CHAPTER 21 (FIN MAN); CHAPTER 6 (MAN) · PDF fileSA21(6)-2 . 21-1, 21-2 : Evaluating budgeting systems . ... management may become ... Small Business Accounting Department

CHAPTER 21 (FIN MAN); CHAPTER 6 (MAN) BUDGETING

Number Objective Description Difficulty Time AACSB IMA SS GL EO21(6)-1 21-1 Easy 5 min Analytic Budget Prepara-

tion

EO21(6)-2 21-1 Easy 5 min Analytic Budget Prepara-tion
















PE21(6)-1A 21-2 Flexible budgeting Easy 5 min Analytic Budget Prepara-tion

PE21(6)-1B 21-2 Flexible budgeting Easy 5 min Analytic Budget Prepara-tion

PE21(6)-2A 21-4 Production budget Easy 5 min Analytic Budget Prepara-tion

PE21(6)-2B 21-4 Production budget Easy 5 min Analytic Budget Prepara-tion

PE21(6)-3A 21-4 Direct materials pur-chases budget

Easy 5 min Analytic Budget Prepara-tion

PE21(6)-3B 21-4 Direct material pur-chases budget


PE21(6)-4A 21-4 Direct labor cost budget


PE21(6)-4B 21-4 Direct labor cost budget


PE21(6)-5A 21-4 Cost of goods sold budget


PE21(6)-5B 21-4 Cost of goods sold budget


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Number Objective Description Difficulty Time AACSB IMA SS GL PE21(6)-6A 21-5 Cash budget Easy 5 min Analytic Budget Prepara-

tion

PE21(6)-6B 21-5 Cash budget Easy 5 min Analytic Budget Prepara-tion

Ex21(6)-1 21-2, 21-5 Personal cash budget Easy 15 min Analytic Budget Prepara-tion

Exl

Ex21(6)-2 21-2, 21-4 Flexible budget for selling and adminis-trative expenses


Exl

Ex21(6)-3 21-2, 21-4 Static budget vs. flexible budget


Exl KA

Ex21(6)-4 21-2 Flexible budget for Fabrication Depart-ment


Exl

Ex21(6)-5 21-4 Sales and production budgets


Exl

Ex21(6)-6 21-4 Professional fees earned budget


Exl

Ex21(6)-7 21-4 Professional labor cost budget


Exl

Ex21(6)-8 21-4 Direct materials pur-chases budget

Moderate 20 min Analytic Budget Prepara-tion

Exl



Exl



Exl

Ex21(6)-11 21-4 Direct labor cost budget


Exl

Ex21(6)-12 21-4 Direct labor budget—service business


Exl

Ex21(6)-13 21-4 Production and direct labor cost budgets


Exl

Ex21(6)-14 21-4 Factory overhead cost budget


Exl

Ex21(6)-15 21-4 Cost of goods sold budget


Exl

Ex21(6)-16 21-4 Cost of goods sold budget

Difficult 30 min Analytic Budget Prepara-tion

Exl

Ex21(6)-17 21-5 Schedule of cash col-lections of accounts receivable


Exl

Ex21(6)-18 21-5 Schedule of cash col-lections of accounts receivable


Exl

Ex21(6)-19 21-5 Schedule of cash payments


Exl

Ex21(6)-20 21-5 Schedule of cash payments


Exl

Ex21(6)-21 21-5 Capital expenditures budget


Exl

Pr21(6)-1A 21-4 Forecast sales vol-ume and sales budget

Moderate 1 1/2 hr

Analytic Budget Prepara-tion

Exl

Pr21(6)-2A 21-4 Sales, production, direct materials pur-chases, and direct labor cost budgets

Moderate 1 3/4 hr


Exl

Pr21(6)-3A 21-4 Budgeted income statement and sup-porting budgets

Difficult 2 1/4 hr


Exl



Number Objective Description Difficulty Time AACSB IMA SS GL Pr21(6)-4A 21-5 Cash budget Difficult 2 hr Analytic Budget Prepara-

tion Exl

Pr21(6)-5A 21-4, 21-5 Budgeted income statement and balance sheet

Difficult 2hr Analytic Budget Prepara-tion

Exl

Pr21(6)-1B 21-4 Forecast sales vol-ume and sales budget

Moderate 1 1/2 hr


Exl

Pr21(6)-2B 21-4 Sales, production, direct materials pur-chases, and direct labor cost budgets

Moderate 1 3/4 hr


Exl

Pr21(6)-3B 21-4 Budgeted income statement and sup-porting budgets

Difficult 2 1/4 hr


Exl

Pr21(6)-4B 21-5 Cash budget Difficult 2 hr Analytic Budget Prepara-tion

Exl

Pr21(6)-5B 21-4, 21-5 Budgeted income statement and balance sheet

Difficult 2hr Analytic Budget Prepara-tion

Exl

SA21(6)-1 21-1 Ethics and profes-sional conduct in business

Moderate 20 min Ethics Ethical Consid-erations

SA21(6)-2 21-1, 21-2 Evaluating budgeting systems


SA21(6)-3 21-2 Service company static decision making


SA21(6)-4 21-3 Objectives of the master budget


SA21(6)-5 21-3 Integrity and evaluat-ing budgeting systems


SA21(6)-6 21-1 Objectives of budgeting


SA21(6)-7 21-2 Budget for a state government

Moderate 1 hr Analytic Budget Prepara-tion



EYE OPENERS

1. The three major objectives of budgeting are (1) to establish specific goals for future op-erations, (2) to direct and coordinate plans to achieve the goals, and (3) to periodically compare actual results with the goals.

2. Managers are given authority and responsi-bility for responsibility center performance. They are then accountable for the perform-ance of the responsibility center.

3. If goals set by the budgets are viewed as unrealistic or unachievable, management may become discouraged and may not be committed to the achievement of the goals, resulting in the budget becoming less effec-tive as a planning and control tool.

4. Involving all levels of management and all departments in preparing and submitting budget estimates heightens awareness of each department’s importance to company goals and to the control of operations. It also encourages cooperation both within and among departments.

5. Budgeting more resources for travel than requested by department personnel is an ex-ample of budgetary slack.

6. A budget that is set too loosely may fail to mo-tivate managers and other employees to per-form efficiently. In addition, a loose budget may cause a “spend it or lose it” mentality, where excess budget resources are spent in order to protect the budget from future reductions.

7. Conflicting goals can cause employees or department managers to act in their own self-interests to the detriment of the organiza-tion’s objectives.

8. Zero-based budgeting is used when an or-ganization wishes to take a “clean slate” view of operations. It is often used when the or-ganization wants to cut costs by reevaluating the need for and usefulness of all operations.

9. A static budget is most appropriate in situations where costs are not variable to an underlying activity level. As a result, it is reasonable to plan spending on the basis of a fixed quantity of resources for the year. This will occur in some

administrative functions, such as human re-sources, accounting, or public relations.

10. Computers not only speed up the budgeting process, but they also reduce the cost of budget preparation when large quantities of data need to be processed. In addition, by using computerized simulation models, man-agement can determine the impact of various operating alternatives on the master budget.

11. The first step in preparing a master budget is estimating the sales levels of each product by regions or territories.

12. The production requirements must be care-fully coordinated with the sales budget to ensure that production and sales are kept in balance during the period. Ideally, manufac-turing operations should be maintained at 100% of capacity, with no idle time or over-time, and there should be neither excessive inventories nor inventories insufficient to fill sales orders.

13. Purchases of direct materials should be closely coordinated with the production bud-get so that inventory levels can be main-tained within reasonable limits.

14. Direct materials purchases budget, direct labor cost budget, and factory overhead cost budget.

15. a. The cash budget contributes to effective cash planning. This involves advance planning so that a cash shortage does not arise and excess cash is not permit-ted to remain “idle.”

b. The excess cash can be invested in readily marketable income-producing securities or used to reduce loans.

16. The schedule of collections from sales is used to determine the amount of cash col-lected from current and prior period sales, based on collection history. The schedule is used to help determine the estimated cash receipts portion of the cash budget.

17. The plans for financing the capital expendi-tures budget may affect the cash budget.



PRACTICE EXERCISES

PE 21–1A (FIN MAN); PE 6–1A (MAN)

Variable cost: Direct labor (10,000 hours × $13* per hour)............................. $130,000

Fixed cost: Property tax................................................................................ 50,000 Total department costs................................................................... $180,000

*$110,500/8,500 hours

PE 21–1B (FIN MAN); PE 6–1B (MAN)

Variable cost: Direct labor (700 hours × $23* per hour).................................. $ 16,100

Fixed cost: Equipment depreciation ............................................................ 14,000 Total department costs................................................................... $ 30,100

*$18,400/800 hours


Expected units to be sold............................................................... 220,000 Plus desired ending inventory, December 31, 2008 ..................... 11,000 Total.................................................................................................. 231,000 Less estimated beginning inventory, January 1, 2008................. 15,000 Total units to be produced ............................................................. 216,000


Expected units to be sold............................................................... 95,000 Plus desired ending inventory, December 31, 2008 ..................... 3,000 Total.................................................................................................. 98,000 Less estimated beginning inventory, January 1, 2008................. 2,400 Total units to be produced ............................................................. 95,600




Square feet required for production: Schedule planner (216,000 × 90 sq. ft.) .................................... 19,440,000 Plus desired ending inventory, December 31, 2008 ..................... 160,000 Total.................................................................................................. 19,600,000 Less estimated beginning inventory, January 1, 2008................. 100,000 Total square feet to be purchased................................................. 19,500,000 Unit price (per square foot) ............................................................ × $0.08 Total direct materials to be purchased.......................................... $1,560,000


Pounds of wax required for production: Candle [(95,600 × 8 oz.)/16 oz.] ................................................. 47,800 Plus desired ending inventory, December 31, 2008 ..................... 1,100 Total.................................................................................................. 48,900 Less estimated beginning inventory, January 1, 2008................. 1,400 Total pounds to be purchased ....................................................... 47,500 Unit price (per pound)..................................................................... × $3.60 Total direct materials to be purchased.......................................... $171,000


Hours required for assembly: Schedule planner (216,000 × 15 min.) ...................................... 3,240,000 min. Convert minutes to hours ......................................................... / 60 min. Assembly hours ......................................................................... 54,000 hrs. Hourly rate ....................................................................................... × $12.50 Total direct labor cost..................................................................... $ 675,000


Hours required for assembly: Candle (95,600 × 12 min.) .......................................................... 1,147,200 min. Convert minutes to hours ......................................................... / 60 min. Molding hours ............................................................................ 19,120 hrs. Hourly rate ....................................................................................... × $14.00 Total direct labor cost..................................................................... $ 267,680




Finished goods inventory, January 1, 2008.................. $ 43,000 Work in process inventory, January 1, 2008 ................ $ 22,000 Direct materials: Direct materials inventory, January 1, 2008

(100,000 × $0.08).................................................. $ 8,000 Direct materials purchases (from PE 21–3A) ......... 1,560,000 Cost of direct materials available for use ............... $1,568,000 Less direct materials inventory,

December 31, 2008 (160,000 × $0.08) ................ 12,800 Cost of direct materials placed in production........ $1,555,200 Direct labor (from PE 21–4A) ......................................... 675,000 Factory overhead ............................................................ 245,000 Total manufacturing costs ............................................. 2,475,200 Total work in process during period............................. $2,497,200 Less work in process inventory, December 31, 2008.. 25,000 Cost of goods manufactured ......................................... 2,472,200 Cost of finished goods available for sale ..................... $2,515,200 Less finished goods inventory, December 31, 2008.... 40,000 Cost of goods sold ......................................................... $2,475,200


Finished goods inventory, January 1, 2008.................. $ 14,000 Work in process inventory, January 1, 2008 ................ $ 6,300 Direct materials: Direct materials inventory, January 1, 2008

(1,400 × $3.60)...................................................... $ 5,040 Direct materials purchases (from PE 21–3B) ......... 171,000 Cost of direct materials available for use ............... $176,040 Less direct materials inventory,

December 31, 2008 (1,100 × $3.60) .................... 3,960 Cost of direct materials placed in production........ $172,080 Direct labor (from PE 21–4B) ......................................... 267,680 Factory overhead ............................................................ 95,000 Total manufacturing costs ............................................. 534,760 Total work in process during period............................. $541,060 Less work in process inventory, December 31, 2008.. 7,000 Cost of goods manufactured ......................................... 534,060 Cost of finished goods available for sale ..................... $548,060 Less finished goods inventory, December 31, 2008.... 12,000 Cost of goods sold ......................................................... $536,060



PE 21–6A (FIN MAN); PE 6–6A (MAN) July

Collections from June sales (70% × $400,000) ............................. $280,000 Collections from July sales (30% × $360,000) .............................. 108,000 Total receipts from sales on account ............................................ $388,000

PE 21–6B (FIN MAN); PE 6–6B (MAN) September

Payments for August purchases (90% × $14,000) ........................ $ 12,600 Payments for September purchases (10% × $16,000).................. 1,600 Total payments for purchases on account ................................... $ 14,200



EXERCISES

Ex. 21–1 (FIN MAN); Ex. 6–1 (MAN)

a.

A B C D E MONROE BAKER Cash Budget For the Four Months Ending December 31, 2008

September October November December 1 Estimated cash receipts from: 12 Part-time job $ 800 $ 800 $ 800 $ 800 23 Deposit 600 34 Total cash receipts $ 800 $ 800 $ 800 $ 1,400 45 Estimated cash payments for: 56 Season football tickets $ 140 67 Additional entertainment 225 $ 225 $ 225 $ 225 78 Tuition 3,500 89 Rent 350 350 350 350 9

10 Food 215 215 215 215 1011 Deposit 600 1112 Total cash payments $ 5,030 $ 790 $ 790 $ 790 1213 Cash increase (decrease) $ (4,230) $ 10 $ 10 $ 610 13

14 Cash balance at beginning of month 6,500 2,270 2,280 2,290 14

15 Cash balance at end of month $ 2,270 $ 2,280 $2,290 $ 2,900 15

b. The four-month budgets do not change with any identified activity level; thus, they are static budgets.

c. While Baker’s budget might first appear satisfactory, Baker must earn enough cash in order to pay for the spring semester tuition. His present budget shows that he will be $600 short of the tuition amount ($3,500 – $2,900). Thus, Baker will likely need to adjust the plan before the fall term even begins. Some possibilities would be to rent a lower cost apartment or to get a roommate so that the rental cost is cut in half. An additional $175 per month would yield $700 by the end of December, which would be sufficient to cover the $600 spring tuition shortfall and provide a little extra. Other consid-erations include increasing his part-time job hours and reducing his monthly entertainment and food allowance, or making up the income difference with additional hours during Christmas break. The budget gives Baker time to ad-just his plans to future events. In this case, Baker can see that his present plan will not provide sufficient cash, thus giving him four months to adjust. If Baker did not budget but went ahead with the original plan, he would be $600 short at the end of December with no time left to adjust.



Ex. 21–2 (FIN MAN); Ex. 6–2 (MAN)

A B C D MASTER ELECTRONICS COMPANY Flexible Selling and Administrative Expenses Budget For the Month Ending January 31, 2008 1 Total sales $100,000 $120,000 $140,000 12 Variable cost: 23 Sales commissions $ 7,000 $ 8,400 $ 9,800 34 Advertising expense 18,000 21,600 25,200 45 Miscellaneous selling expense 4,000 4,800 5,600 56 Office supplies expense 5,000 6,000 7,000 67 Miscellaneous administrative expense 2,000 2,400 2,800 78 Total variable cost $ 36,000 $ 43,200 $ 50,400 89 Fixed cost: 9

10 Miscellaneous selling expense $ 1,750 $ 1,750 $ 1,750 1011 Office salaries expense 12,000 12,000 12,000 1112 Miscellaneous administrative expense 1,400 1,400 1,400 1213 Total fixed cost $ 15,150 $ 15,150 $ 15,150 1314 Total selling and administrative expenses $ 51,150 $ 58,350 $ 65,550 14



Ex. 21–3 (FIN MAN); Ex. 6–3 (MAN)

a. A B C D LANDERS COMPANY—MACHINING DEPARTMENT Flexible Production Budget For the Three Months Ending March 31, 2008 January February March 1 Units of production 60,000 55,000 50,000 12 23 Wages $ 768,000 $704,000 $640,000 34 Utilities 240,000 220,000 200,000 45 Depreciation 60,000 60,000 60,000 56 Total $1,068,000 $984,000 $900,000 67 78 Supporting calculations: 89 Units of production 60,000 55,000 50,000 9

10 Hours per unit × 0.80 × 0.80 × 0.80 1011 Total hours of production 48,000 44,000 40,000 1112 Wages per hour × $16.00 × $16.00 × $16.00 1213 Total wages $ 768,000 $704,000 $640,000 1314 1415 Total hours of production 48,000 44,000 40,000 1516 Utility cost per hour × $5.00 × $5.00 × $5.00 1617 Total utilities $ 240,000 $220,000 $200,000 17

Depreciation is a fixed cost, so it does not “flex” with changes in production. Since it is the only fixed cost, the variable and fixed costs are not classified in the budget.

b. January February March

Total flexible budget .......................... $ 1,068,000 $ 984,000 $ 900,000 Actual cost.......................................... 1,090,000 1,050,000 1,000,000 Excess of actual cost over budget ... $ (22,000) $ (66,000) $ (100,000)

The excess of actual cost over the flexible budget suggests that the Machining Department has not performed as well as originally thought. Indeed, the depart-ment is spending more than would be expected, and it’s getting worse, given the level of production for the first three months.



Ex. 21–4 (FIN MAN); Ex. 6–4 (MAN)

A B C D STEELCASE INC.—FABRICATION DEPARTMENT Flexible Production Budget October 2008 (assumed data) 1 Units of production 12,000 15,000 18,000 12 23 Variable cost: 34 Direct labor $ 57,6001 $ 72,0002 $ 86,4003 45 Direct materials 750,0004 937,5005 1,125,0006 56 Total variable cost $ 807,600 $ 1,009,500 $ 1,211,400 67 78 Fixed cost: 89 Supervisor salaries $ 130,000 $ 130,000 $ 130,000 9

10 Depreciation 20,000 20,000 20,000 1011 Total fixed cost $ 150,000 $ 150,000 $ 150,000 1112 Total department cost $ 957,600 $ 1,159,500 $ 1,361,400 1213 1314 112,000 × 18/60 × $16 1415 215,000 × 18/60 × $16 1516 318,000 × 18/60 × $16 1617 412,000 × 50 × $1.25 1718 515,000 × 50 × $1.25 1819 618,000 × 50 × $1.25 19



Ex. 21–5 (FIN MAN); Ex. 6–5 (MAN)

a. A B C D

MELODY AUDIO COMPANY Sales Budget For the Month Ending September 30, 2007

Product and Area

Unit Sales Volume

Unit Selling Price Total Sales

1 Model DL: 12 East Region 4,400 $120 $ 528,000 23 West Region 2,950 120 354,000 34 Total 7,350 $ 882,000 45 Model XL: 56 East Region 3,200 $170 $ 544,000 67 West Region 2,100 170 357,000 78 Total 5,300 $ 901,000 89 Total revenue from sales $1,783,000 9

b.

A B C MELODY AUDIO COMPANY Production Budget For the Month Ending September 30, 2007

Units Model DL Model XL 1 Expected units to be sold 7,350 5,300 12 Plus desired inventory, September 30, 2007 450 110 23 Total 7,800 5,410 34 Less estimated inventory, September 1, 2007 380 140 45 Total units to be produced 7,420 5,270 5



Ex. 21–6 (FIN MAN); Ex. 6–6 (MAN)

A B C D KIMBLE AND SANCHEZ, CPAs Professional Fees Earned Budget For the Year Ending December 31, 2008

Billable Hourly Total Hours Rate Revenue 1 Audit Department: 12 Staff 34,500 $120 $ 4,140,000 23 Partners 5,200 240 1,248,000 34 Total 39,700 $ 5,388,000 45 Tax Department: 56 Staff 27,700 $120 $ 3,324,000 67 Partners 4,150 240 996,000 78 Total 31,850 $ 4,320,000 89 Small Business Accounting Department: 9

10 Staff 22,800 $120 $ 2,736,000 1011 Partners 6,300 240 1,512,000 1112 Total 29,100 $ 4,248,000 1213 Total professional fees earned $13,956,000 13

Ex. 21–7 (FIN MAN); Ex. 6–7 (MAN)

A B C KIMBLE AND SANCHEZ, CPAs Professional Labor Cost Budget For the Year Ending December 31, 2008

Staff Partners 1 Audit Department 34,500 5,200 12 Tax Department 27,700 4,150 23 Small Business Accounting Department 22,800 6,300 34 Total 85,000 15,650 45 Average compensation per hour × $75.00 × $140.00 56 Total professional labor cost $6,375,000 $2,191,000 6



Ex. 21–8 (FIN MAN); Ex. 6–8 (MAN)

A B C D E ROMA FROZEN PIZZA INC. Direct Materials Purchases Budget For the Month Ending November 30, 2008

Dough Tomato Cheese Total 1 Units required for production: 12 12” pizza 16,4001 9,8402 13,1203 23 16” pizza 38,4004 23,0405 33,2806 3

4 Plus desired inventory, November 30, 2008 480 250 375 4

5 Total 55,280 33,130 46,775 5

6 Less estimated inventory, November 1, 2008 675 190 525 6

7 Total units to be purchased 54,605 32,940 46,250 78 Unit price × $1.20 × $2.40 × $2.85 8

9 Total direct materials to be purchased $65,526 $79,056 $131,813* $276,395 9

10 1011 116,400 × 1 lb. 1112 216,400 × 0.60 lb. 1213 316,400 × 0.80 lb. 1314 425,600 × 1.50 lbs. 1415 525,600 × 0.90 lb. 1516 625,600 × 1.30 lbs. 1617 *Rounded to the nearest dollar 17



Ex. 21–9 (FIN MAN); Ex. 6–9 (MAN)

A B C D COCA-COLA ENTERPRISES—CHATTANOOGA PLANT

Direct Materials Purchases Budget For the Month Ending June 30, 2009 (assumed data)

Concentrate 2-Liter Bottles Carbonated Water1 Materials required for production: 12 Coke® 768* lbs. 192,000 btls. 384,000 ltrs. 23 Sprite® 444* 148,000 296,000 34 Total materials 1,212 lbs. 340,000 btls. 680,000 ltrs. 45 Direct material unit price × $75 × $0.07 × $0.05 56 Total direct materials to be purchased $90,900 $ 23,800 $ 34,000 6

Coke Sprite *Production in liters (bottles × 2 liters/bottle).......... 384,000 296,000 Divide by 100 ............................................................. / 100 / 100 3,840 2,960 Multiply by concentrate pounds per 100 liters ....... × 0.20 × 0.15 Concentrate pounds required for production ........ 768 444



Ex. 21–10 (FIN MAN); Ex. 6–10 (MAN)

A B C D GOODSTONE TIRE COMPANY

Direct Materials Purchases Budget For the Year Ending December 31, 2008

Rubber Steel Belts Total 1 Pounds required for production: 12 Passenger tires1 1,222,500 lbs. 163,000 lbs. 23 Truck tires2 1,088,750 150,750 34 Plus desired inventory, Dec. 31, 2008 45,000 9,000 45 Total 2,356,250 lbs. 322,750 lbs. 56 Less estimated inventory, Jan. 1, 2008 72,000 6,000 67 Total units purchased 2,284,250 lbs. 316,750 lbs. 78 Unit price × $2.90 × $3.50

89 Total direct materials to be purchased $6,624,325 $1,108,625 $7,732,950 9

10 1011 1Rubber: 40,750 units × 30 lbs. per unit = 1,222,500 lbs. 1112 Steel belts: 40,750 units × 4 lbs. per unit = 163,000 lbs. 1213 2Rubber: 16,750 units × 65 lbs. per unit = 1,088,750 lbs. 1314 Steel belts: 16,750 units × 9 lbs. per unit = 150,750 lbs. 14

Errors:

1. The sales should be adjusted by the desired ending inventory in the finished goods in order to determine the number of units to be produced [40,750 (38,000 + 2,750) for passenger tires and 16,750 (14,000 + 2,750) for truck tires]. The desired ending inventory should be added to the sales figures to deter-mine the current period production requirements.

2. The materials used to satisfy current period production should be adjusted by the estimated beginning materials inventory and desired ending materials inventory to determine materials to be purchased.



Ex. 21–11 (FIN MAN); Ex. 6–11 (MAN)

A B C MATCH POINT RACKET COMPANY Direct Labor Cost Budget For the Month Ending March 31, 2008

Forming Assembly Department Department 1 Hours required for production: 12 Junior1 1,825 3,285 23 Pro Striker2 7,360 11,040 34 Total 9,185 14,325 45 Hourly rate × $18.00 × $13.00

5

6 Total direct labor cost $ 165,330 $ 186,225 67 78 1Junior: 0.25 hour × 7,300 = 1,825 hours 89 0.45 hour × 7,300 = 3,285 hours 9

10 2Pro Striker: 0.40 hour × 18,400 = 7,360 hours 1011 0.60 hour × 18,400 = 11,040 hours 11



Ex. 21–12 (FIN MAN); Ex. 6–12 (MAN)

A B C NIGHT REST INN INC. Direct Labor Cost Budget For a Weekday or a Weekend Day

Weekday Weekend Day 1 Room occupancy 12 Room capacity 240 240 23 Occupied percent (occupancy) × 75% × 50% 34 (a) Rooms occupied 180 120 45 Housekeeping 56 (b) No. of minutes to clean a room 45 45 67 Total minutes [(a) × (b)] 8,100 5,400 78 Total hours (/60 min.) 135.00 90.00 89 Labor rate per hour × $8.00 × $8.00 9

10 (c) Housekeeping daily labor budget $ 1,080 $ 720 1011 Restaurant staff 1112 Base restaurant staff 5 5 1213 Incremental 30 room blocks [(a)/30] 6 4 1314 Total staff 11 9 1415 Total hours (× 8 hours) 88 72 1516 Labor rate per hour × $7.00 × $7.00 1617 (d) Restaurant staff daily labor budget $ 616 $ 504 1718 Total daily labor budget [(c) + (d)] $ 1,696 $ 1,224 18



Ex. 21–13 (FIN MAN); Ex. 6–13 (MAN)

a. A B C

LEVI STRAUSS & CO. Production Budget March 2008 (assumed data)

Dockers® 501 Jeans® 1 Expected units to be sold 23,800 46,200 12 Plus March 31 desired inventory 520 2,030 23 Total units 24,320 48,230 34 Less March 1 estimated inventory 320 1,230

45 Total units to be produced 24,000 47,000 5

b. A B C D E

LEVI STRAUSS & CO. Direct Labor Cost Budget March 2008 (assumed data)

Inseam Outerseam Pockets Zipper 1 Dockers® 43,200* 52,800* 16,800* 24,000* 12 501 Jeans® 56,400** 70,500** 42,300** 28,200** 23 Total minutes 99,600 123,300 59,100 52,200 3

4 Total direct labor hours (/60 minutes) 1,660 2,055 985 870 4

5 × Direct labor rate × $12.00 × $12.00 × $14.00 × $14.00 56 Total direct labor cost $ 19,920 $ 24,660 $ 13,790 $ 12,180 67 78 *(24,000/10 pairs) × 18 min. = 43,200 minutes 89 (24,000/10 pairs) × 22 min. = 52,800 minutes 9

10 (24,000/10 pairs) × 7 min. = 16,800 minutes 1011 (24,000/10 pairs) × 10 min. = 24,000 minutes 1112 **(47,000/10 pairs) × 12 min. = 56,400 minutes 1213 (47,000/10 pairs) × 15 min. = 70,500 minutes 1314 (47,000/10 pairs) × 9 min. = 42,300 minutes 1415 (47,000/10 pairs) × 6 min. = 28,200 minutes 15



Ex. 21–14 (FIN MAN); Ex. 6–14 (MAN)

A B C FRESH MINT CANDY COMPANY Factory Overhead Cost Budget For the Month Ending July 31, 2008

1 Variable factory overhead costs: 12 Manufacturing supplies $ 14,000 23 Power and light 42,000 34 Production supervisor wages 125,000 45 Production control salaries 33,000 56 Materials management salaries 29,000 67 Total variable factory overhead costs $243,000 78 Fixed factory overhead costs: 89 Factory insurance $ 23,000 9

10 Factory depreciation 17,000 1011 Total fixed factory overhead costs 40,000 1112 Total factory overhead costs $283,000 12

Note: Advertising expenses, sales commissions, and executive officer salaries are selling and administrative expenses.



Ex. 21–15 (FIN MAN); Ex. 6–15 (MAN)

A B C D DOVER CHEMICAL COMPANY

Cost of Goods Sold Budget For the Month Ending June 30, 20—

1 Finished goods inventory, June 1 $ 17,9001 12 Work in process inventory, June 1 $ 11,800 23 Direct materials: 34 Direct materials inventory, June 1 $ 15,300 45 Direct materials purchases 840,0002 56 Cost of direct materials available for use $ 855,300 67 Less direct materials inventory, June 30 12,200 7

8 Cost of direct materials placed in production $ 843,100 8

9 Direct labor 150,000 910 Factory overhead 275,000 1011 Total manufacturing costs 1,268,100 1112 Total work in process during the period $1,279,900 1213 Less work in process inventory, June 30 10,700 1314 Cost of goods manufactured 1,269,200 1415 Cost of finished goods available for sale $1,287,100 1516 Less finished goods inventory, June 30 17,8003 1617 Cost of goods sold $1,269,300 1718 1819 1$8,700 + $9,200 1920 2$30,000 barrels × $28 per barrel 2021 3$8,300 + $9,500 21



Ex. 21–16 (FIN MAN); Ex. 6–16 (MAN)

A B C D MORAVIAN CERAMICS INC.

Cost of Goods Sold Budget For the Month Ending April 30, 2008

1 Finished goods inventory, April 1, 2008 $ 9,720 12 Work in process inventory, April 1, 2008 $ 2,800 23 Direct materials: 34 Direct materials inventory, April 1, 2008 $ 8,280 45 Direct materials purchases 151,420 56 Cost of direct materials available for use $159,700 6

7 Less direct materials inventory, April 30, 2008 10,550 7

8 Cost of direct materials placed in pro-duction $149,150 8

9 Direct labor 171,900 910 Factory overhead 76,700 1011 Total manufacturing costs 397,750 1112 Total work in process during the period $400,550 12

13 Less work in process inventory, April 30, 2008 1,750 13

14 Cost of goods manufactured 398,800 1415 Cost of finished goods available for sale $408,520 15

16 Less finished goods inventory, April 30, 2008 11,200 16

17 Cost of goods sold $397,320 17



Ex. 21–17 (FIN MAN); Ex. 6–17 (MAN)

A B C D HAPPY TAILS WHOLESALE INC.

Schedule of Collections from Sales For the Three Months Ending May 31, 2008

March April May 1 Receipts from cash sales: 12 Cash sales (10% × current month’s sales) $ 45,000 $ 52,000 $ 56,000 23 March sales on account: 34 Collected in March ($405,0001 × 50%) 202,500 45 Collected in April ($405,000 × 40%) 162,000 56 Collected in May ($405,000 × 10%) 40,500 67 April sales on account: 78 Collected in April ($468,0002 × 50%) 234,000 89 Collected in May ($468,000 × 40%) 187,200 9

10 May sales on account: 1011 Collected in May ($504,0003 × 50%) 252,000 1112 Total cash collected $ 247,500 $ 448,000 $ 535,700 1213 1314 1$450,000 × 90% = $405,000 1415 2$520,000 × 90% = $468,000 1516 3$560,000 × 90% = $504,000 16



Ex. 21–18 (FIN MAN); Ex. 6–18 (MAN)

A B C D OFFICE WAREHOUSE SUPPLIES INC.

Schedule of Collections from Sales For the Three Months Ending March 31, 2008

January February March 1 Receipts from cash sales: 12 Cash sales (40% × current month’s sales) $ 88,000 $ 110,000 $ 104,000 23 December sales on account: 3

4 Collected in January (accounts receivable balance) 180,000 4

5 January sales on account: 56 Collected in January ($132,0001 × 30%) 39,600 67 Collected in February ($132,000 × 70%) 92,400 78 February sales on account: 89 Collected in February ($165,0002 × 30%) 49,500 9

10 Collected in March ($165,000 × 70%) 115,500 1011 March sales on account: 1112 Collected in March ($156,0003 × 30%) 46,800 1213 $ 307,600 $ 251,900 $ 266,300 1314 1415 1$220,000 × 60% = $132,000 1516 2$275,000 × 60% = $165,000 1617 3$260,000 × 60% = $156,000 17



Ex. 21–19 (FIN MAN); Ex. 6–19 (MAN)

A B C D A+ LEARNING SYSTEMS INC.

Schedule of Cash Payments for Selling and Administrative Expenses For the Three Months Ending August 31, 2008

June July August 1 June expenses: 12 Paid in June ($94,8001 × 75%) $71,100 23 Paid in July ($94,800 × 25%) $ 23,700 34 July expenses: 45 Paid in July ($104,5002 × 75%) 78,375 56 Paid in August ($104,500 × 25%) $ 26,125 67 August expenses: 78 Paid in August ($109,0003 × 75%) 81,750 89 Total cash payments $71,100 $102,075 $107,875 9

10 1011 1$114,800 – $20,000 1112 2$124,500 – $20,000 1213 3$129,000 – $20,000 13

Note: Insurance, property taxes, and depreciation are expenses that do not result in cash payments in June, July, or August.



Ex. 21–20 (FIN MAN); Ex. 6–20 (MAN)

A B C D TOTAL FLEX PHYSICAL THERAPY INC.

Schedule of Cash Payments for Operations For the Three Months Ending December 31, 2009

October November December 1 Payments of prior month’s expense1 $ 22,600 $ 19,420 $ 22,160 12 Payment of current month’s expense2 77,680 88,640 106,560 23 Total payment $100,280 $108,060 $128,720 34 45 1$22,600, given as Accrued Expenses Payable, October 1. 56 $19,420 = ($108,200 – $11,100) × 20% 67 $22,160 = ($121,900 – $11,100) × 20% 78 2$77,680 = ($108,200 – $11,100) × 80% 89 $88,640 = ($121,900 – $11,100) × 80% 9

10 $106,560 = ($144,300 – $11,100) × 80% 10

Note: Insurance and depreciation are expenses that do not result in cash pay-ments in October, November, and December.

Ex. 21–21 (FIN MAN); Ex. 6–21 (MAN)

A B C D E GARDEN MASTER TOOLS INC. Capital Expenditures Budget For the Four Years Ending December 31, 2008–2011

2008 2009 2010 2011 1 Building $ 7,000,000 $ 5,000,000 $ 4,800,0001 12 Equipment 1,500,000 $ 300,000 1,000,000 23 Information systems 900,0002 34 Total $ 7,000,000 $ 6,500,000 $ 1,200,000 $ 5,800,000 45 56 1$12,000000 × 40% = $4,800,000 67 2$1,600,000 × 0.75 × 0.75 = $900,000 7



PROBLEMS

Prob. 21–1A (FIN MAN); Prob. 6–1A (MAN)

1. Increase (Decrease) Unit Sales, Year Ended 2008 Actual Over Budget Budget Actual Sales Amount Percent

8″ × 10″ Frame: East .................................. 29,000 29,725 725 2.50% Central ............................. 22,000 22,770 770 3.50% West ................................. 31,500 30,240 (1,260) (4.00)% 12″ × 16″ Frame: East .................................. 16,000 16,480 480 3.00% Central ............................. 10,500 10,710 210 2.00% West ................................. 15,000 14,325 (675) (4.50)%

2. 2009 2008 Percentage Budgeted Actual Increase Units Units (Decrease) (rounded)

8″ × 10″ Frame: East ............................................. 29,725 2.50% 30,468 Central ........................................ 22,770 3.50% 23,567 West ............................................ 30,240 (4.00)% 29,030 12″ × 16″ Frame: East ............................................. 16,480 3.00% 16,974 Central ........................................ 10,710 2.00% 10,924 West ............................................ 14,325 (4.50)% 13,680



Prob. 21–1A (FIN MAN); Prob. 6–1A (MAN) Concluded

3. A B C D REMBRANDT FRAME COMPANY Sales Budget For the Year Ending December 31, 2009 Unit Sales Unit Selling Product and Area Volume Price Total Sales 1 8″ × 10″ Frame: 12 East 30,468 $12.00 $ 365,616 23 Central 23,567 12.00 282,804 34 West 29,030 12.00 348,360 45 Total 83,065 $ 996,780 56 12″ × 16″ Frame: 67 East 16,974 $21.00 $ 356,454 78 Central 10,924 21.00 229,404 89 West 13,680 21.00 287,280 9

10 Total 41,578 $ 873,138 1011 Total revenue from sales $1,869,918 11




1. A B C D OUTDOOR CHEF GRILL COMPANY Sales Budget For the Month Ending October 31, 2008 Unit Sales Unit Selling Product and Area Volume Price Total Sales 1 Backyard Chef: 12 Maine 4,500 $800 $ 3,600,000 23 Vermont 3,800 900 3,420,000 34 New Hampshire 4,200 850 3,570,000 45 Total 12,500 $ 10,590,000 56 Master Chef: 67 Maine 1,600 $1,600 $ 2,560,000 78 Vermont 1,700 1,450 2,465,000 89 New Hampshire 1,800 1,700 3,060,000 9

10 Total 5,100 $ 8,085,000 1011 Total revenue from sales $ 18,675,000 11

2.

A B C OUTDOOR CHEF GRILL COMPANY Production Budget For the Month Ending October 31, 2008

Units Backyard Chef Master Chef 1 Expected units to be sold 12,500 5,100 12 Plus desired inventory, October 31, 2008 1,300 600

23 Total 13,800 5,700 34 Less estimated inventory, October 1, 2008 1,600 500

4




Prob. 21–2A (FIN MAN); Prob. 6–2A (MAN) Continued

3. A B C D E F

OUTDOOR CHEF GRILL COMPANY Direct Materials Purchases Budget For the Month Ending October 31, 2008

Grates (units)

StainlessSteel (lbs.)

Burner Sub-

assemblies(units)

Shelves (units) Total

1 Required units for production: 1

2 Backyard Chef 36,6001 305,0002 24,4003 61,0004 23 Master Chef 31,2005 260,0006 20,8007 31,2008 3

4 Plus desired inventory, October 31, 2008 900 2,000 800 450 4

5 Total 68,700 567,000 46,000 92,650 5

6 Less estimated inventory, October 1, 2008 1,200 2,300 650 500 6

7 Total units to be purchased 67,500 564,700 45,350 92,150 78 Unit price × $18.00 × $5.00 × $115.00 × $6.00 8

9 Total direct materials to be purchased $ 1,215,000 $2,823,500 $5,215,250 $ 552,900 $9,806,650 9

10 1011 112,200 × 3 grates = 36,600 grates 1112 212,200 × 25 lbs. = 305,000 lbs. 1213 312,200 × 2 subassemblies = 24,400 subassemblies 1314 412,200 × 5 shelves = 61,000 shelves 1415 55,200 × 6 grates = 31,200 grates 1516 65,200 × 50 lbs. = 260,000 lbs. 1617 75,200 × 4 subassemblies = 20,800 subassemblies 1718 85,200 × 6 shelves = 31,200 shelves 18




4. A B C D E

OUTDOOR CHEF GRILL COMPANY Direct Labor Cost Budget For the Month Ending October 31, 2008

Stamping Department

Forming Department

Assembly Department

Total

1 Hours required for production: 12 Backyard Chef1 7,320 9,760 18,300 23 Master Chef2 4,160 8,320 13,000 34 Total 11,480 18,080 31,300 45 Hourly rate × $15.00 × $12.00 × $9.00 56 Total direct labor cost $172,200 $ 216,960 $ 281,700 $ 670,860 67 78 1This line is calculated as 12,200 Backyard Chef units from the production budget 89 multiplied by the hours per unit in each department estimated for the Backyard Chef. 9

10 7,320 = 12,200 × 0.60; 9,760 = 12,200 × 0.80; 18,300 = 12,200 × 1.50 1011 2This line is calculated as 5,200 Master Chef units from the production budget multiplied 1112 by the hours per unit in each department estimated for the Master Chef. 4,160 = 5,200 × 1213 0.80; 8,320 =5,200 × 1.60; 13,000 = 5,200 × 2.50 13




1. A B C D BACKYARD HABITAT INC. Sales Budget For the Month Ending December 31, 2008 Unit Sales Unit Selling Volume Price Total Sales 1 Bird House 34,500 $40.00 $1,380,000 12 Bird Feeder 25,800 70.00 1,806,000 23 Total revenue from sales $3,186,000 3

2.

A B C BACKYARD HABITAT INC. Production Budget For the Month Ending December 31, 2008

Units Bird House Bird Feeder 1 Expected units to be sold 34,500 25,800 12 Plus desired inventory, December 31, 2008 5,300 2,100

23 Total 39,800 27,900 34 Less estimated inventory, December 1, 2008 4,900 2,500

4





3. A B C D

BACKYARD HABITAT INC.

Direct Materials Purchases Budget For the Month Ending December 31, 2008

Wood Plastic Total 1 Units required for production: 12 Bird House 27,9201 17,4502 23 Bird Feeder 30,4803 19,0504 3

4 Plus desired units of inventory, December 31, 2008 3,500 2,800 4

5 Total 61,900 39,300 5

6 Less estimated units of inventory, December 1, 2008 2,600 3,200 6

7 Total units to be purchased 59,300 36,100 78 Unit price × $6.50 × $0.90 89 Total direct materials to be purchased $ 385,450 $ 32,490 $417,940 9

10 1011 134,900 × 0.80 ft. 1112 234,900 × 0.50 lb. 1213 325,400 × 1.20 ft. 1314 425,400 × 0.75 lb. 14




4. A B C D


Direct Labor Cost Budget For the Month Ending December 31, 2008

Fabrication Department

Assembly Department

Total

1 Hours required for production: 12 Bird House 8,7251 10,4702 23 Bird Feeder 11,4303 8,8904 34 Total 20,155 19,360 45 Hourly rate × $14.00 × $10.00 56 Total direct labor cost $ 282,170 $ 193,600 $475,770 67 78 134,900 × 0.25 hour 89 234,900 × 0.30 hour 9

10 325,400 × 0.45 hour 1011 425,400 × 0.35 hour 11

5.

A B C BACKYARD HABITAT INC. Factory Overhead Cost Budget For the Month Ending December 31, 2008

1 Indirect factory wages $ 650,000 12 Depreciation of plant and equipment 165,000 23 Power and light 42,000 34 Insurance and property tax 15,400 45 Total $ 872,400 5




6. A B C D


Cost of Goods Sold Budget For the Month Ending December 31, 2008

1 Finished goods inventory, December 1, 2008 $ 210,0001 1

2 Work in process, December 1, 2008 $ 27,000 23 Direct materials: 3

4 Direct materials inventory, December 1, 2008 $ 19,7802 4

5 Direct materials purchases 417,940 56 Cost of direct materials available for use $ 437,720 6

7 Less direct materials inventory, December 31, 2008 25,2703 7


9 Direct labor 475,770 910 Factory overhead 872,400 1011 Total manufacturing costs 1,760,620 1112 Total work in process during period $ 1,787,620 1213 Less work in process, December 31, 2008 32,400 1314 Cost of goods manufactured 1,755,220 1415 Cost of finished goods available for sale $ 1,965,220 15

16 Less finished goods inventory, December 31, 2008 202,8004 16

17 Cost of goods sold $ 1,762,420 1718 1819 1 Bird House (4,900 × $25) $ 122,500 1920 Bird Feeder (2,500 × $35) 87,500 2021 Finished goods inventory, December 1, 2008 $ 210,000 2122 2 Wood (2,600 × $6.50) $ 16,900 2223 Plastic (3,200 × $0.90) 2,880 2324 Direct materials inventory, December 1, 2008 $ 19,780 2425 3 Wood (3,500 × $6.50) $ 22,750 2526 Plastic (2,800 × $0.90) 2,520 2627 Direct materials inventory, December 31, 2008 $ 25,270 2728 4 Bird House (5,300 × $24) $ 127,200 2829 Bird Feeder (2,100 × $36) 75,600 2930 Finished goods inventory, December 31, 2008 $ 202,800 30




7. A B C

BACKYARD HABITAT INC. Selling and Administrative Expenses Budget For the Month Ending December 31, 2008

1 Selling expenses: 12 Sales salaries expense $ 675,000 23 Advertising expense 148,600 34 Telephone expense—selling 5,200 45 Travel expense—selling 39,200 56 Total selling expense $ 868,000 67 Administrative expenses: 78 Office salaries expense $ 214,800 89 Depreciation expense—office equipment 4,900 9

10 Telephone expense—administrative 1,700 1011 Office supplies expense 3,500 1112 Miscellaneous administrative expense 5,000 1213 Total administrative expense 229,900 1314 Total operating expenses $1,097,900 14

8.

A B C BACKYARD HABITAT INC. Budgeted Income Statement For the Month Ending December 31, 2008

1 Revenue from sales $3,186,000 12 Cost of goods sold 1,762,420 23 Gross profit $ 1,423,580 34 Operating expenses: 45 Selling expenses $ 868,000 56 Administrative expenses 229,900 67 Total operating expenses 1,097,900 78 Income from operations $ 325,680 89 Other income: 9

10 Interest revenue $ 16,900 1011 Other expenses: 1112 Interest expense 10,600 6,300 1213 Income before income tax $ 331,980 1314 Income tax expense 116,193 1415 Net income $ 215,787 15



Prob. 21–4A (FIN MAN); Prob. 6–4A (MAN) 1.

A B C D SANTA FE HOUSEWARES INC. Cash Budget For the Three Months Ending October 31, 2008

August September October 1 Estimated cash receipts from: 12 Cash sales $ 63,000 $ 71,500 $ 84,500 23 Collection of accounts receivablea 485,000 546,900 620,550 34 Dividends 1,800 45 Total cash receipts $ 549,800 $ 618,400 $ 705,050 56 Estimated cash payments for: 67 Manufacturing costsb $ 325,000 $ 333,000 $ 375,000 78 Selling and administrative expenses 170,000 205,000 235,000 89 Capital expenditures 150,000 9

10 Other purposes: 1011 Note payable (including interest) 103,750 1112 Income tax 39,000 1213 Dividends 12,000 1314 Total cash payments $ 495,000 $ 577,000 $ 875,750 1415 Cash increase or (decrease) $ 54,800 $ 41,400 $(170,700) 1516 Cash balance at beginning of month 50,000 104,800 146,200 1617 Cash balance at end of month $ 104,800 $ 146,200 $ (24,500) 1718 Minimum cash balance 40,000 40,000 40,000 1819 Excess or (deficiency) $ 64,800 $ 106,200 $ (64,500) 19




20 Computations: 2021 aCollections of accounts receivable: August September October 2122 June sales $ 135,0001 2223 July sales 350,0002 $ 150,0003 2324 August sales 396,9004 $ 170,1005 2425 September sales 450,4506 2526 Total $ 485,000 $ 546,900 $ 620,550 2627 1$450,000 × 30% = $135,000 2728 2$500,000 × 70% = $350,000 2829 3$500,000 × 30% = $150,000 2930 4$630,000 × 90% × 70% = $396,900 3031 5$630,000 × 90% × 30% = $170,100 3132 6$715,000 × 90% × 70% = $450,450 3233 bPayments for manufacturing costs: August September October 33

34 Payment of accounts payable, beginning of month balance* $ 65,000 $ 65,000 $ 67,000 34

35 Payment of current month’s cost** 260,000 268,000 308,000 3536 Total $ 325,000 $ 333,000 $ 375,000 3637 *Accounts payable, August 1 balance = $65,000 3738 ($350,000 – $25,000) × 20% = $65,000 3839 ($360,000 – $25,000) × 20% = $67,000 3940 **($350,000 – $25,000) × 80% = $260,000 4041 ($360,000 – $25,000) × 80% = $268,000 4142 ($410,000 – $25,000) × 80% = $308,000 42

2. The budget indicates that the minimum cash balance will not be maintained

in October. This is due to the capital expenditures and note repayment requir-ing significant cash outflows during this month. This situation can be cor-rected by borrowing and/or by the sale of the marketable securities, if they are held for such purposes. At the end of August and September, the cash balance will exceed the minimum desired balance, and the excess could be considered for temporary investment.




1. A B C D

COCONUT GROVE SOAP CO. Budgeted Income Statement For the Year Ending December 31, 2009

1 Sales $ 989,0001 12 Cost of goods sold: 23 Direct materials $ 172,0002 34 Direct labor 96,7503 45 Factory overhead 116,5004 56 Cost of goods sold 385,250 67 Gross profit $ 603,750 78 Operating expenses: 89 Selling expenses: 9

10 Sales salaries and commissions $ 115,2505 1011 Advertising 55,000 1112 Miscellaneous selling expenses 36,7506 1213 Total selling expenses $ 207,000 1314 Administrative expenses: 1415 Office and officers salaries $ 103,6507 1516 Supplies 15,9008 1617 Miscellaneous administrative expense 21,3509 1718 Total administrative expenses 140,900 1819 Total operating expenses 347,900 1920 Income before income tax $ 255,850 2021 Income tax expense 80,000 2122 Net income $ 175,850 2223 2324 1215,000 units × $4.60 2425 2215,000 units × $0.80 2526 3215,000 units × $0.45 2627 4(215,000 units × $0.30) + $45,000 + $7,000 2728 5(215,000 units × $0.35) + $40,000 2829 6(215,000 units × $0.15) + $4,500 2930 7(215,000 units × $0.17) + $67,100 3031 8(215,000 units × $0.06) + $3,000 3132 9(215,000 units × $0.09) + $2,000 32




2. A B C D

COCONUT GROVE SOAP CO. Budgeted Balance Sheet December 31, 2009

Assets

1 Current assets: 12 Cash $ 191,6501 23 Accounts receivable 108,600 34 Inventories: 45 Finished goods $ 72,400 56 Work in process 27,500 67 Materials 49,700 149,600 78 Prepaid expenses 3,400 89 Total current assets $ 453,250 9

10 Property, plant, and equipment: 1011 Plant and equipment $ 410,0002 1112 Less accumulated depreciation 175,4003 234,600 1213 Total assets $ 687,850 1314 Liabilities 1415 Current liabilities: 1516 Accounts payable $ 57,000 1617 Stockholders’ Equity 1718 Common stock $ 185,000 1819 Retained earnings 445,8504 1920 Total stockholders’ equity 630,850 2021 Total liabilities and stockholders’ equity $ 687,850 2122 2223 1Cash balance, December 31, 2009: 2324 Balance, January 1, 2009 $ 90,000 2425 Cash from operations: 2526 Net income $ 175,850 2627 Depreciation of plant and equipment 45,000 220,850 2728 Less: Dividends to be paid in 2009 $ 59,200 2829 Plant and equipment to be acquired in 2009 60,000 (119,200) 2930 Balance, December 31, 2009 $ 191,650 3031 2$350,000 + $60,000 = $410,000 3132 3$130,400 + $45,000 = $175,400 3233 4Retained earnings balance, December 31, 2009: 3334 Balance, January 1, 2009 $ 329,200 3435 Plus net income for 2009 175,850 3536 $ 505,050 3637 Less dividends to be declared in 2009 59,200 3738 Balance, December 31, 2009 $ 445,850 38



Prob. 21–1B (FIN MAN); Prob. 6–1B (MAN)

1. Increase (Decrease) Unit Sales, Year Ended 2008 Actual Over Budget Budget Actual Sales Amount Percent

Home Alert System: United States................... 26,400 27,720 1,320 5.00% Europe ............................. 7,100 6,816 (284) (4.00) % Asia .................................. 5,200 5,356 156 3.00% Business Alert System: United States................... 13,500 14,040 540 4.00% Europe ............................. 5,800 5,916 116 2.00% Asia .................................. 3,700 3,589 (111) (3.00) % 2. 2009 2008 Percentage Budgeted Actual Increase Units Units (Decrease) (rounded)

Home Alert System: United States......................................... 27,720 5.00% 29,106 Europe ................................................... 6,816 (4.00) % 6,543 Asia ........................................................ 5,356 3.00% 5,517 Business Alert System: United States......................................... 14,040 4.00% 14,602 Europe ................................................... 5,916 2.00% 6,034 Asia ........................................................ 3,589 (3.00) % 3,481



Prob. 21–1B (FIN MAN); Prob. 6–1B (MAN) Concluded

3. A B C D DETECT AND SECURE DEVICES INC. Sales Budget For the Year Ending December 31, 2009 Unit Sales Unit Selling Product and Area Volume Price Total Sales 1 Home Alert System: 12 United States 29,106 $290 $ 8,440,740 23 Europe 6,543 290 1,897,470 34 Asia 5,517 290 1,599,930 45 Total 41,166 $ 11,938,140 56 Business Alert System: 67 United States 14,602 $880 $ 12,849,760 78 Europe 6,034 880 5,309,920 89 Asia 3,481 880 3,063,280 9





1. A B C D KINGDOM FURNITURE COMPANY Sales Budget For the Month Ending May 31, 2008 Unit Sales Unit Selling Product and Area Volume Price Total Sales 1 King: 12 Northern Domestic 5,800 $650 $ 3,770,000 23 Southern Domestic 3,500 590 2,065,000 34 International 1,200 700 840,000 45 Total 10,500 $ 6,675,000 56 Prince: 67 Northern Domestic 6,700 $420 $ 2,814,000 78 Southern Domestic 3,800 480 1,824,000 89 International 1,000 530 530,000 9


2.

A B C KINGDOM FURNITURE COMPANY Production Budget For the Month Ending May 31, 2008 Units King Prince 1 Expected units to be sold 10,500 11,500 12 Plus desired inventory, May 31, 2008 800 400

23 Total 11,300 11,900 34 Less estimated inventory, May 1, 2008 920 260

4




Prob. 21–2B (FIN MAN); Prob. 6–2B (MAN) Continued

3. A B C D E F

KINGDOM FURNITURE COMPANY Direct Materials Purchases Budget For the Month Ending May 31, 2008 Direct Materials

Fabric

(sq. yds.) Wood

(lineal ft.) Filler

(cu. ft.) Springs (units) Total

1 Required units for production: 1

2 King 47,7481 363,3002 39,4443 145,3204 23 Prince 34,9205 291,0006 37,2487 116,4008 3

4 Plus desired inventory, May 31, 2008 4,400 5,800 3,100 7,500 4

5 Total 87,068 660,100 79,792 269,220 5

6 Less estimated inventory, May 1, 2008 5,000 6,500 3,000 7,250 6

7 Total units to be purchased 82,068 653,600 76,792 261,970 78 Unit price × $8.00 × $7.00 × $3.50 × $4.50 8

9 Total direct materials to be purchased $ 656,544 $4,575,200 $268,772 $1,178,865 $6,679,381 9

10 1011 110,380 × 4.6 sq. yds. = 47,748 sq. yds. 1112 210,380 × 35 lineal ft. = 363,300 lineal ft. 1213 310,380 × 3.8 cu. ft. = 39,444 cu. ft. 1314 410,380 × 14 springs = 145,320 springs 1415 511,640 × 3 sq. yds. = 34,920 sq. yds. 1516 611,640 × 25 lineal ft. = 291,000 lineal ft. 1617 711,640 × 3.2 cu. ft. = 37,248 cu. ft. 1718 811,640 × 10 springs = 116,400 springs 18




4. A B C D E

KINGDOM FURNITURE COMPANY Direct Labor Cost Budget For the Month Ending May 31, 2008

Framing Department

Cutting Department

Upholstery Department

Total

1 Hours required for production: 12 King1 25,950 15,570 20,760 23 Prince2 20,952 5,820 26,772 34 Total 46,902 21,390 47,532 45 Hourly rate × $12.00 × $9.00 × $15.00 56 Total direct labor cost $ 562,824 $ 192,510 $ 712,980 1,468,314 67 78 1This line is calculated as 10,380 King chairs from the production budget multiplied by 89 the hours per unit in each department estimated for the King chairs. 25,950 = 10,380 × 9

10 2.50; 15,570 =10,380 × 1.50; 20,760 = 10,380 × 2.00 1011 2This line is calculated as 11,640 Prince chairs from the production budget multiplied by 1112 the hours per unit in each department estimated for the Prince chairs. 20,952 = 11,640 × 1213 1.8; 5,820 = 11,640 × 0.50; 26,772 = 11,640 × 2.30 13




1. A B C D SAFETY ATHLETIC INC. Sales Budget For the Month Ending January 31, 2008 Unit Sales Unit Selling Volume Price Total Sales 1 Batting helmet 3,500 $ 65.00 $ 227,500 12 Football helmet 6,800 130.00 884,000 23 Total revenue from sales $1,111,500 3

2.

A B C SAFETY ATHLETIC INC. Production Budget For the Month Ending January 31, 2008

Units

Batting Helmet

Football Helmet

1 Expected units to be sold 3,500 6,800 12 Plus desired inventory, January 31, 2008 240 360

23 Total 3,740 7,160 34 Less estimated inventory, January 1, 2008 270 400

4





3. A B C D

SAFETY ATHLETIC INC.

Direct Materials Purchases Budget For the Month Ending January 31, 2008

Plastic Foam Lining Total 1 Units required for production: 12 Batting helmet 4,1641 1,7352 23 Football helmet 18,9283 9,4644 3

4 Plus desired units of inventory, January 31, 2008 1,240 470 4

5 Total 24,332 11,669 5

6 Less estimated units of inventory, January 1, 2008 900 490 6

7 Total units to be purchased 23,432 11,179 78 Unit price × $7.00 × $4.00 89 Total direct materials to be purchased $ 164,024 $ 44,716 $208,740 9

10 1011 13,470 × 1.20 lbs. 1112 23,470 × 0.50 lb. 1213 36,760 × 2.80 lbs. 1314 46,760 × 1.40 lbs. 14




4. A B C D


Direct Labor Cost Budget For the Month Ending January 31, 2008

Molding Department

Assembly Department

Total

1 Hours required for production: 12 Batting helmet 6941 1,7352 23 Football helmet 2,0283 4,3944 34 Total 2,722 6,129 45 Hourly rate × $14.00 × $12.00 56 Total direct labor cost $ 38,108 $ 73,548 $111,656 67 78 13,470 × 0.20 hour 89 23,470 × 0.50 hour 9

10 36,760 × 0.30 hour 1011 46,760 × 0.65 hour 11

5.

A B C SAFETY ATHLETIC INC. Factory Overhead Cost Budget For the Month Ending January 31, 2008

1 Indirect factory wages $ 105,000 12 Depreciation of plant and equipment 30,000 23 Power and light 16,000 34 Insurance and property tax 8,700 45 Total $ 159,700 5




6. A B C D


Cost of Goods Sold Budget For the Month Ending January 31, 2008

1 Finished goods inventory, January 1, 2008 $ 29,4401 1

2 Work in process, January 1, 2008 $ 12,500 23 Direct materials: 3

4 Direct materials inventory, January 1, 2008 $ 8,2602 4

5 Direct materials purchases 208,740 56 Cost of direct materials available for use $ 217,000 6

7 Less direct materials inventory, January 31, 2008 10,5603 7


9 Direct labor 111,656 910 Factory overhead 159,700 1011 Total manufacturing costs 477,796 1112 Total work in process during period $ 490,296 1213 Less work in process, January 31, 2008 13,500 1314 Cost of goods manufactured 476,796 1415 Cost of finished goods available for sale $ 506,236 15

16 Less finished goods inventory, January 31 27,9604 16

17 Cost of goods sold $ 478,276 1718 1819 1Batting helmet (270 × $32.00) $ 8,640 1920 Football helmet (400 × $52.00) 20,800 2021 Finished goods inventory, January 1, 2008 $29,440 2122 2Plastic (900 × $7.00) $ 6,300 2223 Foam lining (490 × $4.00) 1,960 2324 Direct materials inventory, January 1, 2008 $ 8,260 2425 3Plastic (1,240 × $7.00) $ 8,680 2526 Foam lining (470 × $4.00) 1,880 2627 Direct materials inventory, January 31, 2008 $10,560 2728 4Batting helmet (240 × $34.00) $ 8,160 2829 Football helmet (360 × $55.00) 19,800 2930 Finished goods inventory, January 31, 2008 $27,960 30




7. A B C

SAFETY ATHLETIC INC. Selling and Administrative Expenses Budget For the Month Ending January 31, 2008

1 Selling expenses: 12 Sales salaries expense $ 265,800 23 Advertising expense 135,600 34 Telephone expense—selling 3,500 45 Travel expense—selling 43,100 56 Total selling expense $ 448,000 67 Administrative expenses: 78 Office salaries expense $ 84,300 89 Depreciation expense—office equipment 5,200 9

10 Telephone expense—administrative 700 1011 Office supplies expense 4,900 1112 Miscellaneous administrative expense 5,200 1213 Total administrative expenses 100,300 1314 Total operating expenses $ 548,300 14

8.

A B C SAFETY ATHLETIC INC. Budgeted Income Statement For the Month Ending January 31, 2008

1 Revenue from sales $1,111,500 12 Cost of goods sold 478,276 23 Gross profit $ 633,224 34 Operating expenses: 45 Selling expenses $ 448,000 56 Administrative expenses 100,300 67 Total operating expenses 548,300 78 Income from operations $ 84,924 89 Other income: 9

10 Interest revenue $ 14,500 1011 Other expenses: 1112 Interest expense 18,700 (4,200) 1213 Income before income tax $ 80,724 1314 Income tax expense 24,217 1415 Net income $ 56,507 15




1. A B C D

SWIFT SHOES INC. Cash Budget For the Three Months Ending June 30, 2008

April May June 1 Estimated cash receipts from: 12 Cash sales $10,000 $ 15,000 $ 18,000 23 Collection of accounts receivablea 83,800 88,000 117,000 34 Dividends 3,500 45 Total cash receipts $97,300 $ 103,000 $ 135,000 56 Estimated cash payments for: 67 Manufacturing costsb $46,600 $ 30,000 $ 35,200 78 Selling and administrative expenses 32,000 38,000 45,000 89 Capital expenditures 30,000 9

10 Other purposes: 1011 Note payable (including interest) 51,500 1112 Income tax 34,000 1213 Dividends 8,000 1314 Total cash payments $78,600 $ 102,000 $ 169,700 1415 Cash increase or (decrease) $18,700 $ 1,000 $ (34,700) 1516 Cash balance at beginning of month 40,000 58,700 59,700 1617 Cash balance at end of month $58,700 $ 59,700 $ 25,000 1718 Minimum cash balance 35,000 35,000 35,000 1819 Excess or (deficiency) $23,700 $ 24,700 $ (10,000) 19




20 Computations: 2021 aCollections of accounts receivable: April May June 2122 February sales $ 32,8001 2223 March sales 51,0002 $ 34,0003 2324 April sales 54,0004 $ 36,0005 2425 May sales 81,0006 2526 Total $83,800 $ 88,000 $ 117,000 2627 1$82,000 × 40% = $32,800 2728 2$85,000 × 60% = $51,000 2829 3$85,000 × 40% = $34,000 2930 4$100,000 × 90% × 60% = $54,000 3031 5$100,000 × 90% × 40% = $36,000 3132 6$150,000 × 90% × 60% = $81,000 3233 bPayments for manufacturing costs: April May June 33

34 Payment of accounts payable, beginning of month balance* $29,000 $ 4,400 $ 6,400 34

35 Payment of current month’s cost** 17,600 25,600 28,800 3536 Total $46,600 $ 30,000 $ 35,200 3637 *Accounts payable, April 1 balance = $29,000 3738 ($40,000 – $18,000) × 20% = $4,400 3839 ($50,000 – $18,000) × 20% = $6,400 3940 **($40,000 – $18,000) × 80% = $17,600 4041 ($50,000 – $18,000) × 80% = $25,600 4142 ($54,000 – $18,000) × 80% = $28,800 42

2. The budget indicates that the minimum cash balance will not be maintained

in June. This is due to the capital expenditures and note repayment requiring significant cash outflows during this month. This situation can be corrected by borrowing and/or by the sale of the marketable securities, if they are held for such purposes. At the end of April and May, the cash balance will exceed the minimum desired balance, and the excess could be considered for tempo-rary investment.




1. A B C D

CORNERSTONE PUBLISHING CO. Budgeted Income Statement For the Year Ending December 31, 2009

1 Sales $ 3,300,0001 12 Cost of goods sold: 23 Direct materials $ 780,0002 34 Direct labor 255,0003 45 Factory overhead 202,0004 56 Cost of goods sold 1,237,000 67 Gross profit $2,063,000 78 Operating expenses: 89 Selling expenses: 9

10 Sales salaries and commissions $ 538,0005 1011 Advertising 114,200 1112 Miscellaneous selling expense 75,0006 1213 Total selling expenses $ 727,200 1314 Administrative expenses: 1415 Office and officers salaries $ 278,6007 1516 Supplies 41,9008 1617 Miscellaneous administrative expense 45,5009 1718 Total administrative expenses 366,000 1819 Total operating expenses 1,093,200 1920 Income before income tax $ 969,800 2021 Income tax expense 350,000 2122 Net income $ 619,800 2223 2324 130,000 units × $110 2425 230,000 units × $26 2526 330,000 units × $8.50 2627 4(30,000 units × $5.00) + $40,000 + $12,000 2728 5(30,000 units × $14.00) + $118,000 2829 6(30,000 units × $2.15) + $10,500 2930 7(30,000 units × $6.50) + $83,600 3031 8(30,000 units × $1.25) + $4,400 3132 9(30,000 units × $1.45) + $2,000 32




2. A B C D

CORNERSTONE PUBLISHING CO. Budgeted Balance Sheet December 31, 2009

Assets

1 Current assets: 12 Cash $ 392,3001 23 Accounts receivable 246,700 34 Inventories: 45 Finished goods $ 157,800 56 Work in process 37,800 67 Materials 57,800 253,400 78 Prepaid expenses 4,500 89 Total current assets $ 896,900 9

10 Property, plant, and equipment: 1011 Plant and equipment $ 800,0002 1112 Less accumulated depreciation 307,0003 493,000 1213 Total assets $1,389,900 1314 Liabilities 1415 Current liabilities: 1516 Accounts payable $ 184,500 1617 Stockholders’ Equity 1718 Common stock $ 450,000 1819 Retained earnings 755,4004 1920 Total stockholders’ equity 1,205,400 2021 Total liabilities and stockholders’ equity $1,389,900 2122 2223 1Cash balance, December 31, 2009: 2324 Balance, January 1, 2009 $ 122,500 2425 Cash from operations: 2526 Net income $ 619,800 2627 Depreciation of plant and equipment 40,000 659,800 2728 Less: Dividends to be paid in 2009 $ 210,000 2829 Plant and equipment to be acquired in 2009 180,000 (390,000) 2930 Balance, December 31, 2009 $ 392,300 3031 2$620,000 + $180,000 = $800,000 3132 3$267,000 + $40,000 = $307,000 3233 4Retained earnings balance, December 31, 2009: 3334 Balance, January 1, 2009 $ 345,600 3435 Plus net income for 2009 619,800 3536 $ 965,400 3637 Less dividends to be declared in 2009 210,000 3738 Balance, December 31, 2009 $ 755,400 38



SPECIAL ACTIVITIES

SA 21–1 (FIN MAN); SA 6–1 (MAN)

Isaiah should reject Sheri’s request to charge the convention-related costs against July’s budget. This is just one example of many attempts to slide expenses into different budget periods than when actually incurred. This is a common issue that controllers face. Often, operating managers will attempt to accelerate future expenditures into low-expenditure months or delay present expenditures into future periods in order to avoid going over budget. These attempts to “slide” expenditures should not be supported, or else the whole con-cept of the budget will begin to become an accounting game. The integrity of the budget process must be defended by the controller. Thus, expenditures should be accrued to the period in which the benefit is received. Isaiah should reassure Sheri that management will not take a single month’s results as an indication of either good or poor management. Month-to-month variation should be expected. Rather, management will take a long-term perspective and evaluate whether the department is staying within budget over a longer period of time. Abnormal month-to-month variations from budget can “wash out” over time.


a. The hospital’s new budget method is clearly an example of a flexible budget. The budget changes with changes in underlying activity, such as patient-days. Patient-days are the number of patients multiplied by the number of days in the hospital. As the number of patient-days changes, it would be rea-sonable to expect that the hospital’s variable costs should also change. In addition, the last quote suggests that the new budget approach is a monthly continuous budget. The budget helps the managers plan month-by-month expenditures.

b. The advantage of a flexible budget is to accurately plan variable costs of the hospital with changes in the underlying activity base. Using a static budget would create actual deviations from budget that would be difficult to inter-pret. Managers would not be able to determine if the deviations were the re-sult of cost (in)efficiencies or whether they were due to changes in activity level. A flexible budget causes the budget to “flex” with changes in underly-ing activity level so that any remaining actual deviations from budget can more clearly be identified with (in)efficiency or other special causes. The con-tinuous budget also provides timely information to managers so that they can adjust actual spending patterns to the budgeted amounts.




a. The budget information indicates that the actual expenditures by the Opera-tions Department exceeded what was planned by $12,000. The bank manager may ask the operations manager why the travel and training expenditures ex-ceeded the plan by a total of $20,000. It may be that the additional expendi-tures were necessary, but an explanation is in order.

b. The bank manager does not know if the actual resources consumed by the Operations Department are the right amount of resources for doing the right things. In other words, this budget doesn’t say anything about the actual work of the Operations Department and how much cost this work consumes. The bank manager doesn’t have a good sense if there is waste in the depart-ment or not. The $12,000 excess expenditure over budget raises several questions. If the department did twice as much work as planned, then the $12,000 is a bargain. If, on the other hand, the department did much less work than planned, then the $12,000 understates how poorly the department used resources. Again, how much work the department actually did is unknown, so these questions cannot be answered. Examples of the kind of work con-ducted by the department might include processing credit card statements, processing checking statements, processing loan repayments, and correct-ing errors.

The budget doesn’t indicate why there was more travel and training than ex-pected. Maybe the department introduced a new computer system, and all employees needed off-site training in order to use the system. This would ex-plain the additional spending on travel and training. The training needed to be done, regardless of the budget.




Domino’s could use a master budget to plan operations consistent with the sales forecast. The sales forecast could be used to develop the production budget for pizzas. The sales and production budgets would be identical since there would be no finished goods inventory for cooked pizzas. The sales (production) budget would be used to develop a direct materials purchases budget. For example, the pizza ingredients, packaging materials, beverages, and other materials could be planned from the sales budget. In addition, the cost of delivery fuel (driver reim-bursement for gas) could be planned from the sales budget. The sales (production) budget could also be used to develop the direct labor budget for cooks, counter staff, dough making labor, and drivers. Much of the overhead is related to the number of restaurants, rather than the number of pizzas sold. That is, the number of restaurant locations will drive management salaries, rent, utilities, insurance, and other overhead costs. The drivers own the delivery vehicles and thus, vehicle depreciation and maintenance costs are not part of Domino’s overhead budget. The budget process could be used to direct and coordinate all the various restau-rants. In this way, all the managers would be operating under the same set of as-sumptions. The actual performance of the company and the individual stores could be compared with the budget in order to provide all levels of the organization ap-propriate feedback and control. This feedback can be used to adjust operations to any changes that may be occurring. Thus, if sales are expanding faster or slower than planned, costs could be brought into line rapidly. This would help prevent the company from becoming either short of drivers and food due to sales outpacing projections or overbuilding stores before sales have materialized in sufficient vol-ume to justify the cost.




a. The amount of actual expenditures was less than budget for the first 10 months of the budget year. As the end of the budget year-end neared, the manager spent the remaining excess budget and, as a result, went over the budget for May and June. The amount spent for the year was equal to the to-tal amount budgeted, because the average difference between the actual and budget is zero. Thus, the managers did not spend more than was originally authorized for the year. However, the data indicate that the managers spent the available annual authorization in the last two months to avoid losing the excess to the general fund. This is an example of a “spend it or lose it” men-tality. The manager is, in a sense, holding back spending during the year to create a small cushion, or reserve. If an emergency arises, then the manager has resources available to address it. If the emergency doesn’t arise, then the manager uses the amount held back in a flurry of year-end spending, some of which is likely to be wasteful.

b. The budget system encourages this type of wasteful behavior. The budget could be redesigned in a number of ways. The budget could be designed to flex with underlying activity and adjusted monthly. Thus, the manager would always have budgeted resources for changes in underlying activity. For ex-ample, if the number of prisoners in the jail increased, then the budget would increase proportionately. A manager with the flexible budget would be less likely to “reserve” the budget during the year, since an activity change would be automatically reflected in the monthly budget. That is, the inherent slack in the static budget could be reduced, knowing that activity changes are auto-matically accommodated by the flexible budget. The budget system might also allow a manager to make a request for additional funds after the budget year has begun. In this scenario, the manager would not need to hold back spending for emergencies, because emergencies could be handled with a separate request. For example, if the town had a natural disaster, then the po-lice and fire departments could request additional funding to meet the need. Lastly, the budget could be designed to encourage thrift. For example, the budget could be designed so that the manager could carry forward a portion of the unspent budget of a previous year. Such a system would reward de-partmental thrift by allowing the department to keep a portion of the savings for future needs. This would reduce the need for aggressive year-end spend-ing, since a portion of the unspent amount could roll forward to the next year. This would cause the manager to spend money when needed, not just to avoid the year-end take back.




1. The budget suggests that Kevin’s planned cash inflows will be insufficient to meet anticipated school-related and living costs. Kevin needs to begin mak-ing plans now in order to avoid a difficult situation as the school year pro-gresses. Some decisions can be made now that might avoid a potential hard-ship. The budget information is useful for planning. Planning will allow Kevin to make more informed decisions about incurring expenses, part-time job hours required, acceptable summer pay, rental constraints, and scholarship needs. To summarize, the budget is a planning tool that highlights potential problem areas and indicates possible courses of action to avoid the shortfall.

2. a. The issue of certainty is an important one. Each line on the budget has a dollar amount. However, some dollars are more certain than others. The following table summarizes the relative certainty of each of the items:

Certain Moderate Uncertain

Part-time salary.............. X Summer job salary ........ X Tuition ............................ X Books ............................. X Rent ................................ X Food................................ X Utilities ........................... X Entertainment ................ X

Unfortunately, all the payments are certain, or moderately certain, while the receipts are uncertain. The income from the summer and part-time jobs is dependent on getting jobs, getting sufficient hours, and being able to hold the jobs during school. The expenses, however, are rela-tively certain. The school-related costs and the costs of food and shelter must be paid. This means that the budget may be a “best case scenario.” If the salaries do not happen as anticipated, then the whole plan will need to be readjusted.



SA 21–6 (FIN MAN); SA 6–6 (MAN) Concluded

b. Controllable (discretionary) items are ones that Kevin has some control over and that he could change. Noncontrollable items are those that Kevin has little control over. These payments will be incurred regardless of actions on his part. The following table summarizes the controllable nature of the expenses:

Partially Controllable Controllable Not Controllable

Tuition ............................ X Books ............................. X Rent ................................ X Food................................ X Utilities ........................... X Entertainment ................ X

Tuition is not controllable, once it is decided that school is part of the plan. Adjustments should focus on the partially controllable and control-lable items in the budget.

3. Reference to part 2(b) gives clues as to where the opportunities are. The book budget could be reduced by buying used books or reselling books back to the bookstore. Rent could be adjusted downward. The budgeted rent is ap-proximately $350 per month. This is not high, but there may be possibilities with respect to campus housing or finding a roommate to share the rent that may allow this figure to be reduced. The food budget is assumed to be re-quired, but it is partially controllable by selecting lower-cost items. Kevin must eat. Utilities are budgeted at $75 per month. Utilities can be reduced by judicious use of power, fewer roaming charges, basic cable TV, splitting utili-ties with a roommate, etc. The entertainment budget is the most controllable. The weekly budget calls for approximately $75 in entertainment. This is a pretty healthy amount. A good area for savings is in the entertainment area of the budget.

4. The budget fails to account for the possibility of unforeseen expenditures during the year. The budget should have some slack to guard against sur-prise payments. Some common sources of surprises would be medical ex-penses and repair costs. Naturally, there are good surprises also, e.g., a gift from parents or a scholarship. A second omission in the budget is a failure to account for “asset” purchases. This budget is only for maintenance. There is no budget for clothes, transportation, loan payments, savings, or other cash outflows associated with the longer-term concerns of life.




Most states have home pages and budget information available online. The bud-get information will usually be fairly easy to identify. The solution to the activity for Tennessee for fiscal year 2004 is as follows. (The students should be using more recent information; so this is only a guide.)

1. Where Your State Tax Dollar Comes From

324

Fiscal Year 2004–2005

All Other Taxes 5¢

Gross Receipts & Privilege 5¢

Sales Tax 61¢ Tobacco, Beer, &

Alcoholic Beverages1¢

Insurance & Banking 4¢

Franchise & Excise 11¢

Motor Vehicle 2¢ Income & Inheritance

2¢ Gasoline Taxes 9¢

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

SA 21–7 (FIN MAN); SA 6–7 (MAN) Concluded

2.

Where Your State Tax Dollar Goes

Education 40¢ Business & Economic

Development 1¢

Resources & Regulation 3¢

Cities & Counties 6¢

Health & Social Services 31¢

Transportation 8¢

Law, Safety & Correction 9¢ General

Government 2¢

Fiscal Year 2004–2005

3. Tennessee’s budget is in balance. That is, state revenues equal state expen-ditures. Most states are legally required to have balanced budgets.



This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

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