Serial Problem — SP 20
Serial Problem, Business Solutions (50 minutes)
Part 1
BUSINESS SOLUTIONS
Budgeted Income Statements
For Months of April, May, and June
April May June
Sales*…………………………….….………..…….. $69,600 $75,550 $81,500
Cost of goods sold**….……….……….…..... 54,000 57,750 61,500
Gross profit……………..……….……….….…… 15,600 17,800 20,000
Expenses
Sales commissions (10%)…………………. 6,960 7,555 8,150
*Results from per month volume increases for the next 3 months
Desks Units Sales (@ $1,150) Variable Cost of Sales (@ $750)
April……………………………………………………………48 $55,200 $36,000
May…………………………………………………………....52 59,800 39,000
June……………………..………….....……....…......56 64,400 42,000
Chairs Units Sales (@ $450) Variable Cost of Sales (@ $250)
Total Desk & Chairs Sales Variable Cost of Sales
April……………………………………………………………$69,600 = $55,200 + $14,400 $44,000 = $36,000 + $8,000
May…………………………………………………………....$75,550 = $59,800 + $15,750 $47,750 = $39,000 + $8,750
June……………………..………….....……....…......$81,500 = $64,400 + $17,100 $51,500 = $42,000 + $9,500
**Total Cost of Sales Variable Fixed Total Cost of Sales
Serial Problem, Business Solutions (Concluded)
Part 2
The plan for increasing sales volume by reducing the price and increasing
advertising would cause the company to generate a loss in the first month
of the next quarter. This result is not encouraging. However, the company
would expect profits in each of the next two months of the quarter, and the
Reporting in Action — BTN 20-1
1. Apple’s statement of cash flows would report cash paid for acquisitions
2. a. Cash paid for acquisitions of property, plant and equipment and
b. Given the assumption—that Apple’s annual cash payments for
3. Answers will depend on Apple’s results obtained.
Financial and Managerial Accounting, 6th Edition
1206
Comparative Analysis — BTN 20-2
1. Computation of inventory reduction under new distribution system
Amount of ending inventory required at the 30% rule
[$1 billion x (1- 0.20) x 0.30]………..…..….….………….…………$240,000,000
2. An analysis such as in part 1 along with an explanation can make clear
to management the cost of funds necessary to support ending
To further illustrate, assuming a 15% interest cost of resources tied up
in inventory, a company can save money by reducing its inventory
level. In particular, by reducing its ending inventory by $160,000,000,
Google would save $24,000,000 per year ($160,000,000 difference x 15%
Ethics Challenge — BTN 20-3
Report on “Use It or Lose It” Budgeting
Instructor note: There is no widely accepted solution to this problem. The key is for the student to
think about the problem and work to at least modify the negative behavioral consequences of this
practice.
Any plan offered as a solution must better align upper management’s
expectations with department managers’ behavior. For example, upper
Upper management must also keep in mind that efficient and effective
allocation of resources is necessary to provide high-quality services to
Financial and Managerial Accounting, 6th Edition
1208
Communicating in Practice — BTN 20-4
MEMORANDUM
TO: ____________________
FROM: ____________________
DATE: ____________________
SUBJECT: ____________________
The content of this memorandum will vary among students. The student
The memorandum should explain why a concern with bias in the
information does exist. Specifically, if a bonus is paid when sales go over
Taking It to the Net — BTN 20-5
1. The “e-budgets” Website lists a number of benefits such as accuracy, timeliness, ease of
sharing information, ease of updating, real-time comparison of actual performance vs.
estimates, and so on.
In the case of large, multi-divisional companies, coordination across
and within divisions is extremely important, so that plans across the
2. As a senior manager, my biggest concern would be security, particularly
when the system is easily accessible and usable. It would be important
to determine who in the organization will have access to the information,
Teamwork in Action — BTN 20-6
There is no specific solution to this assignment. The instructor should
watch for proper development and identification of all reasonable costs.
Specifically, one should review the (1) items included in the budget, (2)
assumptions used in preparing the budget, and (3) proper format. For
example, one can look for how the team projected the costs of books and
supplies for courses yet to be attended. Taking the average cost of books
per course is one reasonable approach.
Entrepreneurial Decision — BTN 20-7
1. Budgeting allows an organization to plan its activities better by
allocating financial resources to the different activities. A budget
2. To expand his operations, Daniel will need financing. Budgets will help
Financial and Managerial Accounting, 6th Edition
Hitting the Road — BTN 20-8
Instructor note: This problem is designed to (1) show that external factors are important
in determining price and volume and (2) develop awareness of external factors when
preparing a sales budget.
1. & 2.
The types of external factors identified by the student for consideration in
part (1), or selected as an explanatory factor for part (2), might include the
following:
Location, such as near a convenient or busy traffic area.
Competitors’ responses to price and quality.
Global Decision — BTN 20-9
1. The selling and administrative expenses budget is likely to be an
important budget in the master budgeting process at Samsung. In 2013,
selling and administrative expenses comprised about 23.7%
2. General office expenses
Top management salaries
3. The initial responsibility usually rests with a vice president or an
equivalent-level manager. Samsung is organized by divisions.