Problem 8.37 (Continued)
Accounts receivable for August 31 is computed as follows:
Given accounts payable, the total assets must equal $569,750 ($81,000 +
$220,000 + $268,750). Cash is computed as the difference between total as-
sets and all other assets except cash ($569,750 – $431,750 – $27,000 –
$100,800). This difference is $10,200.
Assets L & O E
Cash ………………………………….. $ 10,200
Accounts receivable …………… 100,800
Problem 8.37 (Continued)
2. Cash Budget
For the Period Ending November 30
September October November Total
Beginning cash balance …. $ 10,200 $ 10,900 $ 17,425 $ 10,200
Cash collectionsa …………… 104,400 100,800 110,200 315,400
Total cash available …. $ 114,600 $ 111,700 $127,625 $325,600
Disbursements:
Accounts payableb ….. $ 81,000 $ 70,500 $ 85,500 $237,000
Lease ……………………… — — 5,000 5,000
Total disbursements………. $ 108,700 $ 89,200 $103,200 $301,100
Minimum cash balance ….. 10,000 10,000 10,000 10,000
Total cash needs …………… $ 118,700 $ 99,200 $113,200 $311,100
Excess (deficiency) ……….. $ (4,100) $ 12,500 $ 14,425 $ 14,500
Financing:
Borrowings …………….. $ 5,000 $ 5,000
Problem 8.37 (Concluded)
3. Creighton Hardware Store
Pro Forma Balance Sheet
November 30
Cash …………………………………………………. $ 24,425
Accounts receivablea…………………………. 110,400
Problem 8.38
1. a. Production budget:
January February March Total
Unit sales ………………………… 36,000 34,500 39,000 109,500
Desired ending inventory …. 12,075 13,650 13,510 13,510
Problem 8.38 (Concluded)
c. Direct materials cost budget:
January February March Total
Units produced ………………… 42,475 36,075 38,860 117,410
Cost per unit ……………………. × $9 × $9 × $9 × $9
2. Greiner Company
Budgeted Contribution Margin
First Quarter, 2015
January February March Total
Sales revenue ………………. $2,880,000 $2,760,000 $2,925,000 $8,565,000
Problem 8.39
Friendly Freddie’s
Cash Budget
October through December
October November December
Beginning cash balance ……………………. $ 8,800 $ 8,600 $ 9,120
Receipts:
Cash sales …………………………………… 14,000 29,000 44,000
Loan repayment …………………………... 5,000 4,000
Interestc ………………………………………. 180 80
Total disbursements …………………………. $154,400 $ 154,820 $174,240
aCollections of sales on account:
October November December
July: 6% of $130,000 ………….. $ 7,800
August: 20% of $104,000 ………… 20,800
6% of $104,000 ………….. $ 6,240
bPayments for inventory purchases:
October November December
September purchases (97% of $120,000) $116,400
Problem 8.40
1. Overhead rate = $423,167/13,446 = $31.47
Predicted Actual
Month Overhead Overhead Variance
January ………………. $ 31,470 $ 32,296 $ 826 U
February …………….. 29,267 31,550 2,283 U
March …………………. 34,617 36,280 1,663 U
April ……………………. 33,044 36,867 3,823 U
May …………………….. 36,820 36,790 30 F
2. The regression for overhead cost as a function of machine hours gives the
following formula:
Overhead cost = $8,699.64 + $23.71 (machine hours)
Predicted Actual
Month Overhead Overhead Variance
January ………………. $ 32,410 $ 32,296 $ 114 F
February …………….. 30,750 31,550 800 U
March …………………. 34,781 36,280 1,499 U
The flexible budget based on machine hours is better than the budget using
only the plantwide overhead rate because the flexible budget divides overhead
Problem 8.41
1. The multiple regression for overhead cost gives the following formula:
Overhead cost = $6,035.99 + $4.56 (machine hours) + $771.10 (setups)
+ $29.94 (purchase orders)
Predicted Actual
Month Overhead Overhead Variance
January ………………. $ 32,485 $ 32,296 $189 F
February ……………… 31,642 31,550 92 F
March …………………. 36,227 36,280 53 U
April ……………………. 36,643 36,867 224 U
The flexible budget based on multiple regression is much better than the one
based on simple regression. Multiple regression enables the controller to use
three independent variables, each based on a different driver. We can see that
the R2 has improved considerably (to 0.99). In addition, if we compare the
Problem 8.41 (Concluded)
2. The multiple regression for overhead cost gives the following formula:
Predicted Actual
Month Overhead Overhead Variance
January ………………. $ 32,287 $ 32,296 $ 9 U
February …………….. 31,670 31,550 120 F
March …………………. 36,341 36,280 61 F
April ……………………. 36,648 36,867 219 U
Problem 8.42
1. a. An imposed budgetary approach does not allow input from those who are
directly affected by the process. This can tend to make the employees
feel that they are unimportant and that management is concerned only
with meeting budgetary goals and not necessarily with the well-being of
employees. The employees will probably feel less of a bond with the or-
b. A participative budgetary approach allows subordinate managers consid-
erable say in how budgets are established. This communicates a sense of
responsibility to the managers and fosters creativity. It also increases the
likelihood that the goals of the budget will become the managers’ per-
2. a. In an imposed budgetary setting, communication flows from the top to
the bottom and is mostly a one-way flow. Any upward flow would have to
b. The first communication process leaves the impression that the opinions
and thoughts of lower-level managers are unimportant. They may feel that
Problem 8.43
1. a. The reasons that Marge Atkins and Pete Granger use budgetary slack in-
clude the following:
• They are hedging against the unexpected, thereby reducing uncer-
tainty and risk.
b. The use of budgetary slack can adversely affect Marge and Pete by:
• Limiting the usefulness of the budget to motivate their employees to
top performance.
2. The use of budgetary slack, particularly if it has a detrimental effect on the
company, may be unethical. In assessing the situation, the specific provi-
sions of the “Statement of Ethical Professional Practice” that should be con-
sidered are:
CYBER RESEARCH CASE
8.44
Answers will vary.
The Collaborative Learning Exercise Solutions can be found on the