Chapter 9: Budgetary Planning and Chapter 10: Budgetary Control and Responsibility Accounting\t\u00a0\tE9-3\tThome and Crede, CPAs, are preparing their service revenue (sales) budget for the coming year (2017). The practice is divided into three departments: auditing, tax, and consulting. Billable hours for each department, by quarter, are provided below.\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tDepartment\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tQuarter 1\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tQuarter 2\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tQuarter 3\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tQuarter 4\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tAuditing\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t2,300\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t1,600\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t2,000\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t2,400\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tTax\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t3,000\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t2,200\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t2,000\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t2,500\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tConsulting\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t1,500\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t1,500\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t1,500\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t1,500\t\t\t\t\t\t\tAverage hourly billing rates are auditing $80, tax $90, and consulting $110.\tInstructions\tPrepare the service revenue (sales) budget for 2017 by listing the departments and showing for each quarter and the year in total, billable hours, billable rate, and total revenue.\tPrepare quarterly production budgets.\t\u00a0\tE9-8\tFuqua Company’s sales budget projects unit sales of part 198Z of 10,000 units in January, 12,000 units in February, and 13,000 units in March. Each unit of part 198Z requires 4 pounds of materials, which cost $2 per pound. Fuqua Company desires its ending raw materials inventory to equal 40% of the next month’s production requirements, and its ending finished goods inventory to equal 20% of the next month’s expected unit sales. These goals were met at December 31, 2016.\tInstructions\t1. \ufffd \ufffd \ufffd\u00a0 Prepare a production budget for January and February 2017.\t2. \ufffd \ufffd \ufffd\u00a0 Prepare a direct materials budget for January 2017.\t\u00a0\tPrepare a direct labor budget.\t\u00a0\tE9-15\t\u00a0Deitz Corporation is projecting a cash balance of $30,000 in its December 31, 2016, balance sheet. Deitz’s schedule of expected collections from customers for the first quarter of 2017 shows total collections of $185,000. The schedule of expected payments for direct materials for the first quarter of 2017 shows total payments of $43,000. Other information gathered for the first quarter of 2017 is sale of equipment $3,000, direct labor $70,000, manufacturing overhead $35,000, selling and administrative expenses $45,000, and purchase of securities $14,000. Deitz wants to maintain a balance of at least $25,000 cash at the end of each quarter.\tInstructions\tPrepare a cash budget for the first quarter.\tPrepare cash budget for a month.\t\u00a0\tP9-5A\tthe budget committee of Suppar Company collects the following data for its San Miguel Store in preparing budgeted income statements for May and June 2017.\t1. \u00a0\u00a0\u00a0\u00a0Sales for May are expected to be $800,000. Sales in June and July are expected to be 5% higher than the preceding month.\t2.\u00a0\u00a0\u00a0\u00a0 Cost of goods sold is expected to be 75% of sales.\t3.\u00a0\u00a0\u00a0\u00a0 Company policy is to maintain ending merchandise inventory at 10% of the following month’s cost of goods sold.\t4.\u00a0\u00a0\u00a0\u00a0 Operating expenses are estimated to be as follows:\t\u00a0\tQuestion 5\tInterest expense is $2,000 per month. Income taxes are estimated to be 30% of income before income taxes.\tInstructions\t1. \ufffd \ufffd \ufffd\u00a0 Prepare the merchandise purchases budget for each month in columnar form.\t2. \ufffd \ufffd \ufffd\u00a0 Prepare budgeted multiple-step income statements for each month in columnar form. Show in the statements the details of cost of goods sold.\tPrepare budgeted cost of goods sold, income statement, retained earnings, and balance sheet.\t\u00a0\tE10-3\t\u00a0Myers Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tIndirect labor\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t$1.00\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tIndirect materials\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t0.70\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tUtilities\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t0.40\t\t\t\t\t\t\tFixed overhead costs per month are supervision $4,000, depreciation $1,200, and property taxes $800. The company believes it will normally operate in a range of 7,000″\ufffd10,000 direct labor hours per month.\tInstructions\tPrepare a monthly manufacturing overhead flexible budget for 2017 for the expected range of activity, using increments of 1,000 direct labor hours.\tPrepare flexible budget reports for manufacturing overhead costs, and comment on findings.\t\u00a0\tE10-5\t\u00a0Fallon Company uses flexible budgets to control its selling expenses. Monthly sales are expected to range from $170,000 to $200,000. Variable costs and their percentage relationship to sales are sales commissions 6%, advertising 4%, traveling 3%, and delivery 2%. Fixed selling expenses will consist of sales salaries $35,000, depreciation on delivery equipment $7,000, and insurance on delivery equipment $1,000.\tInstructions\tPrepare a monthly flexible budget for each $10,000 increment of sales within the relevant range for the year ending December 31, 2017.\tPrepare flexible budget reports for selling expenses.\t\u00a0\tE10-17\t\u00a0The South Division of Wiig Company reported the following data for the current year.\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tSales\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t$3,000,000\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tVariable costs\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t1,950,000\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tControllable fixed costs\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t600,000\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tAverage operating assets\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t5,000,000\t\t\t\t\t\t\tTop management is unhappy with the investment center’s return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action.\t1.\u00a0\u00a0\u00a0\u00a0 Increase sales by $300,000 with no change in the contribution margin percentage.\t2.\u00a0\u00a0\u00a0\u00a0 Reduce variable costs by $150,000.\t3.\u00a0\u00a0\u00a0\u00a0 Reduce average operating assets by 4%.\tInstructions\t1. \ufffd \ufffd \ufffd\u00a0 Compute the return on investment (ROI) for the current year.\t2. \ufffd \ufffd \ufffd\u00a0 Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round to one decimal.)\tPrepare a responsibility report for an investment center.\t\u00a0\tP10-5A\t\u00a0Optimus Company manufactures a variety of tools and industrial equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Home Division for the year ended December 31, 2017, and relevant budget data are as follows.\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\u00a0\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tActual\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tComparison with Budget\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tSales\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t$1,400,000\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t$100,000 favorable\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tVariable cost of goods sold\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t665,000\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t“\ufffd”\ufffd45,000 unfavorable\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tVariable selling and administrative expenses\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t125,000\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t“\ufffd”\ufffd25,000 unfavorable\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tControllable fixed cost of goods sold\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t170,000\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tOn target\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tControllable fixed selling and administrative expenses\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t80,000\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tOn target\t\t\t\t\t\t\tAverage operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount.\tInstructions\t1. \ufffd \ufffd \ufffd\u00a0 Prepare a responsibility report (in thousands of dollars) for the Home Division.\t2. \ufffd \ufffd \ufffd\u00a0 Evaluate the manager’s performance. Which items will likely be investigated by top management?\t3. \ufffd \ufffd \ufffd\u00a0 Compute the expected ROI in 2017 for the Home Division, assuming the following independent changes to actual data.\t1.\u00a0\u00a0\u00a0\u00a0 Variable cost of goods sold is decreased by 5%.\t2.\u00a0\u00a0\u00a0\u00a0 Average operating assets are decreased by 10%.\t3.\u00a0\u00a0\u00a0\u00a0 Sales are increased by $200,000, and this increase is expected to increase contribution margin by $80,000.\tPrepare reports for cost centers under responsibility accounting, and comment on performance of managers.<\/p>\n","protected":false},"excerpt":{"rendered":"
Chapter 9: Budgetary Planning and Chapter 10: Budgetary Control and Responsibility Accounting \u00a0 E9-3 Thome and Crede, CPAs, are preparing their service revenue (sales) budget for the coming year (2017). The practice is divided into three departments: auditing, tax, and Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-200360","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/200360","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=200360"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/200360\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=200360"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=200360"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=200360"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}