Chapter 10 – Strategy and the Master Budget
the upcoming year. This increased evaluation of expenditures would make it
10-47 (Continued)
difficult to include budgetary slack in the budget for the upcoming year and
likely uncover opportunities of cost savings and operational improvements.
c. The biggest disadvantage of ZBB is the significant amount of time and cost
10-50
Education.
Chapter 10 – Strategy and the Master Budget
10-48 Budgetary Pressure and Ethics (30 minutes)
1. The use of alternative accounting methods to manipulate reported earnings is
professionally unethical because it violates the Standards contained in the IMA’s
Statement of Ethical Professional Practice (see: www.imanet.org). The
Competence standard is violated because of failure to perform duties in
2. Yes, costs related to revenue should be expensed in the period in which the
revenue is recognized (“matching principle”). Perishable supplies are purchased
for use in the current period, will not provide benefits in future periods, and should
therefore be matched against revenue recognized in the current period. In short,
3. The actions of Gary Woods were appropriate. Upon discovering how supplies
were being accounted for, Wood brought the matter to the attention of his
immediate superior, Gonzales. Upon learning of the arrangement with P&R, Wood
told Gonzales that the action was improper; he then requested that the accounts
be corrected and the arrangement discontinued. Wood clarified the situation with
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Education.
Chapter 10 – Strategy and the Master Budget
PROBLEMS
10-49 Budgeting for a Merchandising Firm (50 minutes)
1. Budgeted cash collections—December:
From November’s sales = net A/R, November 30th (given) =
2. Net (i.e., book value of) accounts receivable—December 31 st
:
Budgeted sales in December (given) $250,000
Allowance for doubtful accounts $250,000 × 2% = 5,000
3. Budgeted pre-tax operating income—December:
Total sales (given) $250,000
Gross margin ratio × 30%
Gross margin $ 75,000
Operating expenses:
4. Budgeted Inventory—December 31 st
:
5. Budgeted Purchases—December:
Inventory, December 1st (given) = $132,000
Plus: Purchases during December (plug figure) = 169,000
Cost of goods available for sale ($120,000 + $165,000) = $301,000
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Education.
Chapter 10 – Strategy and the Master Budget
10-49 (Continued)
6. Budgeted Accounts Payable—December 31 st
:
Accounts Payable, December 1st (given) $162,000
Plus: Budgeted Purchases, December (part 5 above) $169,000
Total Accounts Payable during December $331,000
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Education.
Chapter 10 – Strategy and the Master Budget
10-50 Comprehensive Profit Plan (90 minutes)
1. Sales Budget
Spring Manufacturing Company
Sales Budget
2016
C12 D57 Total
Sales (in units) 12,000 9,000 21,000
× Selling Price per Unit $150 $220
2. Production Budget
Spring Manufacturing Company
Production Budget
2016
C12 D57
Budgeted Sales (in units) 12,000 9,000
+ Desired finished goods ending inventory 300 200
Total units needed 12,300 9,200
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Education.
Chapter 10 – Strategy and the Master Budget
10-50 (Continued-1)
3. Direct Materials Purchases Budget
Spring Manufacturing Company
Direct Materials Purchases Budget (units and dollars)
2016
C12 D57 Total
Raw Material (RM) 1:
Budgeted Production 11,900 9,050
Pounds per Unit × 10 × 8
RM 1 needed for production 119,000 72,400 191,400
Plus: Desired Ending Inventory (lbs.) 4,000
Total RM 1 needed (lbs.) 195,400
Less: Beginning inventory (lbs.) 3,000
Raw Material (RM) 2:
Budgeted Production 11,900 9,050
Pounds per Unit × 0 × 4
RM 2 needed for production 0 36,200 36,200
Plus: Desired Ending Inventory (lbs.) 1,000
Total RM 2 needed (lbs.) 37,200
Raw Material 3:
Budgeted Production 11,900 9,050
Pounds per Unit × 2 × 1
RM 3 needed for production 23,800 9,050 32,850
Plus: Desired Ending Inventory (lbs.) 1,500
Total RM 3 needed (lbs.) 34,350
Less: Beginning inventory (lbs.) 1,000
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Chapter 10 – Strategy and the Master Budget
10-50 (Continued-3)
4. Direct Manufacturing Labor Budget
Spring Manufacturing Company
Direct Labor Budget
2016
C12 D57 Total
Budgeted production 11,900 9,050
Direct labor hours per unit × 2 × 3
5. Factory Overhead Budget
Spring Manufacturing Company
Factory Overhead Budget
2016
Variable Factory Overhead:
Indirect materials $10,000
Miscellaneous supplies and tools 5,000
Indirect labor 40,000
Payroll taxes and fringe benefits 250,000
Maintenance costs 10,080
Heat, light, and power 11,000 $326,080
Fixed Factory Overhead:
Supervision $120,000
Maintenance costs 20,000
Heat, light, and power 43,420
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Education.
Chapter 10 – Strategy and the Master Budget
10-50 (Continued-4)
6. Budgeted Cost of Goods Sold
Spring Manufacturing Company
Ending Finished Goods Inventory and Budgeted CGS
2016
C12 D57 Total
Sales volume 12,000 9,000 21,000
Cost per unit (Schedule 1 and 2) $93.80 $135.70
Schedule 1: Cost per Unit–Product C12:
Inputs_____ Cost
Cost Element Unit Input Cost Quantity Per Unit
RM-1 $2.00 10 $20.00
RM-3 $0.50 2 $1.00
Direct labor $25.00 2 $50.00
Schedule 2: Cost per Unit–Product D57:
Inputs Cost
Cost Element Unit Input Cost Quantity Per Unit
RM-1 $2.00 8 $16.00
RM-2 $2.50 4 $10.00
RM-3 $0.50 1 $0.50
Education.
Chapter 10 – Strategy and the Master Budget
10-50 (Continued-5)
7. Budgeted selling and administrative expenses:
Spring Manufacturing Company
Selling and Administrative Expense Budget
2016
Selling Expenses:
Advertising $60,000
Sales salaries 200,000
Travel and entertainment 60,000
Depreciation 5,000 $325,000
Administrative expenses:
Offices salaries $60,000
8. Budgeted Income Statement:
Spring Manufacturing Company
Budget Income Statement
For the Year 2016
C12 D57 Total
Sales (part 1) $1,800,000 $1,980,000 $3,780,000
Cost of goods sold (part 6) 1,125,600 1,221,300 2,346,900
Gross profit $674,400 $758,700 $1,433,100
Selling and administrative expenses (part 7) $645,000
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Education.
Chapter 10 – Strategy and the Master Budget
10-50 (Continued-6)
Note to Instructor: An Excel spreadsheet solution file is embedded in this document.
You can open the spreadsheet “object” that follows by doing the following:
1. Right click anywhere in the worksheet icon below.
2. Select “Worksheet Object,” then “Open.”
3. To return to the Word document, select “File” and then “Close and return to…”
while you are in the spreadsheet mode.
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Education.