1. The three major objectives of budgeting are (1) to establish specific goals for future
2. If goals set by the budgets are viewed as unrealistic or unachievable, employees and
3. A budget that is set too loosely may fail to motivate managers and other employees to perform
5. A static budget is most appropriate in situations where costs are not variable to an underlying
6. Computers not only speed up the budgeting process, but they also reduce the cost of budget
7. The production requirements must be carefully coordinated with the sales budget to ensure
9. a. The cash budget contributes to effective cash planning. This involves advance planning
CHAPTER 21 (FIN MAN); CHAPTER 6 (MAN)
BUDGETING
DISCUSSION QUESTIONS
21-1
CHAPTER 21 Budgeting
PE 21–1A (FIN MAN); PE 6–1A (MAN)
Variable cost:
PE 21–1B (FIN MAN); PE 6–1B (MAN)
Variable cost:
PE 21–2A (FIN MAN); PE 6–2A (MAN)
Expected units to be sold………………………………………………………………… 190,000
…
PE 21–2B (FIN MAN); PE 6–2B (MAN)
Expected units to be sold………………………………………………………………… 75,000
…
21-2
PE 21–3A (FIN MAN); PE 6–3A (MAN)
Square yards required for production:
Diaries (191,900 × 7 sq. yd.)………………………………………………… 1,343,300
PE 21–3B (FIN MAN); PE 6–3B (MAN)
Pounds of wax required for production:
Candles [(74,200 × 8 oz.) ÷ 16 oz.]…………………………………………
…
37,100
PE 21–4A (FIN MAN); PE 6–4A (MAN)
Hours required for assembly:
Diaries (191,900 × 9 min.)…………………………………………………… 1,727,100 min.
…
PE 21–4B (FIN MAN); PE 6–4B (MAN)
Hours required for assembly:
Candles (74,200 × 12 min.)…………………………………………………
…
890,400 min.
21-3
CHAPTER 21 Budgeting
PE 21–5A (FIN MAN); PE 6–5A (MAN)
Finished goods inventory, January 1, 2014 $ 28,000
Work in process inventory, January 1, 2014 $ 17,000
Direct materials:
PE 6–4A (MAN)] 460,560
Factory overhead 205,800
Total manufacturing costs 1,741,000
21-4
PE 21–5B (FIN MAN); PE 6–5B (MAN)
Finished goods inventory, January 1, 2014 $ 9,800
Work in process inventory, January 1, 2014 $ 3,600
Direct materials:
PE 6–4B (MAN)] 207,760
Factory overhead 109,600
Total manufacturing costs 469,470
PE 21–6A (FIN MAN); PE 6–6A (MAN)
July
PE 21–6B (FIN MAN); PE 6–6B (MAN)
April
…
21-5
CHAPTER 21 Budgeting
Ex. 21–1 (FIN MAN); Ex. 6–1 (MAN)
a.
September October November December
Estimated cash receipts from:
Estimated cash payments for:
Season football tickets $ 150
Additional entertainment 300 $ 300 $ 300 $ 300
Tuition 4,500
c. While Lassiter’s budget might first appear satisfactory, Lassiter must earn
enough cash in order to pay for the spring semester tuition. Her present budget
shows that she will be $500 short of the tuition amount ($4,500 – $4,000) by the
For the Four Months Ending December 31, 2014
JEN LASSITER
Cash Budget
EXERCISES
21-6
CHAPTER 21 Budgeting
Ex. 21–2 (FIN MAN); Ex. 6–2 (MAN)
Total sales $80,000 $100,000 $120,000
Variable cost:
Sales commissions (12% of sales) $ 9,600 $ 12,000 $ 14,400
CYBERWARE
Flexible Selling and Administrative Expenses Budget
For the Month Ending March 31, 2014
21-7
CHAPTER 21 Budgeting
Ex. 21–3 (FIN MAN); Ex. 6–3 (MAN)
a.
January February March
Units of production 90,000 100,000 110,000
Supporting calculations:
Units of production 90,000 100,000 110,000
Depreciation is a fixed cost, so it does not “flex” with changes in production. Since it
is the only fixed cost, the variable and fixed costs are not classified in the budget.
b. January February March
Total flexible budget…………………………………
…
$438,000 $480,000 $522,000
GILMAN COMPANY—MACHINING DEPARTMENT
Flexible Production Budget
For the Three Months Ending March 31, 2014
21-8
CHAPTER 21 Budgeting
Ex. 21–4 (FIN MAN); Ex. 6–4 (MAN)
Units of production 12,000 15,000 18,000
Variable cost:
Fixed cost:
Supervisor salaries $180,000 $180,000 $180,000
112,000 × 20/60 min. × $21
Ex. 21–5 (FIN MAN); Ex. 6–5 (MAN)
Small Scale Large Scale
Expected units to be sold 73,000 121,000
For the Month Ending July 31, 2015
Units
STEELCASE INC.—FABRICATION DEPARTMENT
Flexible Production Budget
(assumed data)
August 2014
ACCUWEIGHT INC.
Production Budget
21-9
CHAPTER 21 Budgeting
Ex. 21–6 (FIN MAN); Ex. 6–6 (MAN)
a.
Unit Sales Unit Selling
Volume Price Total Sales
Model DL:
East Region 2,450 $170 $ 416,500
b.
Model DL Model XL
Product and Area
SOUNDLAB INC.
Sales Budget
For the Month Ending November 30, 2014
SOUNDLAB INC.
Production Budget
For the Month Ending November 30, 2014
Units
21-10
CHAPTER 21 Budgeting
Ex. 21–7 (FIN MAN); Ex. 6–7 (MAN)
Billable Hourly Total
Hours Rate Revenue
Audit Department:
Small Business Accounting Department:
Staff 3,000 $150 $ 450,000
Ex. 21–8 (FIN MAN); Ex. 6–8 (MAN)
Staff Partners
Audit Department hours 22,400 7,900
Professional Labor Cost Budget
For the Year Ending December 31, 2014
ROLLINS AND COHEN, CPAs
Professional Fees Earned Budget
For the Year Ending December 31, 2014
ROLLINS AND COHEN, CPAs
21-11
CHAPTER 21 Budgeting
Ex. 21–9 (FIN MAN); Ex. 6–9 (MAN)
Dough Tomato Cheese Total
Units required for production:
12″ pizza 3,760 2,350 3,290
14,700 × 0.80 lb.
MORETTI’S FROZEN PIZZA INC.
Direct Materials Purchases Budget
For the Month Ending September 30, 2014
12
3
21-12
CHAPTER 21 Budgeting
Ex. 21–10 (FIN MAN); Ex. 6–10 (MAN)
Materials required for production:
Coke® Sprite®
2-Liter Carbonated
Concentrate Bottles Water
COCA-COLA ENTERPRISES—WAKEFIELD PLANT
For the Month Ending May 31, 2014
(assumed data)
Direct Materials Purchases Budget
21-13
CHAPTER 21 Budgeting
Ex. 21–11 (FIN MAN); Ex. 6–11 (MAN)
Total
Pounds required for production:
Less estimated inventory,
January 1, 2014 46,000 8,000
Ex. 21–12 (FIN MAN); Ex. 6–12 (MAN)
Hours required for production:
Junior
SAFETY GRIP COMPANY
Direct Materials Purchases Budget
For the Year Ending December 31, 2014
Rubber Steel Belts
340
544
Direct Labor Cost Budget
For the Month Ending July 31, 2014
ACE RACKET COMPANY
Department
Forming Assembly
Department
12
21-14
CHAPTER 21 Budgeting
Ex. 21–13 (FIN MAN); Ex. 6–13 (MAN)
Weekday Weekend Day
Room occupancy
Housekeeping
(b) Number of minutes to clean a room 30 30
Total minutes [(a) × (b)] 7,200 3,600
Restaurant staff
Base restaurant staff 6 6
Incremental 60 room blocks [(a) ÷ 60 rooms] 4 2
AMBASSADOR SUITES INC.
Direct Labor Cost Budget
For a Weekday or a Weekend Day
××
++
21-15
CHAPTER 21 Budgeting
Ex. 21–14 (FIN MAN); Ex. 6–14 (MAN)
a.
Expected units to be sold
b.
Outer-
Inseam seam Pockets Zipper Total
Dockers® 42,030 46,700 14,010 28,020
1(23,350 ÷ 10 pairs) × 18 min. = 42,030 min.
501 Jeans®
53,100
Dockers®
23,600
LEVI STRAUSS & CO.
Production Budget
(assumed data)
May 2014
(assumed data)
May 2014
LEVI STRAUSS & CO.
Direct Labor Cost Budget
1234
21-16
CHAPTER 21 Budgeting
Ex. 21–15 (FIN MAN); Ex. 6–15 (MAN)
Variable factory overhead costs:
Manufacturing supplies $ 14,000
Power and light 48,000
SWEET TOOTH CANDY COMPANY
Factory Overhead Cost Budget
For the Month Ending August 31, 2014
21-17
CHAPTER 21 Budgeting
Ex. 21–16 (FIN MAN); Ex. 6–16 (MAN)
Finished goods inventory, June 11$ 16,900
Work in process inventory, June 1 $ 12,900
Direct materials:
Cost of direct materials placed in
production $3,149,100
Direct labor 240,000
Factory overhead 400,000
DELAWARE CHEMICAL COMPANY
Cost of Goods Sold Budget
For the Month Ending June 30, 2015
21-18
CHAPTER 21 Budgeting
Ex. 21–17 (FIN MAN); Ex. 6–17 (MAN)
Finished goods inventory, September 1, 2014 $ 11,500
Cost of direct materials placed in
production $186,020
Direct labor 193,600
MINGWARE CERAMICS INC.
Cost of Goods Sold Budget
For the Month Ending September 30, 2014
21-19
CHAPTER 21 Budgeting
Ex. 21–18 (FIN MAN); Ex. 6–18 (MAN)
May June July
Receipts from cash sales:
Collected in July ($113,400 × 5%) 5,670
June sales2 on account:
PETCARE SUPPLIES INC.
Schedule of Collections from Sales
For the Three Months Ending July 31, 2014
21-20