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
that inventory levels can be maintained within reasonable limits.
9. a. The cash budget contributes to effective cash planning. This involves advance planning
CHAPTER 22
BUDGETING
DISCUSSION QUESTIONS
22-1
CHAPTER 22 Budgeting
PE 21–1A
Variable cost:
PE 21–1B
Variable cost:
PE 22–2A
Expected units to be sold………………………………………………………………… 190,000
…
PE 22–2B
Expected units to be sold………………………………………………………………… 75,000
…
22-2
PE 22–3A
Square yards required for production:
Diaries (191,900 × 7 sq. yd.)………………………………………………… 1,343,300
…
Total square yards to be purchased…………………………………………
…
1,347,100
…
PE 22–3B
Pounds of wax required for production:
…
…
PE 22–4A
Hours required for assembly:
Diaries (191,900 × 9 min.)…………………………………………………… 1,727,100 min.
PE 22–4B
Hours required for assembly:
22-3
CHAPTER 22 Budgeting
PE 22–5A
Finished goods inventory, January 1, 2014 $ 28,000
Work in process inventory, January 1, 2014 $ 17,000
Direct materials:
Direct materials inventory, January 1, 2014
22-4
PE 22–5B
Finished goods inventory, January 1, 2014 $ 9,800
Work in process inventory, January 1, 2014 $ 3,600
Direct materials:
Direct materials inventory, January 1, 2014
PE 22–6A
July
…
PE 22–6B
April
…
22-5
CHAPTER 22 Budgeting
Ex. 22–1
a.
September October November December
Estimated cash receipts from:
Tuition 4,500
Rent 300 300 300 300
Food 180 180 180 180
b. The four-month budgets do not change with any identified activity level; thus,
they are static budgets.
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
For the Four Months Ending December 31, 2014
JEN LASSITER
Cash Budget
EXERCISES
22-6
CHAPTER 22 Budgeting
Ex. 22–2
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
22-7
CHAPTER 22 Budgeting
Ex. 22–3
a.
January February March
Units of production 90,000 100,000 110,000
Supporting calculations:
Units of production 90,000 100,000 110,000
Hours per unit 0.25 0.25 0.25
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
×××
22-8
CHAPTER 22 Budgeting
Ex. 22–4
Units of production 12,000 15,000 18,000
Variable cost:
Direct labor $ 84,000 $105,000 $126,000
112,000 × 20/60 min. × $21
Ex. 22–5
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
123
22-9
CHAPTER 22 Budgeting
Ex. 22–6
a.
Unit Sales Unit Selling
Volume Price Total Sales
Model DL:
East Region 2,450 $170 $ 416,500
West Region 2,170 170 368,900
b.
Model DL Model XL
Expected units to be sold 4,620 1,840
SOUNDLAB INC.
Production Budget
For the Month Ending November 30, 2014
Units
Product and Area
SOUNDLAB INC.
Sales Budget
For the Month Ending November 30, 2014
22-10
CHAPTER 22 Budgeting
Ex. 22–7
Billable Hourly Total
Hours Rate Revenue
Audit Department:
Staff 22,400 $150 $ 3,360,000
Small Business Accounting Department:
Staff 3,000 $150 $ 450,000
Ex. 22–8
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
22-11
CHAPTER 22 Budgeting
Ex. 22–9
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
22-12
CHAPTER 22 Budgeting
Ex. 22–10
Materials required for production:
Coke® Sprite®
*Production in liters (bottles × 2 liters/bottle)……………………
…
$352,000 $224,000
COCA-COLA ENTERPRISES—WAKEFIELD PLANT
For the Month Ending May 31, 2014
(assumed data)
Direct Materials Purchases Budget
Concentrate Bottles Water
2-Liter Carbonated
22-13
CHAPTER 22 Budgeting
Ex. 22–11
Total
Pounds required for production:
Passenger tires 1,470,000 lbs. 210,000 lbs.
1Rubber: 42,000 units × 35 lbs. per unit = 1,470,000 lbs.
Ex. 22–12
Hours required for production:
Junior
1Junior: 0.20 hr. × 1,700 = 340 hrs.
Department
Forming Assembly
Department
Direct Labor Cost Budget
For the Month Ending July 31, 2014
ACE RACKET COMPANY
340
544
SAFETY GRIP COMPANY
Direct Materials Purchases Budget
For the Year Ending December 31, 2014
Rubber Steel Belts
12
12
22-14
CHAPTER 22 Budgeting
Ex. 22–13
Weekday Weekend Day
Room occupancy
Room capacity 300 300
Occupied percent (occupancy) 80% 40%
AMBASSADOR SUITES INC.
Direct Labor Cost Budget
For a Weekday or a Weekend Day
××
22-15
CHAPTER 22 Budgeting
Ex. 22–14
a.
Expected units to be sold
b.
Outer-
Inseam seam Pockets Zipper Total
Dockers® 42,030 46,700 14,010 28,020
501 Jeans® 47,970 74,620 47,970 31,980
1(23,350 ÷ 10 pairs) × 18 min. = 42,030 min.
2(23,350 ÷ 10 pairs) × 20 min. = 46,700 min.
3(23,350 ÷ 10 pairs) × 6 min. = 14,010 min.
Direct Labor Cost Budget
(assumed data)
May 2014
LEVI STRAUSS & CO.
LEVI STRAUSS & CO.
Production Budget
(assumed data)
May 2014
501 Jeans®
53,100
Dockers®
23,600
1234
5678
22-16
CHAPTER 22 Budgeting
Ex. 22–15
Variable factory overhead costs:
Manufacturing supplies $ 14,000
Power and light 48,000
Production supervisor wages 135,000
SWEET TOOTH CANDY COMPANY
Factory Overhead Cost Budget
For the Month Ending August 31, 2014
22-17
CHAPTER 22 Budgeting
Ex. 22–16
Finished goods inventory, June 11$ 16,900
Work in process inventory, June 1 $ 12,900
Direct materials:
Direct materials inventory, June 1 $ 15,200
DELAWARE CHEMICAL COMPANY
Cost of Goods Sold Budget
For the Month Ending June 30, 2015
22-18
CHAPTER 22 Budgeting
Ex. 22–17
Finished goods inventory, September 1, 2014 $ 11,500
Work in process inventory, September 1, 2014 $ 3,400
Direct materials:
Direct materials inventory, September 1, 2014 $ 6,440
MINGWARE CERAMICS INC.
Cost of Goods Sold Budget
For the Month Ending September 30, 2014
22-19
CHAPTER 22 Budgeting
Ex. 22–18
May June July
Receipts from cash sales:
Cash sales (10% × current month’s sales) $12,600 $ 14,500 $ 16,200
May sales1 on account:
PETCARE SUPPLIES INC.
Schedule of Collections from Sales
For the Three Months Ending July 31, 2014
22-20