Chapter 23 – Operational Budgeting
Financial and Managerial Accounting, 17/e 23-7
5 A flexible budget is used to evaluate:
a Costs that should have been incurred for a level of output achieved.
b Costs that should have been incurred for a level of output considered to be normal.
c How variable unit costs change as output changes.
d How flexible management was at adapting to changes in business conditions.
Chapter 23 – Operational Budgeting
CHAPTER 23 NAME #
10-MINUTE QUIZ C SECTION
The cost accountant for Sherman’s Co. prepared the following monthly performance report
relating to the Production Department.
Budgeted Actual
Production Production
(10,000 Units) (11,000 Units)
Direct materials used ………………………………………………… $240,000 $260,000
Direct labor …………………………………………………………… $100,000 $101,000
Variable manufacturing overhead ………………………………. $60,000 $65,000
Fixed manufacturing overhead …………………………………… $160,000 $164,000
1 Refer to the above data. Compute the amounts that should be included for each of the following
in a flexible budget prepared at an 11,000-unit level of production:
a Direct materials: $____________
b Direct labor: $____________
c Fixed manufacturing overhead: $____________
2 Refer to the above data. Assume that a revised performance report is prepared for the 11,000-unit
level of production using a flexible budget approach. Compute the cost variances for each of the
following. Indicate whether each variance is favorable (F) or unfavorable (U).
a Direct materials variance from flexible budget: $____________
b Direct labor variance from flexible budget: $____________
c Total manufacturing overhead variance from flexible budget: $____________
Chapter 23 – Operational Budgeting
Financial and Managerial Accounting, 17/e 23-9
CHAPTER 23 NAME #
10-MINUTE QUIZ D SECTION
1 Hayden Corporation budgeted its cost of finished goods manufactured at $500,000 for May. Its
May 31 finished goods inventory budgeted to be twice the level of its May 1 finished goods
inventory. The cost of goods sold budget for May has been set at $450,000.
Hayden’s finished goods inventory at May 31 is budgeted at: $____________
2 Suffolk Corporation expects to incur $360,000 in expenses during June (excluding interest and
taxes). Of this amount, depreciation is budgeted at $70,000, and expired prepayments are
budgeted at $35,000. Suffolk’s current payables total $60,000 at June 1 and are budgeted to
increase to $70,000 by June 30.
Payments on current payables budgeted for June total: $____________
3 Weaver Corporation pays its debt service costs in full each month. April debt service costs are
budgeted at $9,000. However, of this amount, only $1,000 represents a reduction of principal.
The company expects to issue no new debt during the month.
What cash disbursement amount will be shown on Weaver’s debt service budget? $____________
4 Bergen Corporation’s accounts receivable remain outstanding approximately 42 days, whereas its
inventory remains in stock approximately 12 days before it is sold. It takes suppliers
approximately 7 days to deliver inventory to Bergen once an order is received.
Bergen’s operating cycle is: __________ days
5 As budgeted output per the flexible budget increases, per-unit fixed costs (increase/decrease):
___________
Chapter 23 – Operational Budgeting
SOLUTIONS TO CHAPTER 23 10-MINUTE QUIZZES
QUIZ A QUIZ B
Learning Objective: 1 – 4 Learning Objective: 6
QUIZ C
2
a $264,000 flexible budget – $260,000 actual cost = $4,000 F
Learning Objective: 5, 6
QUIZ D
1
Let X = Finished Goods Inventory, May 1
3
$9,000
5
Decrease
Learning Objective: 5, 6
Chapter 23 – Operational Budgeting
Assignment Guide to Chapter 23
Brief
Exercises
Exercises
Problems
Cases
Net
1 – 10
1 – 15
1
2
3
4
5
6
7
8
1
2
3
5
4
Time estimate (in minutes)
< 15
< 15
40
40
25
30
25
40
30
40
30
20
20
30
30
Difficulty rating
E
E
M
M
M
S
E
M
M
S
M
M
M
M
M
Learning Objectives:
2
√
√
√
√
√
1. Explain how a company can
be “profit rich, yet cash
poor.”
2. Discuss the benefits that a
company may derive from a
formal budgeting process.
5, 9
12, 14, 15
√
√
√
√
√
√
√
√
√
3. Explain two philosophies
that may be used in setting
budgeted amounts.
1, 9
12, 14, 15
√
4. Describe the elements of a
master budget.
3, 4, 6, 8
1, 2, 3, 4,
5, 6, 8, 9,
13
√
5. Prepare the budgets and
supporting schedules
included in a master budget.
2, 6, 8
1, 2, 3, 4,
5, 6, 8, 9,
13
√
√
√
√
√
√
√
√
√
6. Prepare a flexible budget
and explain its uses.
7, 10
7, 10, 11
√