13–43. (15 min.) Budgeting in a Service Organization: Jolly Cleaners.
Jolly Cleaners
Budgeted Income Statement
April
April
Revenues:
Commercial (48 @ $1,400) ……………………….
$67,200
(a)
Residential (176 @ $300) …………………………
52,800
(b)
Total revenue ……………………………………..
$120,000
Expenses:
Cleaner compensation (4,160 hours @ $15) .
$ 62,400
(c)
Supplies (4,160 hours @ $5) …………………….
20,800
(c)
SG&A …………………………………………………….
30,000
(d)
Other expenses ……………………………………….
(d)
Total expenses ……………………………………
13–44. (15 min.) Budgeting in a Service Organization: Solving for Unknown: Jolly
Cleaners.
The contribution margin for a residential client is:
$100 = $300 – (10 hours × $15 per hour) – (10 hours × $5 per hour).
The contribution margin for a commercial client is:
$400 = $1,400 – 50 hours × $15 per hour – 50 hours × $5 per hour.
Fixed costs are $32,000 per month.
Budgeted profit with commercial clients only is:
$($12,000) = (50 × $400) – $32,000.
To check:
Jolly Cleaners
Budgeted Income Statement
July
July
Revenues:
Commercial (50 @ $1,400) …………………………...
$70,000
(a)
Residential (170 @ $300) ……………………………..
51,000
(b)
Total revenue ………………………………………….
$121,000
Expenses:
Cleaner compensation (4,200 hours @ $15) ……
$ 63,000
(c)
Supplies (4,200 hours @ $5) …………………………
21,000
(c)
SG&A …………………………………………………………
30,000
(d)
Other expenses ……………………………………………
(d)
Total expenses ………………………………………..
13–45. (15 min.) Incentives and Sales Forecasts—Ethical Issues: Northwest
Hardware.
a. One explanation is that Lloyd has better (more specific) local knowledge about
conditions in the Montana District that the statistical analysis does not include. A second
explanation is that Lloyd wants to “be conservative” in his estimate because he believes
his performance evaluation depends on how well the district does relative to this
forecast.
b. The first explanation is the same as in requirement (a); Lloyd has better information.
A second explanation is that Lloyd is trying to justify hiring additional employees to sell
13–46. (15 min.) Budget Revisions—Ethical Issues: Galaxy Electronics.
a. Elizabeth is probably hoping that because the company is committed to the aircraft
guidance program, it will not cut funding for that program and she can protect the other
13–47. (15 min.) Sensitivity Analysis: Sanjana’s Sweet Shoppe.
The following is an Excel screenshot of the spreadsheet. In typing the formulas, shown
in row 2, do not enter the opening quote (“). Replace the “#” in the formula with the
specific row number. For example, to enter the formula for gross margin for unit gross
margin of $2 and 15,000 customers, place the cursor in cell c6 and type everything
between, not including, the following quotation marks: “=a6*b6”.
Notice the range of incomes is quite large, from a loss of $5,900 to a profit of $90,500.
13–48. (15 min.) Sensitivity Analysis: Classic Limo, Inc.
The following is an Excel screenshot of the spreadsheet. In typing the formulas, shown
in row 2, do not enter the opening quote (“). Replace the “#” in the formula with the
specific row number. For example, to enter the formula for gross margin for unit gross
margin of $15 and 4,500 customers, place the cursor in cell c6 and type everything
between, not including, the following quotation marks: “=a6*b6”.
Notice the range of incomes is quite large, from a loss of $14,250 to a profit of
$280,500.
13–49. (15 min.) Sensitivity Analysis: Glacier Creamery.
The following is an Excel screenshot of the spreadsheet. In typing the formulas, shown
in row 2, do not enter the opening quote (“). Replace the “#” in the formula with the
specific row number. For example, to enter the formula for contribution margin for unit
variable cost of $3 and sales of 398,000 gallons, place the cursor in cell D6 and type
everything between, not including, the following quotation marks: “=c6*(6–b6).”
13–50. (15 min.) Sensitivity Analysis: Main Street Charities.
The following is an Excel screenshot of the spreadsheet. In typing the formulas, shown
in row 2, do not enter the opening quote (“). Replace the “#” in the formula with the
specific row number. For example, to enter the formula for Program Costs for an
unemployment rate of 4.0% and a median income of $55,000, place the cursor in cell
D7 and type everything between, not including, the following quotation marks:
“=350,000+100,000*100*(A7-4%)”.
Notice the range of surpluses is large, from a positive surplus of $175,000 to a negative
surplus of $75,000. The accountant needs to be concerned if the unemployment rate
approaches five percent.
13–51. (30 min.) Prepare Budgeted Financial Statements: Pepper Products.
Pepper Products
Budgeted Income Statement
For Year 2
Calculations
$3,113,625a
$2,850,000 × 0.95 × 1.15
$ 178,752
$168,000 × 0.95 × 1.12
121,752
$142,400 × 0.95 × 0.90
340,704
$327,600 × 1.04
999,000
$999,000 (unchanged)
$1,640,208
$ 401,280
$422,400 × 0.95
149,600
$149,600 (unchanged)
13–52. (10 min.) Estimate Cash from Operations: Pepper Products.
Pepper Products
Cash Basis Budgeted Income Statement
For Year 2
Sales revenue …………………………………………….
$3,113,625
Manufacturing costs (cash):
Materials …………………………………………………
$ 178,752
Other variable costs ………………………………….
121,752
Fixed cash costs ………………………………………
340,704
Total cash manufacturing costs……………………..
$ 641,208
Marketing and administrative costs:
Marketing (variable, cash) ………………………..
Administrative (fixed, cash) ……………………….
Total cash marketing and administrative costs ..
Total cash costs ………………………………………….
13–53. (30 min.) Prepare Budgeted Financial Statements: Gulf States
Manufacturing.
Gulf States Manufacturing
Budgeted Income Statement
For Year 2
Calculations
Sales revenue ………………………………
$2,781,000
$2,500,000 × 1.08 × 1.03
Manufacturing costs:
Materials …………………………………..
$ 457,920
$400,000 × 1.08 × 1.06
Variable cash costs ……………………
559,170
$545,000 × 1.08 × 0.95
Fixed cash costs ………………………..
196,560
$216,000 × 0.91
Depreciation (fixed) …………………..
279,900
$267,000 – $29,100 + $42,000
Total manufacturing costs ………………
$1,493,550
Marketing and administrative costs:
Marketing (variable, cash) ………….
$285,000 × 1.08
Marketing depreciation ……………….
$67,800 (unchanged)
Administrative (fixed, cash) …………
$270,300 × 1.10
Administrative depreciation …………
$25,200 unchanged
Total marketing and administrative costs
Total costs ……………………………………
13–54. (10 min.) Estimate Cash from Operations: Gulf States Manufacturing.
Gulf States Manufacturing
Cash Basis Budgeted Income Statement
For Year 2
Sales revenue ………………………………………
$2,781,000
Manufacturing costs:
Materials …………………………………………..
$ 457,920
Variable cash costs …………………………...
559,170
Fixed cash costs ………………………………..
196,560
Total manufacturing costs ………………………
$1,213,650
Marketing and administrative costs:
Marketing (variable, cash) ………………….
Administrative (fixed, cash) …………………
Total cash marketing and administrative costs
Total cash costs ……………………………………
13–55. (25 min.) Prepare A Production Budget: EcoSacks.
EcoSacks
Production Budget
Coming Year
(in units)
Expected Sales ………………………………………………..
540,000
units
Add: Desired ending inventory of finished goods …..
210,000
Total needs ……………………………………………………..
750,000
Less: Beginning inventory of finished goods …………
120,000
Units to be produced …………………………………………
630,000
units
Alternative method:
First, compute the estimated production:
P
=
Sales + EB – BB
P
=
Sales + (210,000 – 120,000)
=
=
units
Next estimate the costs:
Direct materials
Cotton 630,000 × 1 yard × $4.00 × 1.20 …..
$3,024,000
Canvas 630,000 × 0.2 yards × $12.00 …….
1,512,000
Total direct materials …………………………….
$4,536,000
Direct labor:
$5,670,000
Indirect labor ……………..
$ 378,000
Indirect materials ……….
Power ………………………
Equipment costs ………..
Building occupancy ……
Total overhead ………………………………………
$2,076,000
13–56. (25 min.) Prepare A Production Budget: Haggstrom, Inc.
Haggstrom, Inc.
Production Budget
Year 2
(in units)
Expected Sales ………………………………………………..
210,000
units
Add: Desired ending inventory of finished goods …..
10,000
Total needs ……………………………………………………..
220,000
Less: Beginning inventory of finished goods …………
20,000
Units to be produced …………………………………………
200,000
units
Alternative method:
First, compute the estimated production:
P
=
Sales + EB – BB
P
=
Sales + (10,000 – 20,000)
=
=
200,000
units
Next estimate the costs:
Direct materials
Steel 200,000 × 3 pounds × $0.50 × 0.90 ……….
$270,000
Alloy 200,000 × 0.5 pounds × $2.00 ……………….
200,000
Total direct materials ………………………………..
$470,000
Direct labor:
200,000 × 0.02 hr. × $25 × 1.04 …………………
$104,000
Overhead:
Indirect materials ……………….
Indirect labor ……………………..
Utilities …………………………..…
Plant and equipment depreciation
Miscellaneous ……………………
Total overhead ………………………………………
13–57. (25 min.) Sales Expense Budget: SPU, Ltd.
Budgeted
Item
January
Adjustments
Typical Month
Sales commissions
$364,500
×
1.14 × 0.90
=
$373,977
Sales staff salaries .
86,400
×
1.06
=
91,584
Telephone & mailing
43,000
×
1.14 × 1.05
=
51,471
Building lease payment
=
Utilities ……………….
×
1.03
=
11,433
Packaging & delivery
×
1.14
=
84,360
Depreciation ………..
33,750
+
=
34,192
Marketing consultants
+
=
13–58. (30 min.) Budgeted Purchases And Cash Flows: Mast Corporation.
a. $113,000
BB + P
=
Sales + EB
(120% × 11,900) + P
=
11,900 + (120% × 11,400)
14,280 + P
=
11,900 + 13,680
=
11,900 + 13,680 – 14,280
=
11,300 units
b. $121,200
=
Sales + EB
(120% × 11,400) + P
=
11,400 + (120% × 12,000)
=
11,400 + 14,400
=
11,400 + 14,400 – 13,680
=
=
c. $691,896
70%
×
$726,000
×
98%
=
$498,036
15%
×
$726,000
=
108,900
12%
×
$708,000
=
84,960
$691,896
13–58. (continued)
d. $218,320 June cash disbursement.
May purchases paid in June: $113,000* × 40% = $45,200
May selling general and administrative expenses paid in June:
[($714,000 × 15%) – $4,000] × 40% = $41,240
$45,200 + $41,240 + $72,720 + $59,160 = $218,320
*From part a. of this problem
**From part b. of this problem
e. 49,040
13–59. (45 min.) Prepare Budgeted Financial Statements: HomeSuites.
It is useful to calculate some variable costs per night and property in Year 1:
Number of nights (Year 1) = 766,500 (= 15 × 365 nights x 200 rooms × 70%).
Average food and beverage revenue per night = $25 (= $19,162,500 ÷ 766,500)
Average miscellaneous revenue per night = $10 (= $7,665,000 ÷ 766,500)
Average food and beverage cost per night = $18 (= $13,797,000 ÷ 766,500)