin per unit on normal sales?

$45.90 Direct materials $ 43.80 Direct labor 10.40 Variable manufacturing overhead 1.9 Variable selling & administrative expense 2.40 Variable cost per unit $ 58.50 Normal selling price per unit $ 104.40 Variable cost per unit on normal sales 58.50 Unit contribution margin on normal sales $ 45.90

Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40,000 units per month is as follows: Direct materials $49.3 Direct labor $10.0 Variable manufacturing overhead $2.0 Fixed manufacturing overhead $17.9 Variable selling & administrative expense $2.5 Fixed selling & administrative expense $13.0 The normal selling price of the product is $100.8 per unit. An order has been received from an overseas customer for 1,700 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.9 less per unit on this order than on normal sales. Direct labor is a variable cost in this company. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $92.2 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

$51,510 Explanation: Incremental revenue (1,700 units × $92.20 per unit) $156,740 Less incremental costs: Direct materials (1,700 units × $49.3 per unit) 83,810 Direct labor (1,700 units × $10.0 per unit) 17,000 Variable manufacturing overhead (1,700 units × $2.0 per unit) 3,400 Fixed manufacturing overhead 0 Variable selling & administrative expense (1,700 units × $0.6 per unit) 1,020 Fixed selling & administrative expense 0 Total incremental cost 105,230 Incremental net operating income $51,510

Becton Labs, Inc., produces various chemical compounds for industrial use. One compound, called Fludex, is prepared using an elaborate distilling process. The company has developed standard costs for one unit of Fludex, as follows: Standard Quantity Standard Price or Rate Standard Cost Direct materials 2.30 ounces $ 26.00 per ounce $ 59.80 Direct labor 0.50 hours $ 14.00 per hour 7.00 Variable manufacturing overhead 0.50 hours $ 3.40 per hour 1.70 $ 68.50 During November, the following activity was recorded relative to production of Fludex: a. Materials purchased, 12,500 ounces at a cost of $305,625. b. There was no beginning inventory of materials; however, at the end of the month, 2,800 ounces of material remained in ending inventory. c. The company employs 21 lab technicians to work on the production of Fludex. During November, they worked an average of 150 hours at an average rate of $12.00 per hour. d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $4,200. e. During November, 4,200 good units of Fludex were produced . Required: 1. For direct materials: a. Compute the price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).) b. The materials were purchased from a new supplier who is anxious to enter into a long-term purchase contract. Would you recommend that the company sign the contract? 2. For direct labor: a. Compute the rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).) b. In the past, the 21 technicians employed in the production of Fludex consisted of 4 senior technicians and 17 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to save costs. Would you recommend that the new labor mix be continued? 3. Compute the variable overhead rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

1. a. Materials price variance $19,375 F Materials quantity variance $1,040 U b. Yes 2. a. Labor rate variance $6,300 F Labor efficiency variance $14,700 U b. No 1. a. In the solution below, the materials price variance is computed on the entire amount of materials purchased whereas the materials quantity variance is computed only on the amount of materials used in production: Actual Quantity of Input, at Actual Price Actual Quantity of Input, at Standard Price Standard Quantity Allowed for Output, at Standard Price (AQ × AP) (AQ × SP) (SQ × SP) 12,500 ounces × $26.00 per ounce 9,660 ounces* × $26.00 per ounce $305,625 = $325,000 = $251,160 Price variance, $19,375 F 9,700 ounces × $26.00 per ounce = $252,200 Quantity Variance, $1,040 U *4,200 units × 2.3 ounces per unit = 9,660 ounces Materials price variance: Actual Price = $305,625 ÷ 12,500 ounces = $24.45 per ounce b. Yes, the contract probably should be signed. The new price of $24.45 per ounce is substantially lower than the old price of $26.00 per ounce, resulting in a favorable price variance of $19,375 for the month. Moreover, the material from the new supplier appears to cause little or no problem in production as shown by the small materials quantity variance for the month. 2. a. Actual Hours of Input, at the Actual Rate Actual Hours of Input, at the Standard Rate Standard Hours Allowed for Output, at the Standard Rate (AH × AR) (AH × SR) (SH × SR) 3,150 hours* × $12.00 per hour 3,150 hours × $14.00 per hour 2,100 hours** × $14.00 per hour = $37,800 = $44,100 = $29,400 Rate Variance, $6,300 F Efficiency Variance, $14,700 U Spending variance, $8,400 U *21 technicians × 150 hours per technician = 3,150 hours **4,200 units × 0.50 hours per technician = 2,100 hours b. No, the new labor mix probably should not be continued. Although it decreases the average hourly labor cost from $14.00 to $12.00, thereby causing a $6,300 favorable labor rate variance, this savings is more than offset by a large unfavorable labor efficiency variance for the month. Thus, the new labor mix increases overall labor costs. 3. Actual Hours of Input, at the Actual Rate Actual Hours of Input, at the Standard Rate Standard Hours Allowed for Output, at the Standard Rate (AH × AR) (AH × SR) (SH × SR) 3,150 hours* × $3.40 per hour 2,100 hours** × $3.40 per hour $4,200 = $10,710 = $7,140 Rate Variance, $6,510 F Efficiency Variance, $3,570 U Spending variance, $2,940 F * Based on direct labor hours: 21 technicians × 150 hours per technician = 3,150 hours **4,200 units × 0.50 hours per unit = 2,100 hours

Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total cash receipts $250,000 $400,000 $280,000 $300,000 Total cash disbursements $309,000 $279,000 $269,000 $289,000 The company's beginning cash balance for the upcoming fiscal year will be $34,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded. Required: Complete the company's cash budget for the upcoming fiscal year. (Cash deficiency, repayments, and interest, should be indicated by a minus sign.)

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Beginning cash balance $34,000 $10,000 $93,900 $104,900 $34,000 Total cash receipts 250,000 400,000 280,000 300,000 1,230,000 Total cash available 284,000 410,000 373,900 404,900 1,264,000 Less total cash disbursements 309,000 279,000 269,000 289,000 1,146,000 Excess (deficiency) of cash available over disbursements (25,000) 131,000 104,900 115,900 118,000 Financing: Borrowings 35,000 0000 0000 0000 35,000 Repayments 0000 (35,000) 0000 0000 (35,000) Interest 0000 (2,100) 0000 0000 (2,100) Total financing 35,000 (37,100) 0 0 (2,100) Ending cash balance $10,000 $93,900 $104,900 $115,900 $115,900 Explanation: Borrowings (at beginnings of quarters): Since the deficiency of cash available over disbursements is $25,000, the company must borrow $35,000 to maintain the desired ending cash balance of $10,000. Interest: $35,000 × 3% × 2 = $2,100

Brown Corporation makes four products in a single facility. These products have the following unit product costs: Products A B C D Direct materials $13.30 $9.20 $10.00 $9.60 Direct labor 18.40 26.40 32.60 39.40 Variable manufacturing overhead 3.30 1.70 1.60 2.20 Fixed manufacturing overhead 25.50 33.80 25.60 36.20 Unit product cost $60.50 $71.10 $69.80 $87.40 Additional data concerning these products are listed below. Products A B C D Grinding minutes per unit 2.80 3.60 3.30 2.40 Selling price per unit $75.10 $92.50 $86.40 $103.20 Variable selling cost per unit $ 1.20 $ .20 $ 2.30 $ .60 Monthly demand in units 3,000 3,000 2,000 2,200 The grinding machines are potentially the constraint in the production facility. A total of 52,700 minutes are available per month on these machines. Direct labor is a variable cost in this company. How many minutes of grinding machine time would be required to satisfy demand for all four products?

31,080 Explanation: Grinding minutes per unit 2.80 3.60 3.30 2.40 Monthly demand in units 3,000 3,000 2,000 2,200 Minutes of grinding time 8,400 10,800 6,600 5,280 31,080

Brown Corporation makes four products in a single facility. These products have the following unit product costs: Products A B C D Direct materials $13.60 $9.50 $10.30 $9.90 Direct labor 18.70 26.70 32.90 39.70 Variable manufacturing overhead 3.60 2.00 1.90 2.50 Fixed manufacturing overhead 25.80 34.10 25.90 36.50 Unit product cost $61.70 $72.30 $71.00 $88.60 Additional data concerning these products are listed below. Products A B C D Grinding minutes per unit 3.10 4.20 3.60 2.70 Selling price per unit $75.40 $92.80 $86.70 $103.50 Variable selling cost per unit $ 1.50 $ .50 $ 2.60 $ .90 Monthly demand in units 3,300 3,300 2,300 2,500 The grinding machines are potentially the constraint in the production facility. A total of 53,000 minutes are available per month on these machines. Direct labor is a variable cost in this company. How many minutes of grinding machine time would be required to satisfy demand for all four products?

39,120 Explanation: Grinding minutes per unit 3.10 4.20 3.60 2.70 Monthly demand in units 3,300 3,300 2,300 2,500 Minutes of grinding time 10,230 13,860 8,280 6,750 39,120

differential cost.

A difference in cost between any two alternatives is known as a

differential revenue

A difference in revenue between any two alternatives is known as

The management of a company has compiled the following data to use in preparing its budgeted balance sheet for next year: Ending Balances Cash ? Accounts receivable $ 8,300 Supplies inventory $ 3,200 Equipment $ 35,000 Accumulated depreciation $ 14,200 Accounts payable $ 2,000 Common stock $ 5,000 Retained earnings ? The beginning balance of retained earnings was $30,000, net income is budgeted to be $13,900, and dividends are budgeted to be $3,100. Required: Prepare the company's budgeted balance sheet.

Budgeted Balance Sheet Assets Current assets: Cash $15,500 (-----) Accounts receivable 8,300 (-----) Supplies inventory 3,200 (-----) Total current assets (-----) $27,000 Plant and equipment: Equipment 35,000 (-----) Accumulated depreciation (14,200) (-----) Plant and equipment, net (-----) 20,800 Total assets (-----) $47,800 Liabilities and Stockholders' Equity Current liabilities: Accounts payable (-----) $2,000 Stockholders' equity: Common stock $5,000 (-----) Retained earnings 40,800 (-----) Total stockholders' equity (-----) 45,800 Total liabilities and stockholders' equity (-----) $47,800 Explanation: Cash = Plug figure. Retained earnings is computed as follows: Retained earnings, beginning balance $30,000 Add net income 13,900 43,900 Deduct dividends 3,100 Retained earnings, ending balance $40,800

Budgeted Balance Sheet Assets Current assets: Cash $15,500 00000 Accounts receivable 8,300 00000 Supplies inventory 3,200 00000 Total current assets 00000 $27,000 Plant and equipment: Equipment 35,000 00000 Accumulated depreciation (14,200) 00000 Plant and equipment, net 00000 20,800 Total assets 00000 $47,800 Liabilities and Stockholders' Equity Current liabilities: Accounts payable 00000 $2,000 Stockholders' equity: Common stock $5,000 00000 Retained earnings 40,800 00000 Total stockholders' equity 00000 45,800 Total liabilities and stockholders' equity 00000 $47,800 Explanation: Cash = Plug figure. Retained earnings is computed as follows: Retained earnings, beginning balance $30,000 Add net income 13,900 43,900 Deduct dividends 3,100 Retained earnings, ending balance $40,800

The management of Mecca Copy, a photocopying center located on University Avenue, has compiled the following data to use in preparing its budgeted balance sheet for next year: Ending Balances Cash ? Accounts receivable $ 9,700 Supplies inventory $ 3,800 Equipment $ 42,000 Accumulated depreciation $ 17,000 Accounts payable $ 3,400 Common stock $ 5,000 Retained earnings ? The beginning balance of retained earnings was $33,000, net income is budgeted to be $16,900, and dividends are budgeted to be $3,500. Required: Prepare the company's budgeted balance sheet. (Amounts to be deducted should be indicated by a minus sign.)

Budgeted Balance Sheet Assets Current assets: Cash $16,300 (-----) Accounts receivable 9,700 (-----) Supplies inventory 3,800 (-----) Total current assets (-----) $29,800 Plant and equipment: Equipment 42,000 (-----) Accumulated depreciation (-17,000) (-----) Plant and equipment, net (-----) 25,000 Total assets (-----) $54,800 Liabilities and Stockholders' Equity Current liabilities: Accounts payable (-----) $3,400 Stockholders' equity: Common stock $5,000 (-----) Retained earnings 46,400 (-----) Total stockholders' equity (-----) 51,400 Total liabilities and stockholders' equity (-----) $54,800 Explanation: Cash = Plug figure. Retained earnings is computed as follows: Retained earnings, beginning balance $33,000 Add net income 16,900 49,900 Deduct dividends 3,500 Retained earnings, ending balance $46,400

Gig Harbor Boating is the wholesale distributor of a small recreational catamaran sailboat. Management has prepared the following summary data to use in its annual budgeting process: Budgeted unit sales 660 Selling price per unit $ 2,050 Cost per unit $ 1,480 Variable selling and administrative expenses (per unit) $ 85 Fixed selling and administrative expenses (per year) $245,000 Interest expense for the year $ 21,000 Required: Prepare the company's budgeted income statement using an absorption income statement format shown below.

Budgeted Income Statement Sales $1,353,000 Cost of goods sold 976,800 Gross margin 376,200 Selling and administrative expenses 301,100 Net operating income 75,100 Interest expense 21,000 Net income $54,100 Explanation: Sales: 660 units × $2,050 per unit = $1,353,000 Cost of goods sold: 660 units × $1,480 per unit = $976,800 Selling and administrative expenses: (660 units × $85 per unit) + $245,000 = $301,100.

For the month of September the corporation you work for plans to serve 45,000 customers. The company uses the following revenue and cost formulas in its budgeting, where q is the number of customers served: Revenue: $4.39q Wages and salaries: $34,500 + $1.66q Supplies: $.86q Insurance: $14,000 Miscellaneous expense: $5,500 + $.56q Required: Prepare your company's planning budget for September.

Budgeted customers served 45,000 Revenue $197,550 Expenses: Wages and salaries 109,200 Supplies 38,700 Insurance 14,000 Miscellaneous expense 30,700 Total expenses 192,600 Net operating income $4,950 Explanation: Budgeted customers served: q = 34,000 Revenue: $4.39q = $197,550 Wages and salaries: $34,500 + $1.66q = $109,200 Supplies: $.86q = $38,700 Insurance: $14,000 = $14,000 Miscellaneous expense: $5,500 + $.56q = $30,700

The budgeted unit sales of Weller Company for the upcoming fiscal year are provided below: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Budgeted unit sales 16,000 18,000 15,000 14,000 The company's variable selling and administrative expense per unit is $1.50. Fixed selling and administrative expenses include advertising expenses of $9,000 per quarter, executive salaries of $35,000 per quarter, and depreciation of $15,000 per quarter. In addition, the company will make insurance payments of $4,000 in the first quarter and $4,000 in the third quarter. Finally, property taxes of $6,000 will be paid in the second quarter. Required: Prepare the company's selling and administrative expense budget for the upcoming fiscal year. (Input all amounts as positive values. Round "Variable cost" answers to 2 decimal places.)

Budgeted unit sales 16,000 18,000 15,000 14,000 63,000 Variable selling and administrative expense per unit $1.50 $1.50 $1.50 $1.50 $1.50 Variable selling and administrative expense 24,000 27,000 22,500 21,000 94,500 Fixed selling and administrative expenses: Advertising 9,000 9,000 9,000 9,000 36,000 Executive salaries 35,000 35,000 35,000 35,000 140,000 Insurance 4,000 0000 4,000 0000 8,000 Property taxes 0000 6,000 0000 0000 6,000 Depreciation 15,000 15,000 15,000 15,000 60,000 Total fixed selling and administrative expenses 63,000 65,000 63,000 59,000 250,000 Total selling and administrative expenses 87,000 92,000 85,500 80,000 344,500 Less: Depreciation 15,000 15,000 15,000 15,000 60,000 Cash disbursements for selling and administrative expenses $72,000 $77,000 $70,500 $65,000 $284,500

Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows: Sales in Units April 82,000 May 90,000 June 122,000 July 96,000 The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 15% of the following month's sales. The inventory at the end of March was 12,300 units. Required: Prepare a production budget for the second quarter; in your budget, show the number of units to be produced each month and for the quarter in total.

Budgeted unit sales 82,000 90,000 122,000 294,000 Add: Desired units of ending finished goods inventory 13,500 18,300 14,400 14,400 Total needs 95,500 108,300 136,400 308,400 Less: Units of beginning finished goods inventory 12,300 13,500 18,300 12,300 Required production in units 83,200 94,800 118,100 296,100 Explanation: Desired units of ending finished goods inventory is 15% of the following month's sales in units.

Direct labor-hours are used as the base to prepare the manufacturing overhead budget at Ford. The variable overhead rate is $1.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $107,380 per month, which includes depreciation of $19,900. All other fixed manufacturing overhead costs represent current cash flows. The October direct labor budget indicates that 9,100 direct labor-hours will be required in that month. Required: a. Determine the cash disbursements for manufacturing overhead for October.

Cash disbursements for manufacturing overhead $102,040 Explanation: a. November Budgeted direct labor-hours 9,100 Variable manufacturing overhead rate $ 1.60 Variable manufacturing overhead $ 14,560 Fixed manufacturing overhead 107,380 Total manufacturing overhead 121,940 Less depreciation 19,900 Cash disbursements for manufacturing overhead $ 102,040

Cash disbursements for manufacturing overhead $102,040 Explanation: November Budgeted direct labor-hours 9,100 Variable manufacturing overhead rate $ 1.60 Variable manufacturing overhead $ 14,560 Fixed manufacturing overhead 107,380 Total manufacturing overhead 121,940 Less depreciation 19,900 Cash disbursements for manufacturing overhead $ 102,040

involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change.

Control

Exercise 9-9 Budgeted Balance Sheet [LO9-10] The management of Mecca Copy, a photocopying center located on University Avenue, has compiled the following data to use in preparing its budgeted balance sheet for next year: Ending Balances Cash ? Accounts receivable $ 9,500 Supplies inventory $ 3,400 Equipment $ 41,000 Accumulated depreciation $ 16,600 Accounts payable $ 3,200 Common stock $ 5,000 Retained earnings ? The beginning balance of retained earnings was $31,000, net income is budgeted to be $21,400, and dividends are budgeted to be $3,900. Required: Prepare the company's budgeted balance sheet. (Amounts to be deducted should be indicated by a minus sign.)

Current assets: Cash $19,400 Accounts receivable 9,500 Supplies inventory 3,400 Total current assets $32,300 Plant and equipment: Equipment 41,000 Accumulated depreciation (16,600) Plant and equipment, net 24,400 Total assets $56,700 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $3,200 Stockholders' equity: Common stock $5,000 Retained earnings 48,500 Total stockholders' equity 53,500 Total liabilities and stockholders' equity $56,700 Explanation: Cash = Plug figure. Retained earnings is computed as follows: Retained earnings, beginning balance $31,000 Add net income 21,400 52,400 Deduct dividends 3,900 Retained earnings, ending balance $48,500

A flexible budget should not be used when making comparisons to actual results such as actual expenses.

False

An activity variance is due to the difference between the level of activity used in the flexible budget and the actual level of activity.

False

In target costing, effort is concentrated on effectively marketing the product to maximize its selling price.

False

One disadvantage of a self-imposed budget is that budget estimates prepared by front-line managers are often less accurate and reliable than estimates prepared by top managers.

False

Planning involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change.

False

Price elasticity measures the degree to which consumers resent an increase in price.

False

The basic idea underlying responsibility accounting is that each manager should be held responsible for the overall profit of the company to ensure that all managers are acting together.

False

The book value of old equipment is a relevant cost in a decision to replace that equipment. (Ignore taxes.)

False

The cash budget is typically prepared before the direct materials budget.

False

The cash budget is usually prepared after the budgeted income statement.

False

The manufacturing overhead budget is typically prepared before the production budget.

False

The price elasticity of demand is NOT used to determine the markup over cost when computing the profit-maximizing price.

False

The standard price per unit for direct materials should not include the cost of delivering the materials.

False

DOWE Chemical Company produces various chemical compounds for industrial use. DOWE's best selling product, Flubber, is prepared using an elaborate secret distilling process. The table below shows the standard costs for one unit of Flubber: Standard Quantity Standard Price or Rate Standard Cost Direct materials:2.00 ounces $30.00 per ounce $60.00 Direct labor:0.50 hours $14.00 per hour 7.00 Variable manufacturing overhead: 0.50 hours $3.40 per hour 1.70 Total Standard Cost $ 68.70 During October, the following activity was recorded relative to production of Flubber: a. Materials purchased, 10,000 ounces at a cost of $287,000. b. There was no beginning inventory of materials; however, at the end of the month, 3,000 ounces of material remained in ending inventory. c. The company employs 20 lab technicians to work on the production of Flubber. During October, they worked an average of 130 hours at an average rate of $12.00 per hour. d. Variable manufacturing overhead is assigned to Flubber on the basis of direct labor-hours. Variable manufacturing overhead costs during October totaled $4,700. e. During October, 3,400 good units of Flubber were produced . 2. For direct labor: a. Compute the rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

Labor rate variance $5,200 F Labor efficiency variance $12,600 U . Actual Hours of Input, at the Actual Rate Actual Hours of Input, at the Standard Rate Standard Hours Allowed for Output, at the Standard Rate (AH × AR) (AH × SR) (SH × SR) 2,600 hours* × $12.00 per hour 2,600 hours × $14.00 per hour 1,700 hours** × $14.00 per hour = $31,200 = $36,400 = $23,800 Rate Variance, $5,200 F Efficiency Variance, $12,600 U Spending variance, $7,400 U *20 technicians × 130 hours per technician = 2,600 hours **3,400 units × 0.50 hours per technician = 1,700 hours b. No, the new labor mix probably should not be continued. Although it decreases the average hourly labor cost from $14.00 to $12.00, thereby causing a $5,200 favorable labor rate variance, this savings is more than offset by a large unfavorable labor efficiency variance for the month. Thus, the new labor mix increases overall labor costs.

Chowhound Corporation prepares freeze dried meals for hikers. Chowhound has a very wide variety of products. Its best seller is a meal of bear meat, baked beans, and collard greens. Last week, the company prepared 4,800 of these meals using 1,400 direct labor-hours.Chowhound paid these direct labor workers a total of $18,200 for this work, or $13.00 per hour. According to the standard cost card for this particular meal, it should require 0.30 direct labor-hours at a cost of $12.50 per hour. 2. Break down the difference computed in (1) above into a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Labor rate variance $700 U Labor efficiency variance $500 F Explanation: 2. Actual Hours of Input, at the Actual Rate Actual Hours of Input, at the Standard Rate Standard Hours Allowed for Output, at the Standard Rate (AH × AR) (AH × SR) (SH × SR) 1,400 hours × $13.00 per hour 1,400 hours × $12.50 per hour 1,440 hours × $12.50 per hour = $18,200 = $17,500 = $18,000 Rate Variance, $700 U Efficiency Variance, $500 F Spending Variance, $200 U Alternatively, the variances can be computed using the formulas: Labor rate variance = AH(AR - SR) = 1,400 hours ($13.00 per hour - $12.50 per hour) = $700 U Labor efficiency variance = SR(AH - SH) = $12.50 per hour (1,400 hours - 1,440hours) = $500 F

DOWE Chemical Company produces various chemical compounds for industrial use. DOWE's best selling product, Flubber, is prepared using an elaborate secret distilling process. The table below shows the standard costs for one unit of Flubber: Standard Quantity Standard Price or Rate Standard Cost Direct materials:2.00 ounces $30.00 per ounce $60.00 Direct labor:0.50 hours $14.00 per hour 7.00 Variable manufacturing overhead: 0.50 hours $3.40 per hour 1.70 Total Standard Cost $ 68.70 During October, the following activity was recorded relative to production of Flubber: a. Materials purchased, 10,000 ounces at a cost of $287,000. b. There was no beginning inventory of materials; however, at the end of the month, 3,000 ounces of material remained in ending inventory. c. The company employs 20 lab technicians to work on the production of Flubber. During October, they worked an average of 130 hours at an average rate of $12.00 per hour. d. Variable manufacturing overhead is assigned to Flubber on the basis of direct labor-hours. Variable manufacturing overhead costs during October totaled $4,700. e. During October, 3,400 good units of Flubber were produced . 1. For direct materials: a. Compute the price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

Materials price variance $13,000 F Materials quantity variance $6,000 U b. The materials were purchased from a new supplier who is anxious to enter into a long-term purchase contract. Would you recommend that the company sign the contract? Yes Explanation: 1. a. In the solution below, the materials price variance is computed on the entire amount of materials purchased whereas the materials quantity variance is computed only on the amount of materials used in production: Actual Quantity of Input, at Actual Price Actual Quantity of Input, at Standard Price Standard Quantity Allowed for Output, at Standard Price (AQ × AP) (AQ × SP) (SQ × SP) 10,000 ounces × $30.00 per ounce 6,800 ounces* × $30.00 per ounce $287,000 = $300,000 = $204,000 Price variance, $13,000 F 7,000 ounces × $30.00 per ounce = $210,000 Quantity Variance, $6,000 U *3,400 units × 2.0 ounces per unit = 6,800 ounces Materials price variance: Actual Price = $287,000 ÷ 10,000 ounces = $28.70 per ounce b. Yes, the contract probably should be signed. The new price of $28.70 per ounce is substantially lower than the old price of $30.00 per ounce, resulting in a favorable price variance of $13,000 for the month. Moreover, the material from the new supplier appears to cause little or no problem in production as shown by the small materials quantity variance for the month.

Asia Sporting Industries, located in Hong Kong, manufactures sporting equipment. A major seller for the company, a football helmet for the Texas market, requires a very hard special plastic. During the quarter ending March 31, the company manufactured 3,300 helmets, using 2,310 kilograms of plastic. The plastic cost the company $17,556. Based on the company's standard cost card for the helmet, each helmet should require 0.6 kilograms of plastic, at a cost of $8 per kilogram. 2. Break down the difference computed in (1) above into a materials price variance and a materials quantity variance. (Round your actual materials price to two decimal places, and round your final answers to the nearest whole dollar. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Materials price variance: $924 Materials quantity variance: $2640 Explanation: 2. Actual Quantity of Input, at Actual Price Actual Quantity of Input, at Standard Price Standard Quantity Allowed for Output, at Standard Price (AQ × AP) (AQ × SP) (SQ × SP) 2,310 kilograms × $8.00 per kilogram 1,980 kilograms* × $8.00 per kilogram $17,556 = $18,480 = $15,840 Price Variance, $924 F Quantity Variance, $2,640 U Spending Variance, $1,716 U *3,300 helmets × 0.60 kilograms per helmet = 1,980 kilograms Alternatively, the variances can be computed using the formulas: Materials price variance = AQ (AP - SP) 2,310 kilograms ($7.60 per kilogram* - $8.00 per kilogram) = $924 F * $17,556 ÷ 2,310 kilograms = $7.60 per kilogram Materials quantity variance = SP (AQ - SQ) $8.00 per kilogram (2,310 kilograms - 1,980 kilograms) = $2,640 U

Asia Sporting Industries, located in Hong Kong, manufactures sporting equipment. A major seller for the company, a football helmet for the Texas market, requires a very hard special plastic. During the quarter ending March 31, the company manufactured 3,300 helmets, using 2,310 kilograms of plastic. The plastic cost the company $17,556. Based on the company's standard cost card for the helmet, each helmet should require 0.6 kilograms of plastic, at a cost of $8 per kilogram. Required: 1. According to the standards, what would be the total standard cost of plastic that should have been incurred to make 3,300 helmets? How much greater or less is this than the cost that was incurred?

Number of Helmets: 3300 Standard kg of plastic/helmet: .6 Total standard kg allowed: 1980 Standard cost per kg: $8 Total Standard Cost: $15840 Actual cost incurred: $17556 Total standard cost: $15840 Total material variance: $1716 unfavorable

Dynamic Solutions provides supply chain services such as warehousing, order picking and shipping services for Ebay merchants. As part of this service, the company maintains warehouses that stock items sold by its clients. When a client merchant receives an order from a customer, Dynamic Solutions receives a real time copy of that order. Using the order information, Dynamic pulls the item from storage, packs it, and ships it to the customer. Dynamic Solutions uses a predetermined variable overhead rate based on direct labor-hours. In the most recent month, 195,000 items were shipped to customers using 8,600 direct labor-hours. The company incurred a total of $30,530 in variable overhead costs. According to the company's standards, 0.04 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.60 per direct labor-hour. Required: 1. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 195,000 items? How much does this differ from the actual variable overhead cost? (Round labor-hours per item and overhead cost per hour to 2 decimal places.)

Number of items shipped 195,000 Standard direct labor-hours per item 0.04 Total direct labor-hours allowed 7,800 Standard variable overhead cost per hour $3.60 Total standard variable overhead cost $28,080 Actual variable overhead cost incurred $30,530 Total standard variable overhead cost 28,080 Total variable overhead variance $2,450 Unfavorable

Chowhound Corporation prepares freeze dried meals for hikers. Chowhound has a very wide variety of products. Its best seller is a meal of bear meat, baked beans, and collard greens. Last week, the company prepared 4,800 of these meals using 1,400 direct labor-hours.Chowhound paid these direct labor workers a total of $18,200 for this work, or $13.00 per hour. According to the standard cost card for this particular meal, it should require 0.30 direct labor-hours at a cost of $12.50 per hour. Required: 1. According to the standards, what direct labor cost should have been incurred to prepare 4,800 meals? How much does this differ from the actual direct labor cost? (Round labor-hours per meal and labor cost per hour to 2 decimal places.)

Number of meals prepared 4,800 Standard direct labor-hours per meal 0.30 Total direct labor-hours allowed 1,440 Standard direct labor cost per hour $12.50 Total standard direct labor cost $18,000 Actual cost incurred $18,200 Total standard direct labor cost 18,000 Total direct labor variance $200 Unfavorable

Gary Corporation produces products X, Y, and Z from a single raw material input. Budgeted data for the next month is as follows: Product X Product Y Product Z Units produced 1,400 1,900 2,900 Per unit sales value at split-off $ 12 $ 17 $ 14 Added processing costs per unit $ 3 $ 5 $ 5 Per unit sales value if processed further $ 18 $ 18 $ 23 If the cost of raw material input is $67,000, which of the products should be processed beyond the split-off point? Product X Product Y Product Z A) yes yes no B) yes no yes C) no yes no D) no yes yes

Option B Final sales value after further processing $18.00 $18.00 $23.00 Less sales value at split-off point 12.00 17.00 14.00 Incremental revenue from further processing $6.00 $1.00 $9.00 Less cost of further processing 3.00 5.00 5.00 Profit (loss) from further processing $3.00 $(4.00) $4.00 Only Product X and Product Z should be processed beyond the split-off point.

are actual cash outlays for salaries, advertising, and other operating expenses.

Out-of-pocket costs

The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below: Sales $939,000 Variable expenses $413,500 Fixed manufacturing expenses $525,500 Fixed selling and administrative expenses $353,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $215,500 of the fixed manufacturing expenses and $126,500 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued. What would be the effect on the company's overall net operating income if product V41B were dropped?

Overall net operating income would decrease by $183,500. Explanation: Sales $939,000 Variable expenses 413,500 Contribution margin 525,500 Less avoidable fixed expenses: Fixed manufacturing expenses $215,500 Fixed selling and administrative expenses 126,500 342,000 Effect on net operating income $183500 Net operating income would drop by $183,500 if this product were dropped.

The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below: Sales $938,000 Variable expenses $413,000 Fixed manufacturing expenses $525,000 Fixed selling and administrative expenses $352,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $215,000 of the fixed manufacturing expenses and $126,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued. What would be the effect on the company's overall net operating income if product V41B were dropped?

Overall net operating income would decrease by $184,000. Explanation: Sales $938,000 Variable expenses 413,000 Contribution margin 525,000 Less avoidable fixed expenses: Fixed manufacturing expenses $215,000 Fixed selling and administrative expenses 126,000 341,000 Effect on net operating income $184000 Net operating income would drop by $184,000 if this product were dropped.

Overall net operating income would decrease by $184,000. Sales $938,000 Variable expenses 413,000 Contribution margin 525,000 Less avoidable fixed expenses: Fixed manufacturing expenses $215,000 Fixed selling and administrative expenses 126,000 341,000 Effect on net operating income $184000 Net operating income would drop by $184,000 if this product were dropped.

involves developing goals and preparing various budgets to achieve those goals

Planning

Direct labor-hours are used as the base to prepare the manufacturing overhead budget at Ford. The variable overhead rate is $1.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $107,380 per month, which includes depreciation of $19,900. All other fixed manufacturing overhead costs represent current cash flows. The October direct labor budget indicates that 9,100 direct labor-hours will be required in that month b. Determine the predetermined overhead rate for October.

Predetermined overhead rate $13.40 Explanation: Total manufacturing overhead (a) $ 121,940 Budgeted direct labor-hours (b) 9,100 Predetermined overhead rate for the month (a) ÷ (b) $ 13.40

Direct labor-hours are used as the base to prepare the manufacturing overhead budget at Ford. The variable overhead rate is $1.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $107,380 per month, which includes depreciation of $19,900. All other fixed manufacturing overhead costs represent current cash flows. The October direct labor budget indicates that 9,100 direct labor-hours will be required in that month. b. Determine the predetermined overhead rate for October. (Round your answer to 2 decimal places.)

Predetermined overhead rate $13.40 Explanation: b. Total manufacturing overhead (a) $ 121,940 Budgeted direct labor-hours (b) 9,100 Predetermined overhead rate for the month (a) ÷ (b) $ 13.40

, by contrast, relate to selecting from among several acceptable alternatives

Preference decisions

Hoang Corporation makes three products that use compound W, the current constrained resource. Data concerning those products appear below: KI LH RP Selling price per unit $248.51 $508.40 $236.80 Variable cost per unit $207.47 $428.1 $172.9 Centiliters of compound W 3.8 7.3 4.5 Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized.

RP,LH,KI Selling price per unit $248.51 $508.40 $236.80 Variable cost per unit 207.47 428.10 172.90 Contribution margin per unit (a) 41.04 80.30 63.90 Amount of the constrained resource required to produce one unit (b) 3.80 7.30 4.50 Contribution margin per unit of the constrained resource (a) ÷ (b) 10.80 11.00 14.20 Ranking 3 2 1

Hoang Corporation makes three products that use compound W, the current constrained resource. Data concerning those products appear below: KI LH RP Selling price per unit $282.40 $554.74 $248.98 Variable cost per unit $232.24 $463.1 $173.5 Centiliters of compound W 4.4 7.9 5.1 Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized.

RP,LH,KI Selling price per unit $282.40 $554.74 $248.98 Variable cost per unit 232.24 463.10 173.50 Contribution margin per unit (a) 50.16 91.64 75.48 Amount of the constrained resource required to produce one unit (b) 4.40 7.90 5.10 Contribution margin per unit of the constrained resource (a) ÷ (b) 11.40 11.60 14.80 Ranking 3 2 1

Lockeed Marretta Company is exploring the possibility of introducing a new product. Lockeed has developed the following data in order to help determine a selling price for that new product. Number of units to be produced and sold each year 16,500 Unit product cost $ 50 Projected annual selling and administrative expenses $ 60,000 Estimated investment required by the company $ 530,000 Desired return on investment (ROI) 20 % The absorption costing approach to cost-plus pricing is used at Lockeed Marretta Company for such decisions. Required: 1. Compute the markup required to achieve the desired ROI. (Round your Required ROI answers to the nearest whole percentage (i.e, 0.1234 should be entered as 12). Round your "Markup Percentage" answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34.))

Required ROI 20 % Investment $530,000 Selling and administrative expenses 60,000 Total production cost $166,000 Unit product cost per unit $50 Unit sales 16,500 Total sales $825,000 Markup percentage 20.12 % Explanation: 1. Markup percentage on absorption cost = (Required ROI × Investment) + Selling and administrative expenses Unit sales× Unit product cost = (20% × $530,000) + $60,000 16,500 units × $50 per unit = $166,000 $825,000 = 20.12%

Ford Corporation is pulling together its direct labor budget for the next two months. Each unit of output requires 0.05 direct labor-hours. The direct labor rate is $9.90 per direct labor-hour. The production budget calls for producing 3,800 units in June and 4,300 units in July. Required: Prepare the direct labor budget for the next two months, assuming that the direct labor work force is fully adjusted to the total direct labor-hours needed each month. (Round your answers to 2 decimal places.)

Required production in units 3,800 4,300 Direct labor-hours per unit 0.05 0.05 Total direct labor-hours needed 190 215 Direct labor cost per hour $9.90 $9.90 Total direct labor cost $1,881.00 $2,128.50

Two grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is $1.80 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3: Year 2 Year 3 First Second Third Fourth First Budgeted production, in bottles 80,000 110,000 170,000 120,000 90,000 Musk oil has become so popular as a perfume ingredient that it has become necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter's production needs. Some 32,000 grams of musk oil will be on hand to start the first quarter of Year 2. Required: Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.

Required production in units of finished goods 80,000 110,000 170,000 120,000 480,000 Units of raw materials needed per unit of finished goods 2 2 2 2 2 Units of raw materials needed to meet production 160,000 220,000 340,000 240,000 960,000 Add: Desired units of ending raw materials inventory 44,000 68,000 48,000 36,000 36,000 Total units of raw materials needed 204,000 288,000 388,000 276,000 996,000 Less: Units of beginning raw materials inventory 32,000 44,000 68,000 48,000 32,000 Units of raw materials to be purchased 172,000 244,000 320,000 228,000 964,000 Unit cost of raw materials $1.80 $1.80 $1.80 $1.80 $1.80 Cost of raw materials to purchased $309,600 $439,200 $576,000 $410,400 $1,735,200

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company's operations in July appear below: Vulcan Flyovers Operating Data For the Month Ended July 31 Actual Results Flexible Budget Planning Budget Flights (q) 52 52 50 Revenue ($355.00q) $ 16,000 $ 18,460 $ 17,750 Expenses: Wages and salaries ($3,700 + $87.00q) 8,190 8,224 8,050 Fuel ($31.00q) 1,780 1,612 1,550 Airport fees ($860 + $33.00q) 2,446 2,576 2,510 Aircraft depreciation ($9.00q) 468 468 450 Office expenses ($210 + $1.00q) 430 262 260 Total expense 13,314 13,142 12,820 Net operating income $ 2,686 $ 5,318 $ 4,930 The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount. Required: 1. Complete the flexible budget performance report abstract for July.

Revenue $2,460 U $710 F Expenses: Wages and salaries 34 F 174 U Fuel 168 U 62 U Airport fees 130 F 66 U Aircraft depreciation None 18 U Office expenses 168 U 2 U Total expense 172 U 322 U Net operating income $2,632 U $388 F Explanation: Vulcan Flyovers Flexible Budget Performance Report For the Month Ended July 31 Actual Results Revenue and Spending Variances Flexible Budget Activity Variances Planning Budget Flights (q) 52 52 50 Revenue ($355.00q) $ 16,000 $ 2,460 U $ 18,460 $ 710 F $ 17,750 Expenses: Wages and salaries ($3,700 + $87.00q) 8,190 34 F 8,224 174 U 8,050 Fuel ($31.00q) 1,780 168 U 1,612 62 U 1,550 Airport fees ($860 + $33.00q) 2,446 130 F 2,576 66 U 2,510 Aircraft depreciation ($9.00q) 468 0 None 468 18 U 450 Office expenses ($210 + $1.00q) 430 168 U 262 2 U 260 Total expense 13,314 172 U 13,142 322 U 12,820 Net operating income $ 2,686 $ 2,632 U $ 5,318 $ 388 F $ 4,930

Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 7,100 pounds of oysters in August. The company's flexible budget for August appears below: Quilcene Oysteria Flexible Budget For the Month Ended August 31 Actual pounds (q) 7,100 Revenue ($4.20q) $ 29,820 Expenses: Packing supplies ($0.30q) 2,130 Oyster bed maintenance ($3,400) 3,400 Wages and salaries ($2,500 + $0.35q) 4,985 Shipping ($0.70q) 4,970 Utilities ($1,250) 1,250 Other ($480 + $0.01q) 551 Total expense 17,286 Net operating income $ 12,534 The actual results for August appear below: Quilcene Oysteria Income Statement For the Month Ended August 31 Actual pounds 7,100 Revenue $ 27,300 Expenses: Packing supplies 2,300 Oyster bed maintenance 3,260 Wages and salaries 5,395 Shipping 4,700 Utilities 1,060 Other 1,171 Total expense 17,886 Net operating income $ 9,414 Required: Compute the company's revenue and spending variances for August.

Revenue $2,520 U Expenses: Packing supplies 170 U Oyster bed maintenance 140 F Wages and salaries 410 U Shipping 270 F Utilities 190 F Other 620 U Total expense 600 U Net operating income $3,120 U Explanation: Pounds 7,100 7,100 Revenue ($4.20q) $ 27,300 $ 29,820 $ 2,520 U Expenses: Packing supplies ($0.30q) 2,300 2,130 170 U Oyster bed maintenance ($3,400) 3,260 3,400 140 F Wages and salaries ($2,500 + $0.35q) 5,395 4,985 410 U Shipping ($0.70q) 4,700 4,970 270 F Utilities ($1,250) 1,060 1,250 190 F Other ($480 + $0.01q) 1,171 551 620 U Total expense 17,886 17,286 600 U Net operating income $ 9,414 $ 12,534 $ 3,120 U

Flight Café is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport. The company's planning budget for July appears below: Flight Café Planning Budget For the Month Ended July 31 Budgeted meals (q) 24,000 Revenue ($4.20q) $ 100,800 Expenses: Raw materials ($1.90q) 45,600 Wages and salaries ($6,500 + $0.20q) 11,300 Utilities ($2,000 + $0.05q) 3,200 Facility rent ($3,300) 3,300 Insurance ($2,700) 2,700 Miscellaneous ($500 + $0.10q) 2,900 Total expense 69,000 Net operating income $ 31,800 In July, 25,000 meals were actually served. The company's flexible budget for this level of activity appears below: Flight Café Flexible Budget For the Month Ended July 31 Budgeted meals (q) 25,000 Revenue ($4.20q) $ 105,000 Expenses: Raw materials ($1.90q) 47,500 Wages and salaries ($6,500 + $0.20q) 11,500 Utilities ($2,000 + $0.05q) 3,250 Facility rent ($3,300) 3,300 Insurance ($2,700) 2,700 Miscellaneous ($500 + $0.10q) 3,000 Total expense 71,250 Net operating income $ 33,750 Required: 1. Compute the company's activity variances for July.

Revenue $4,200 F Expenses: Raw materials 1,900 U Wages and salaries 200 U Utilities 50 U Facility rent None Insurance None Miscellaneous 100 U Total expense 2,250 U Net operating income $1,950 F Explanation: Meals 25,000 24,000 Revenue ($4.20q) $ 105,000 $ 100,800 $ 4,200 F Expenses: Raw materials ($1.90q) 47,500 45,600 1,900 U Wages and salaries ($6,500 + $0.20q) 11,500 11,300 200 U Utilities ($2,000 + $0.05q) 3,250 3,200 50 U Facility rent ($3,300) 3,300 3,300 0 None Insurance ($2,700) 2,700 2,700 0 None Miscellaneous ($500 + $0.10q) 3,000 2,900 100 U Total expense 71,250 69,000 2,250 U Net operating income $ 33,750 $ 31,800 $ 1,950 F

Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company's planning budget for May appears below: Puget Sound Divers Planning Budget For the Month Ended May 31 Budgeted diving-hours (q) 250 Revenue ($410.00q) $ 102,500 Expenses: Wages and salaries ($11,800 + $128.00q) 43,800 Supplies ($5.00q) 1,250 Equipment rental ($2,200 + $24.00q) 8,200 Insurance ($3,900) 3,900 Miscellaneous ($550 + $1.46q) 915 Total expense 58,065 Net operating income $ 44,435 Required: During May, the company's activity was actually 240 diving-hours. Complete the following flexible budget for that level of activity. (Round your final answer to nearest dollar amount.)

Revenue $98,400 Expenses: Wages and salaries 42,520 Supplies 1,200 Equipment rental 7,960 Insurance 3,900 Miscellaneous 900 Total expense 56,480 Net operating income $41,920 Explanation: Revenue ($410.00 × 240) = $98,400 Wages and salaries ($11,800 + ($128.00 × 240)) = $42,520 Supplies ($5.00 × 240) = $1,200 Equipment rental ($2,200 + ($24.00 × 240)) = $7,960 Miscellaneous ($550 + ($1.46 × 240)) = $900

Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers—the number of cruises and the number of passengers—that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 82 passengers can be accommodated on the tour boat. Data concerning the company's cost formulas appear below: Fixed Cost per Month Cost per Cruise Cost per Passenger Vessel operating costs $ 6,000 $ 473.00 $ 3.30 Advertising $ 2,700 Administrative costs $ 5,900 $ 32.00 $ 1.50 Insurance $ 3,700 For example, vessel operating costs should be $6,000 per month plus $473.00 per cruise plus $3.30 per passenger. The company's sales should average $32.00 per passenger. The company's planning budget for July is based on 50 cruises and 3,100 passengers. Required: Complete the company's planning budget for July.

Revenue $99,200 Expenses: Vessel operating costs 39,880 Advertising 2,700 Administrative costs 12,150 Insurance 3,700 Total expense 58,430 Net operating income $40,770 Explanation: Revenue ($32.00 × 3,100) = $99,200 Vessel operating costs ($6,000 + ($473.00 × 50) + ($3.30 × 3,100)) = $39,880 Administrative costs ($5,900 + ($32.00 × 50) + ($1.50 × 3,100)) = $12,150

For the Daring is a helicopter company that offers daring flights inside the walls of the Grand Canyon. You have been given the following data about the company's operations in July: Operating Data For the Month Ended July 31 ActualResults FlexibleBudget PlanningBudget Flights (q) 59 59 57 Revenue ($340.00q) $16,100 $20,060 $19,380 Expenses: Wages and salaries ($3,200 + $92.00q) 8,584 8,628 8,444 Fuel ($31.00q) 1,997 1,829 1,767 Airport fees ($890 + $33.00q) 2,712 2,837 2,771 Aircraft depreciation ($10.00q) 590 590 570 Office expenses ($220 + $1.00q) 447 279 277 Total expense 14,330 14,163 13,829 Net operating income $1,770 $5,897 $5,551 The helicopter company measures its activity in terms of flights. Two options are available for customers. They can buy individual tickets for helicopter flights or, if they have a large party or like solitude, they can hire an entire chopper for a flight at a discount. Required: 1. Complete the flexible budget performance report abstract for July. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Revenue and Spending Variances Activity Variances Revenue $3,960 U $680 F Expenses: Wages and salaries 44 F 184 U Fuel 168 U 62 U Airport fees 125 F 66 U Aircraft depreciation None 20 U Office expenses 168 U 2 U Total expense 167 U 334 U Net operating income $4,127 U $346 F Explanation: Flexible Budget Performance Report For the Month Ended July 31 Actual Results Revenue and Spending Variances Flexible Budget Activity Variances Planning Budget Flights (q) 59 59 57 Revenue ($340.00q) $ 16,100 $ 3,960 U $ 20,060 $ 680 F $ 19,380 Expenses: Wages and salaries ($3,200 + $92.00q) 8,584 44 F 8,628 184 U 8,444 Fuel ($31.00q) 1,997 168 U 1,829 62 U 1,767 Airport fees ($890 + $33.00q) 2,712 125 F 2,837 66 U 2,771 Aircraft depreciation ($10.00q) 590 0 None 590 20 U 570 Office expenses ($220 + $1.00q) 447 168 U 279 2 U 277 Total expense 14,330 167 U 14,163 334 U 13,829 Net operating income $ 1,770 $ 4,127 U $ 5,897 $ 346 F $ 5,551

Fairfax Company is really hot on entering the smart telephone market. The management personnel at Fairfax believe that to be competitive, the price of the Fairfax smart telephone being developed by the company must not exceed $74. The required rate of return at Fairfax Company is 22% on all investments. Fairfax would have to invest $3,000,000 to purchase the equipment needed to produce the 43,000 smart telephones that Fairfax management believes can be sold each year at the $74 price. Required: Compute the target cost of one smart telephone.

Sales $3,182,000 Less desired profit 660,000 Target cost for 43,000 units $2,522,000 Target cost per unit $58.65 Explanation: Sales (43,000 units × $74 per unit) = $3,182,000 Less desired profit (22% × $3,000,000) = $660,000 Target cost per unit = ($2,522,000 ÷ 43,000 units) = $58.65 per unit

A number of costs are listed below that may be relevant in decisions faced by the management of Svahn, AB, a Swedish manufacturer of sailing yachts: Consider the following two cases independently. Case 1: The company chronically has no idle capacity and the old Model B100 machine is the company's constraint. Management is considering purchasing a Model B300 machine to use in addition to the company's present Model B100 machine. The old Model B100 machine will continue to be used to capacity as before, with the new Model B300 machine being used to expand production. This will increase the company's production and sales. The increase in volume will be large enough to require increases in fixed selling expenses and in general administrative overhead, but not in the fixed manufacturing overhead. Case 2: The old Model B100 machine is not the company's constraint, but management is considering replacing it with a new Model B300 machine because of the potential savings in direct materials with the new machine. The Model B100 machine would be sold. This change will have no effect on production or sales, other than some savings in direct materials costs due to less waste. Required: Indicate whether each item is relevant or not relevant in the following situations.

Sales Revenue: (Case 1: Relevant)(Case 2: Not Relevant) Direct Materials: (Relevant)(Relevant) Direct Labor: (Relevant)(Not) Variable Manufacturing Overhead: (Relevant)(Not) Depreciation-Model B100 Machine: (Not)(Not) Book Value-Model B100 Machine: (Not)(Not) Disposal Value-Model B100 Machine: (Not)(Relevant) Market Value-Model B300 Machine (cost): (Relevant)(Relevant) Fixed Manufacturing Overhead (general): (Not)(Not) Variable Selling Expense: (Relevant)(Not) Fixed Selling Expense: (Relevant)(Not) General Administrative Overhead: (Relevant)(Not)

Silver Company makes a product that is very popular as a Mother's Day gift. Thus, peak sales occur in May of each year, as shown in the company's sales budget for the second quarter given below: April May June Total Budgeted sales (all on account) $380,000 $580,000 $200,000 $1,160,000 From past experience, the company has learned that 20% of a month's sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 20% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $310,000, and March sales totaled $340,000. Required: 1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

Schedule of Expected Cash Collections February: (April $62,000)(May--)(June--)(total $62,000) March: (204,000)(68,000)(--)(272,000) April:(76,000)(228,000)(76,000)(380,000) May:(--)(116,000)(348,000)(464,000) June:(--)(--)(40,000)(40,000) Total Cash Collections:(342,000)(412,000)(464,000)(1,218,000) Explaination: February sales: $310,000 × 20% $ 62,000 $ 62,000 March sales: $340,000 × 60%, 20% 204,000 $ 68,000 272,000 April sales: $380,000 × 20%, 60%, 20% 76,000 228,000 $ 76,000 380,000 May sales: $580,000 × 20%, 60% 116,000 348,000 464,000 June sales: $200,000 × 20% 40,000 40,000 Total cash collections $ 342,000 $ 412,000 $ 464,000 $ 1,218,000 Notice that even though sales peak in May, cash collections peak in June. This occurs because the bulk of the company's customers pay in the month following sale. The lag in collections that this creates is even more pronounced in some companies. Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest.

relate to whether a proposed project is accept-able—whether it passes a preset hurdle. For example, a company may have a policy of accepting projects only if they provide a return of at least 20% on the investment.

Screening decisions

The formula for target cost is:

Target cost = Anticipated selling price - Desired profit.

__________ is the process of determining the maximum allowable cost for a new product and then developing a prototype that can be profitably made for that maximum target cost figure

Target costing

Which of the following is NOT an objective of the budgeting process?

To ensure that the company continues to grow.

2. Compute the company's manufacturing overhead rate (including both variable and fixed manufacturing overhead) for the upcoming fiscal year. (Round your final answers to 2 decimal places.) (Refer to question regarding Yuvwell Corporation).

Total budgeted manufacturing overhead for the year $427,625 Budgeted direct labor-hours for the year 38,500 Predetermined overhead rate for the year $11.11

2. Complete the company's direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is not adjusted each quarter. Instead, assume that the company's direct labor workforce consists of permanent employees who are guaranteed to be paid for at least 4,600 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 4,600 hours anyway. Any hours worked in excess of 4,600 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor. (Input all amounts as positive values.) (Refer to question Rordan Corporation)

Total direct labor-hours needed 5,130 3,825 3,915 4,950 Regular hours paid 4,600 4,600 4,600 4,600 Overtime hours paid 530 0 0 350 Wages for regular hours $92,000 $92,000 $92,000 $92,000 368,000 Overtime wages 15,900 10,500 26,400 Total direct labor cost $107,900 $92,000 $92,000 $102,500 $394,400 Explanation: 2. Wages for regular hours: 1st Quarter = 4,600 × $20 per hour = $92,000 2nd Quarter = 4,600 × $20 per hour = $92,000 3rd Quarter = 4,600 × $20 per hour = $92,000 4th Quarter = 4,600 × $20 per hour = $92,000 Overtime wages: 1st Quarter = 530 × $20 per hour × 1.5 hours = $15,900 2nd Quarter = 0 × $20 per hour × 1.5 hours = $0 3rd Quarter = 0 × $20 per hour × 1.5 hours = $0 4th Quarter = 350 × $20 per hour × 1.5 hours = $10,500

A materials price variance is unfavorable if the actual price exceeds the standard price.

True

An unfavorable spending variance may reflect waste as well as paying too much for inputs.

True

Fixed costs should be included in a flexible budget even though they do not change when the level of activity changes.

True

If the actual level of activity is 4% less than planned, then the variable costs in the static budget should be decreased by 4% before comparing them to actual costs.

True

Most of the opportunities to reduce the cost of a product come from designing the product so that it is simple to make, uses inexpensive parts, and is robust and reliable.

True

Only future costs that differ between alternatives are relevant in decision making.

True

Self-imposed budgets prepared by lower-level managers should be scrutinized by higher levels of management.

True

Target costing is the process of determining the maximum allowable cost for a new product and then developing a prototype that can be profitably made for that maximum cost figure.

True

The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials purchased.

True

Waste on the production line will result in an unfavorable materials quantity variance.

True

The constraint at Bonavita Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: UN ZG PW Selling price per unit $ 282.30 $ 483.74 $ 524.62 Variable cost per unit $ 192.42 $ 346.68 $ 385.18 Minutes on the constraint 4.20 7.70 8.40 Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized.

UN,ZG,PW Selling price per unit $ 282.30 $ 483.74 $ 524.62 Variable cost per unit 192.42 346.68 385.18 Contribution margin per unit (a) $ 89.88 $ 137.06 $ 139.44 Amount of the constrained resource required to produce one unit (b) 4.20 7.70 8.40 Contribution margin per unit of the constrained resource (a) ÷ (b) $ 21.40 $ 17.80 $ 16.60 Ranking 1 2 3

The constraint at Bonavita Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: UN ZG PW Selling price per unit $ 266.31 $ 479.44 $ 468.38 Variable cost per unit $ 201.63 $ 364.52 $ 350.63 Minutes on the constraint 3.30 6.80 7.50 Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized.

UN,ZG,PW Selling price per unit $ 266.31 $ 479.44 $ 468.38 Variable cost per unit 201.63 364.52 350.63 Contribution margin per unit (a) $ 64.68 $ 114.92 $ 117.75 Amount of the constrained resource required to produce one unit (b) 3.30 6.80 7.50 Contribution margin per unit of the constrained resource (a) ÷ (b) $ 19.60 $ 16.90 $ 15.70 Ranking 1 2 3

Lockeed Marretta Company is exploring the possibility of introducing a new product. Lockeed has developed the following data in order to help determine a selling price for that new product. Number of units to be produced and sold each year 16,500 Unit product cost $ 50 Projected annual selling and administrative expenses $ 60,000 Estimated investment required by the company $ 530,000 Desired return on investment (ROI) 20 % The absorption costing approach to cost-plus pricing is used at Lockeed Marretta Company for such decisions. 2. Compute the selling price per unit. (Round your intermediate and final answers to 2 decimal places. )

Unit product cost $50.00 Markup 10.06 Selling price per unit $60.06 2. Markup = 20.12% × $50 = $10.06

The direct labor budget of Yuvwell Corporation for the upcoming fiscal year contains the following details concerning budgeted direct labor-hours: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Budgeted direct labor-hours 9,800 9,100 9,400 10,200 The company's variable manufacturing overhead rate is $4.25 per direct labor-hour and the company's fixed manufacturing overhead is $66,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is $16,500 per quarter. Required: 1. Complete the company's manufacturing overhead budget for the upcoming fiscal year.

Variable manufacturing overhead $41,650 $38,675 $39,950 $43,350 $163,625 Fixed manufacturing overhead 66,000 66,000 66,000 66,000 264,000 Total manufacturing overhead 107,650 104,675 105,950 109,350 427,625 Less depreciation 16,500 16,500 16,500 16,500 66,000 Cash disbursements for manufacturing overhead $91,150 $88,175 $89,450 $92,850 $361,625 Explanation: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Budgeted direct labor-hours 9,800 9,100 9,400 10,200 38,500 Variable manufacturing overhead rate ×$4.25 ×$4.25 ×$4.25 ×$4.25 ×$4.25 Variable manufacturing overhead $41,650 $38,675 $39,950 $43,350 $163,625

DOWE Chemical Company produces various chemical compounds for industrial use. DOWE's best selling product, Flubber, is prepared using an elaborate secret distilling process. The table below shows the standard costs for one unit of Flubber: Standard Quantity Standard Price or Rate Standard Cost Direct materials:2.00 ounces $30.00 per ounce $60.00 Direct labor:0.50 hours $14.00 per hour 7.00 Variable manufacturing overhead: 0.50 hours $3.40 per hour 1.70 Total Standard Cost $ 68.70 During October, the following activity was recorded relative to production of Flubber: a. Materials purchased, 10,000 ounces at a cost of $287,000. b. There was no beginning inventory of materials; however, at the end of the month, 3,000 ounces of material remained in ending inventory. c. The company employs 20 lab technicians to work on the production of Flubber. During October, they worked an average of 130 hours at an average rate of $12.00 per hour. d. Variable manufacturing overhead is assigned to Flubber on the basis of direct labor-hours. Variable manufacturing overhead costs during October totaled $4,700. e. During October, 3,400 good units of Flubber were produced . 3. Compute the variable overhead rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

Variable overhead rate variance $4,140 F Variable overhead efficiency variance $3,060 U 3. Actual Hours of Input, at the Actual Rate Actual Hours of Input, at the Standard Rate Standard Hours Allowed for Output, at the Standard Rate (AH × AR) (AH × SR) (SH × SR) 2,600 hours* × $3.40 per hour 1,700 hours** × $3.40 per hour $4,700 = $8,840 = $5,780 Rate Variance, $4,140 F Efficiency Variance, $3,060 U Spending variance, $1,080 F * Based on direct labor hours: 20 technicians × 130 hours per technician = 2,600 hours **3,400 units × 0.50 hours per unit = 1,700 hours

Dynamic Solutions provides supply chain services such as warehousing, order picking and shipping services for Ebay merchants. As part of this service, the company maintains warehouses that stock items sold by its clients. When a client merchant receives an order from a customer, Dynamic Solutions receives a real time copy of that order. Using the order information, Dynamic pulls the item from storage, packs it, and ships it to the customer. Dynamic Solutions uses a predetermined variable overhead rate based on direct labor-hours. In the most recent month, 195,000 items were shipped to customers using 8,600 direct labor-hours. The company incurred a total of $30,530 in variable overhead costs. According to the company's standards, 0.04 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.60 per direct labor-hour. 2. Break down the difference computed in (1) above into a variable overhead rate variance and a variable overhead efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Variable overhead rate variance $430 F Variable overhead efficiency variance $2,880 U Explanation: 2. Actual Hours of Input, at the Actual Rate Actual Hours of Input, at the Standard Rate Standard Hours Allowed for Output, at the Standard Rate (AH × AR) (AH × SR) (SH × SR) 8,600 hours × $3.55 per hour* 8,600 hours × $3.60 per hour 7,800 hours × $3.60 per hour = $30,530 = $30,960 = $28,080 Variable Overhead Rate Variance, $430 F Variable Overhead Efficiency Variance, $2,880 U Spending Variance, $2,450 U *$30,530 ÷ 8,600 hours = $3.55 per hour Alternatively, the variances can be computed using the formulas: Variable overhead rate variance: AH(AR - SR) = 8,600 hours ($3.55 per hour - $3.60 per hour) = $430 F Variable overhead efficiency variance: SR(AH - SH) = $3.60 per hour (8,600 hours - 7,800 hours) = $2,880 U

is current assets (e.g., cash, accounts receivable, and inventory) less current liabilities. When a company takes on a new project, the balances in the current asset accounts often increase

Working capital

The budget method that maintains a constant twelve-month planning horizon by adding a new month on the end as the current month is completed is called:

a continuous budget.

An ________ is a cost that can be eliminated by choosing one alternative over another.

avoidable cost

The constraint, or ________________, in the NHS system is determined by the step that limits total output because it has the smallest capacity—in this case surgery

bottleneck

A __________ is a detailed plan for the future that is usually expressed in formal quantitative terms

budget

The term _____________ is used to describe how managers plan significant investments in projects that have long-term implications such as the purchase of new equipment or the introduction of new products.

capital budgeting

A __________ is a detailed plan showing how cash resources will be acquired and used.

cash budget

A ____________ is anything that prevents you from getting more of what you want

constraint

A ________ or ______________ is a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed. In other words, one month (or quarter) is added to the end of the budget as each month (or quarter) comes to a close.

continuous ; perpetual budget

The ______________ is the average rate of return that the company must pay to its long-term creditors and its shareholders for the use of their funds.

cost of capital

This approach is called ____________ because a predetermined markup percentage is applied to a cost base to determine the selling price.

cost-plus pricing

The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 130,000 wheels annually are: Direct materials $26,000 Direct labor $39,000 Variable manufacturing overhead $19,500 Fixed manufacturing overhead $61,000 An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $16,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $42,500 per year. Direct labor is a variable cost. If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:

decrease by $39,000 Direct materials $26,000 Direct labor 39,000 Variable manufacturing overhead 19,500 Avoidable fixed manufacturing overhead 16,000 Outside purchase price (130,000 wheels × $0.80 per wheel) $104,000 Opportunity cost (42,500) Total cost $100,500 $61,500 Annual net operating income would increase by $39,000.

The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 220,000 wheels annually are: Direct materials $44,000 Direct labor $66,000 Variable manufacturing overhead $33,000 Fixed manufacturing overhead $72,000 An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $27,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $65,400 per year. Direct labor is a variable cost. If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:

decrease by $59,400 Make Buy Direct materials $44,000 Direct labor 66,000 Variable manufacturing overhead 33,000 Avoidable fixed manufacturing overhead 27,000 Outside purchase price (220,000 wheels × $0.80 per wheel) $176,000 Opportunity cost (65,400) Total cost $170,000 $110,600 Annual net operating income would increase by $59,400.

The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 240,000 wheels annually are: Direct materials $48,000 Direct labor $72,000 Variable manufacturing overhead $36,000 Fixed manufacturing overhead $74,000 An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $29,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $76,600 per year. Direct labor is a variable cost. If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:

decrease by $69,600 Explanation: Direct materials $48,000 Direct labor 72,000 Variable manufacturing overhead 36,000 Avoidable fixed manufacturing overhead 29,000 Outside purchase price (240,000 wheels × $0.80 per wheel) $192,000 Opportunity cost (76,600) Total cost $185,000 $115,400 Annual net operating income would increase by $69,600.

The ____________ details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

direct materials budget

A ________ is an estimate of what revenues and costs should have been, given the actual level of activity for the period.

flexible budget

Of the following sets of comparisons, which one would best identify the impact that changes in the prices of inputs and outputs have on performance?

flexible budget and actual results

Comparing actual results to a budget based on the actual activity for the period is possible with the use of a:

flexible budget.

The _______________ is the rate of return of an investment project over its useful life

internal rate of return

A flexible budget is a budget that:

is updated to reflect the actual level of activity during the period.

The term___________ is used to describe the costs incurred up to the split-off point.

joint cost

Two or more products that are produced from a common input are known as

joint products

The ______________ measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the actual number of hours worked during the period.

labor rate variance

A decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is called a

make or buy decision.

A product's ____________is the difference between its selling price and its cost and is usually expressed as a percentage of cost.

markup

The ______________ consists of a number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals.

master budget

A ___________ measures the difference between an input's actual price and its standard price, multiplied by the actual quantity purchased.

materials price variance

The __________ measures the difference between the actual quantity of materials used in production and the standard quantity of materials allowed for the actual output, multiplied by the standard price per unit of materials

materials quantity variance

If it were a merchandising company, instead it would prepare a __________ showing the amount of goods to be purchased from suppliers during the period.

merchandise purchases budget

The difference between the present value of these cash flows, called the ____________, determines whether or not a project is an acceptable investment.

net present value

is the potential benefit that is given up when one alternative is selected over another

opportunity cost

The _____________ is the length of time that it takes for a project to recover its initial cost from the net cash inflows that it generates.

payback period

A ___________ is prepared before the period begins and is valid for only the planned level of activity

planning budget

A ___________ involves checking whether or not expected results are actually realized

postaudit

The _________ measures the degree to which a change in price affects the unit sales of a product or service.

price elasticity of demand

A _____________ is the difference between the actual amount paid for an input and the standard amount that should have been paid, multiplied by the actual amount of the input purchased.

price variance

The ______________ lists the number of units that must be produced to satisfy sales needs and to provide for the desired ending finished goods inventory.

production budget

The result, shown below in equation form, is called the

project profitability index.

A ______________ is the difference between how much of an input was actually used and how much should have been used and is stated in dollar terms using the standard price of the input

quantity variance

When a manager increases the capacity of the bottleneck, it is called

relaxing (or elevating) the constraint

Because differential costs and differential revenues are the only inputs that are relevant to decision making, they are also often referred to as

relevant costs and relevant benefits.

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

revenue variance

A ______________ budget is a budget that is prepared with the full cooperation and participation of managers at all levels.

self-imposed or participative

Decisions of this type are known as

sell or process further decisions

The __________________ lists the budgeted expenses for areas other than manufacturing. In large organizations, this budget would be a compilation of many smaller, individual budgets submitted by department heads and other persons responsible for selling and administrative expenses

selling and administrative expense budget

The _____________ method is the final capital budgeting technique discussed in the chapter

simple rate of return

A __________ is a one-time order that is not considered part of the company's normal ongoing business

special order

By definition, a ___________ is the difference between the actual amount of the cost and how much a cost should have been, given the actual level of activity.

spending variance

The _______________ is the point in the manufacturing process at which the joint products can be recognized as separate products

split-off point

A _______________ shows the standard quantity (or hours) and standard price (or rate) of the inputs required to produce a unit of a specific product.

standard cost card

The ______________ for all three variable manufacturing costs is computed the same way. The standard quantity (or hours) per unit is multiplied by the standard price (or rate) per unit to obtain the standard cost per unit.

standard cost per unit

The ______________ defines the amount of direct labor-hours that should be used to produce one unit of finished goods.

standard hours per unit

The __________ defines the price that should be paid for each unit of direct materials and it should reflect the final, delivered cost of those materials.

standard price per unit

The ________________(when computing direct materials variances) or ______________ (when computing direct labor and variable manufacturing overhead variances) refers to the amount of an input that should have been used to manufacture the actual output of finished goods produced during the period.

standard quantity allowed ; standard hours allowed

The ___________ 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.

standard quantity per unit

The _______________ defines the company's expected direct labor wage rate per hour, including employment taxes and fringe benefits

standard rate per hour

is a cost that has already been incurred and cannot be avoided regardless of what a manager decides to do

sunk cost

The ________________ recognizes that a dollar today is worth more than a dollar a year from now if for no other reason than you could put the dollar in a bank today and have more than a dollar a year from now.

time value of money

The__________________ measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate.

variable overhead efficiency variance

The ____________ measures the difference between the actual variable overhead cost incurred during the period and the standard cost that should have been incurred based on the actual activity of the period.

variable overhead rate variance

When a company is involved in more than one activity in the entire value chain, it is

vertically integrated.

$1,100,000 The carrying value of the computers in inventory is their original cost, which is a sunk cost.

Which of the following benefits could an organization reasonably expect from an effective budget program? Increased employee motivation Uncover potential bottlenecks (A) Yes Yes (B) Yes No (C) No Yes (D) No No

Option A

Nesmith Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below: Alternative A Alternative B Materials costs $33,000 $53,000 Processing costs $38,000 $57,000 Equipment rental $11,000 $11,000 Occupancy costs $18,000 $29,000 Are the materials costs and processing costs relevant in the choice between alternatives A and B? (Ignore the equipment rental and occupancy costs in this question.)

Both materials costs and processing costs are relevant

A fixed cost cannot be a differential cost.

False

A flexible budget cannot be used to estimate what costs should have been at a given level of activity.

False

A flexible budget report should contain variable costs and mixed costs but not fixed costs.

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