Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
Chapter 20
Master Budgets and Performance
Planning
QUESTIONS
1. A written budget helps managers plan and control a business by 1) communicating
and 5) motivate employees.
2. Management controls operations by benchmarking against some norm. A
3. Continuous budgeting provides managers a full set of updated budgets each time a
4. Three common short-term horizons for planning and budgeting purposes are:
monthly, quarterly, and annually. A semiannual planning horizon is also popular.
5. Budgeting can be a strong positive motivating force if employees are involved or
consulted in the process. This participation promotes their commitment to reaching
6. Budgeting helps management coordinate and plan business activities by providing
specific guidance for the individual activities of various departments and
employees.
7. The sales budget reflects the expected sales to be made over a period of time, stated
8. A selling expense budget is a plan of the expenses to be incurred to produce the
9. In participatory budgeting, some employees might understate sales and/or overstate
expenses to provide budgetary slack. Pressure to meet budget targets might lead to
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
10. A cash budget shows the planned cash receipts and cash payments for each budget
period, including any loans to be received or repaid. Since the operating budgets
11. A production budget shows the number of units to be produced each budget period.
12. A manager of an Apple store would have responsibility for and decision control over
budgeting for his/her store. A manager at the corporate offices may participate in,
13. With the exception of the decision to operate, the manager of a Samsung
distribution center is not likely to engage in a substantial amount of long-term
14.
Budget Participant
Description
Sales manager ………………..
Information on estimated sales (units and dollars).
Production manager ………..
Number of units to produce based on estimated sales.
Manufacturing manager …..
strative managers ……………
cash flow analysis.
Amount of direct materials, direct labor, and
15. The bottle redesign will reduce the amount and total cost of glass used, thus
16. Activity-based budgeting requires managers to focus on the activities of their
departments, forecast the individual activity levels, identify the resources required to
carry out the activities, and estimate the costs of those resources. Traditional
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QUICK STUDIES
Quick Study 20-1 (10 minutes)
Quick Study 20-2 (10 minutes)
Quick Study 20-3 (10 minutes)
ZAHN Co.
Production Budget
For Month Ended May 31
Next month’s budgeted sales (units) ……………………………………………
240
280
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Quick Study 20-4 (10 minutes)
Grace
Sales Budget
For Month Ended June 30
Prior month’s unit sales ………………………………………………………………
1,000
Plus 4% growth in unit sales ……………………………………………………….
Projected June sales (units) ……………………………………………………….
1,040
Projected dollar sales for June ……………………………………………………
Quick Study 20-5 (10 minutes)
Zilly Co.
Selling Expense Budget
For Month Ended June 30
Budgeted sales …………………………..………………………………………………
$400,000
Sales commission percent ………………………………………………………….
Sales commissions …………………………………………………………………….
Projected selling expense for June ……………………………………………..
Quick Study 20-6 (10 minutes)
Liza’s
Budgeted Cash Receipts
For Month Ended June 30
Budgeted sales …………………………..………………………………………………
$52,000
Cash sales ($52,000 x 0.60) ………………………………………………………….
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Quick Study 20-7 (10 minutes)
ZORTEK CORP.
Direct Materials Budget
For Month Ended January 31
Budget production (units) ……………………………………………………………
400
Materials requirements per unit …………………………………………………..
x 5 lbs.
Materials needed for production (lbs.) …………………………………………
2,000
Add budgeted ending inventory (200* units x 5 lbs. per unit x 40%) ….
Total materials requirements (lbs.) ………………………………………………
2,400
Deduct beginning inventory (lbs.) ………………………………………………..
Materials to be purchased (lbs.) …………………………………………………..
Materials price per pound ……………………………………………………………
Quick Study 20-8 (5 minutes)
TORA CO.
Direct Labor Budget
For Month Ended July 31
Budget production (units) ……………………………………………………………
1,020
Labor requirements per unit (hours) ……………………………………………
x 2
Labor rate (per hour) …………………………..………………………………………
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Quick Study 20-9 (10 minutes)
SCORA INC.
Sales Budget
For January, February, and March
Budgeted
Unit Sales
Budgeted
Unit Price
Budgeted
Total Sales
January …………………………………………………
1,200
$50
$ 60,000
February ………………………………………………..
2,000
March ……………………………………………………
Quick Study 20–10 (10 minutes)
X-TEL
Cash Receipts Budget
For April, May, and June
April
May
June
Sales ……………………………………………………..
$60,000
$100,000
$80,000
Less ending accts. receivable (60%) ………
36,000
60,000
48,000
Cash receipts from:
Cash sales (40% of sales) ……………………..
40,000
36,000
60,000
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Quick Study 20–11 (10 minutes)
X-TEL
Selling Expense Budget
For April, May, and June
April
May
June
Budgeted sales …………………………..…………
$60,000
$100,000
$80,000
Sales commission percent …………………….
Sales commissions ………………………………
Sales manager monthly salary ……………….
Quick Study 20–12 (10 minutes)
CHAMP, INC.
Production Budget
For Month Ended May 31
Next month’s budgeted sales (units) ……………………………………………
200
Ratio of inventory to future sales …………………………………………………
x 60%
Add budgeted sales for the month (units) ……………………………………
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Quick Study 20–13 (10 minutes)
MIAMI SOLAR
Direct Materials Budget
For Month Ended July 31
Budgeted production (units, given) ……………………………………………..
5,000
Materials requirements per unit …………………………………………………..
x 3 lbs.
Materials price per pound ……………………………………………………………
Quick Study 20–14 (10 minutes)
MIAMI SOLAR
Direct Labor Budget
For Month Ended July 31
Budgeted production…………………………………………………………………..
5,000
Total labor hours needed …………………………………………………………….
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Quick Study 20–15 (10 minutes)
MIAMI SOLAR
Factory Overhead Budget
For Month Ended August 31
Total budgeted direct labor* ……………………………………………
$339,200
Budgeted variable overhead ……………………………………………
Quick Study 20-16 (15 minutes)
ATLANTIC SURF
Production Budget
July and August
July
August
Budgeted ending inventories
July (40% x 6,500) ……………………………………………………….
2,600
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Quick Study 20–17 (15 minutes)
Forrest Company
Production Budget
For Month Ended November 30
Next month’s budgeted sales ………………………………………………………
350,000
Ratio of inventory to future sales …………………………………………………
x 10%
Add budgeted sales for the month ………………………………………………
400,000
Quick Study 20–18 (15 minutes)
Hockey Pro
Factory Overhead Budget
For Month Ended May 31
Units to be produced ………………………………………………………………….
3,900
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Quick Study 20-19 (10 minutes)
MUSIC WORLD
Cash Receipts Budget
For Month Ended September 30
Cash receipts from September cash sales (40% x $170,000) …………
$ 68,000
Quick Study 20–20 (10 minutes)
THE GUITAR SHOPPE
Cash Receipts Budget
For Month Ended September 30
Cash receipts from August sales (55% x $150,000) ………………………
$ 82,500
Quick Study 20–21 (10 minutes)
WELLS COMPANY
Budgeted Cash Receipts
For Month Ended November 30
Cash receipts from November cash sales (25% x $80,000) ……………
$ 20,000
Total budgeted cash receipts ………………………………………………………
$ 65,100
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Quick Study 20–22 (15 minutes)
Computation of budgeted Accounts Receivable balance as of July 31
Sales month
Total Sales
Credit
Sales*
Percent Still
Uncollected*
Amount
Uncollected
Quick Study 20–23 (10 minutes)
SANTOS CO.
Cash Budget
For Month Ended February 28
Beginning cash balance ……………………………………………………….……..
$ 20,000
Cash payments ……………………………………………………….………………….
Additional loan from bank …………………………………………………………..
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Quick Study 20–24 (15 minutes)
GADO COMPANY
Cash Budget
For Month Ended March 31
Beginning cash balance ………………………………………………….
$ 72,000
Cash receipts from sales ………………………………………………..
300,000
$372,000
285,000
Quick Study 20-25 (10 minutes)
Sales ………………………………………………………………………………………… BIS
Office salaries paid …………………………………………………………………… BIS
Quick Study 20-26 (10 minutes)
GARDA
Cash Payments for Merchandise (Budgeted)
For Month Ended September 30
Cash payments for September purchases (25% x $720,000) ………….
$180,000
$630,000
1164
Quick Study 20-27 (10 minutes)
TORRES CO.
Cash Payments for Merchandise (Budgeted)
For January, February, and March
January
February
March
Purchases ……………………………………………..
$15,800
$18,600
$20,200
Cash payments for
$ 6,320
$ 7,440
$ 8,080
Quick Study 20-28 (10 minutes)
RAIDER-X COMPANY
Purchases Budget (in units)
For Month Ended April 30
Budgeted ending inventory (130% x 3,000) …………………………………..
3,900
1165
Quick Study 20-29 (15 minutes)
LEXI COMPANY
Merchandise Purchases Budget
For April, May, and June
April
May
June
Next month’s budgeted sales (units) ………
1,220,000
980,000
1,020,000
Quick Study 20-30 (15 minutes)
MONTEL COMPANY
Computation of Budgeted Cost of Purchases
For Month Ended July 31
Budgeted ending inventory ……………………………………………………….
$ 40,000
Less budgeted beginning inventory ………………………………………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
Quick Study 20-31 (10 minutes)
1. (€ billions)
Sales (current year) ……………………………………………………….….
€ 24.5
2. (€ billions)
Note: Assume budgeted sales of €25 billion for this question.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
EXERCISES
Exercise 20-1 (10 minutes)
1.
Sales (before packaging redesign) ……………………………………
$30,000
2.
Shipping costs ($32,400 x 3%) ………………………………………….
$ 972
Exercise 20-2 (10 minutes)
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Exercise 20-3 (15 minutes)
RUIZ CO.
Production Budget
For April, May, and June
April
May
June
Next month’s budgeted sales (units) ………
580
540
620
Ratio of inventory to future sales ……………
x 25%
x 25%
x 25%
Budgeted ending inventory (units) ………..
155
Required units of available production …..
695
Deduct beginning inventory (units) ………..
Exercise 20-4 (15 minutes)
ZIRA CO.
Direct Materials Budget
For April, May, and June
April
May
June
Budgeted production (units) ………………….
455
570
560
Materials requirements per unit ……………..
x 5
x 5
x 5
Materials needed for production (lbs.) ……
Add budgeted ending inventory (lbs.) …….
Total materials requirements (lbs.) …………
3,130
3,610
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Exercise 20-5 (10 minutes)
MANNER COMPANY
Direct Labor Budget
For July, August, and September
July
August
Sept.
Budgeted production (units) ………………….
620
680
540
Total labor hours needed ……………………….
Exercise 20-6 (15 minutes)
RIDA INC.
Direct Materials Budget
Second Quarter
Units to be produced …………………………..………………………….
240,000
Materials requirement per unit ………………………………………..
x 0.60
Materials needed for production (pounds) ……………………….
Total materials requirements (pounds) …………………………..
1170
Exercise 20-7 (15 minutes)
1.
ADDISON CO.
Direct Labor Budget
Second Quarter
Units to be produced …………………………..………………………….
2,400
9,600
2.
ADDISON CO.
Factory Overhead Budget
Second Quarter
Total labor hours needed ………………………………………………..
9,600