1. Budgets are the quantitative expressions of plans. Budgets are used to translate the goals
and strategies of an organization into operational terms.
2. Control is the process of setting standards, receiving feedback on actual performance,
and taking corrective action whenever actual performance deviates materially from
planned performance. Budgets are standards, and they are compared with actual costs
and revenues to provide feedback.
5.
A
master budget is the collection of all individual area and activity budgets. Operating
budgets are concerned with the income-generating activities of a firm. Financial budgets
are concerned with the inflows and outflows of cash and with planned capital expenditures.
6. The sales forecast is a critical input for building the sales budget. However, it is not
necessarily equivalent to the sales budget. Upon receiving the sales forecast, management
Profit Planning
9
DISCUSSION QUESTIONS
CHAPTER 9 Profit Planning
11. Participative budgeting is a system of budgeting that gives subordinate managers a say in how the
budgets are established. Participative budgeting fosters creativity and communicates a sense of
responsibility to subordinate managers. It also creates a higher likelihood of goal congruence since
managers have more of a tendency to make the budget’s goals their own personal goals.
12.
A
gree. Individuals who are not challenged tend to lose interest and maintain a lower level of
performance. A challenging, but achievable, budget tends to extract a higher level of performance.
CHAPTER 9 Profit Planning
9-1. d
9-2. e
9-3. c
9-13. b
9-14. d
9-15. a
9-16. a
MULTIPLE-CHOICE QUESTIONS
CHAPTER 9 Profit Planning
CE 9-21
1st Quarter
February March Total
CE 9-22
1st Quarter
February March Total
Sales………………………
…
38,000 50,000 129,000
Desired ending
For the Coming Quarter
Patrick Inc.
Production Budget
41,000
January
January
CORNERSTONE EXERCISES
Patrick Inc.
Sales Budget
For the Coming Quarter
…
CHAPTER 9 Profit Planning
CE 9-23
1. Ending Inventory for December = 0.15 × 5.50 gal. of chemicals × 43,800 units
= 36,135
2. Direct materials purchases budget—chemicals in gallons:
January February
Production in units……………………………………
43,800 41,000
× Gallons per unit…………………………………
…
5.5 5.5
3. Ending Inventory for December = 0.15 × 1 drum × 43,800 units = 6,570
4. Direct materials purchases budget—drums:
January February
Production in units……………………………………
43,800 41,000
× Drums per unit……………………………………
…
11
…
CHAPTER 9 Profit Planning
CE 9-24
Direct Labor Budget: January February March Total
Units to be produced………………
…
43,800 41,000 50,250 135,050
CE 9-25
Overhead: January February March Total
Total direct labor hrs. ………………
…
13,140 12,300 15,075 40,515
CE 9-26
1. Direct materials…………………………………………………………………………
…
$14.00
Direct labor (1.9 hr × $16)…………………………….………………………………
…
30.40
…
…
2. Cost of ending inventory ($49.72 × 675)……………………………………………
…
$33,561
CE 9-27
Direct materials ($14 × 20,000)………………………………………………………
…
$280,000
Direct labor (1.9 hr × $16 × 20,000)………..……………………..…………………
…
608,000
…
…
Cost of Goods Sold Budget
For the Coming Year
Andrews Company
…
CE 9-28
V
ariable selling expenses (0.03 × $19,730,000)…………
…
$ 591,900
Fixed expenses:
Salaries………………………………………………………
…
$ 960,000
…
…
…
CE 9-29
Sales ($10.80 × 160,000)….……………..…………….…………………………… $1,728,000
Cost of goods sold ($6.30 × 160,000)….……………..…………….……………
…
1,008,000
For the Coming Year
Fazel Company
Selling and Administrative Expenses Budget
For the Coming Year
Oliver Company
Budgeted Income Statement
CHAPTER 9 Profit Planning
CE 9-30
August September
June:
($100,800 × 0.25)………………………………….…………
…
$25,200 —
CE 9-31
1. Payments for purchases from:
2. Payments for purchases from:
…
CHAPTER 9 Profit Planning
CE 9-32
1. Cash receipts in October from:
Cash sales ($157,000 × 0.85)………………………………………………
…
$133,450
2. Payments for food and supplies purchases from:
3. Beginning balance………………………………………………………………
…
$ 2,147
Cash receipts……………………………………………………………………
…
157,558
Cash available……………………………………………………………………
…
$159,705
Less:
Payments for food and supplies purchases……………………………
…
$126,500
Owners’ draw…………………………………………………………………
…
6,000
CHAPTER 9 Profit Planning
E 9-33
1. h, i 6. f
E 9-34
1.
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Y
ea
r
S12L7
Units……
…
800 2,200 5,600 4,600 13,200
…
…
…
2. Stillwater Designs will use the sales budget in planning as the basis for the production
EXERCISES
Stillwater Designs
Sales Budget
For the Year Ended December 31, 2014
E 9-35
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Y
ea
r
Sales………………….………
…
800 2,200 5,600 4,600 13,200
Desired ending
…
…
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Y
ea
r
Sales………………….………
…
1,300 1,400 5,300 3,900 11,900
Desired ending
…
…
Stillwater Designs
Production Budget for S12L5
For the Year Ended December 31, 2014
Stillwater Designs
Production Budget for S12L7
For the Year Ended December 31, 2014
CHAPTER 9 Profit Planning
1.
January February March Total
Sales……………………………………
…
48,000 46,000 55,000 149,000
2.
Jars: January February Total
Production……………………………………………
…
42,700 47,800 90,500
× 1 jar…………….……………………………………
…
111
Jars for production…………………………………
…
42,700 47,800 90,500
…
Direct Materials Purchases Budget
For January and February
Peanut-Fresh Inc.
Production Budget
For the First Quarter of the Year
Peanut-Fresh Inc.
CHAPTER 9 Profit Planning
E 9-37
A
pril May June Total
Sales………………………………… 180,000 220,000 200,000 600,000
E 9-38
July
A
ugust Septembe
r
Total
Units to be produced……………
…
3,500 4,400 4,900 12,800
× Direct materials per unit
(ounces)…………………………
…
15 15 15 15
…
Aqua-pro Inc.
Production Budget
For the Second Quarter
Langer Company
Direct Materials Purchases Budget
For July, August, and September
…
…
CHAPTER 9 Profit Planning
E 9-39
March
A
pril May Total
Units to be produced………… 4,000 13,000 14,400 31,400
E 9-40
Units Price Total Sales
LB-1………………………………………………
…
36,750 $32.00 $1,176,000
LB-2………………………………………………
…
18,900 20.00 378,000
Evans Company
Direct Labor Budget
For March, April, and May
Model
Alger Inc.
Sales Budget
For the Coming Year
E 9-41
1.
Septembe
r
Octobe
r
Novembe
r
Decembe
r
Sales………………………………………
…
250 200 230 380
…
…
2.
Fruit Septembe
r
Octobe
r
Novembe
r
Production……………………………………………
…
247 202 237
× Pounds of fruit ……………………………………
…
11 1
…
3. December includes the holiday season and is a time when many gifts are given. Jani
Jani’s Flowers and Gifts
Production Budget for Gift Baskets
For September, October, November, and Decembe
r
For September, October, and Novembe
r
Jani’s Flowers and Gifts
Direct Materials Purchases Budget
CHAPTER 9 Profit Planning
E 9-42
1. Credit Sales in May = $290,000 × 0.85 = $246,500
2.
July August
Cash sales…………………………………………………………
…
$ 44,250 $ 45,000
Payments on account:
From May credit sales:
(0.05 × $246,500)……………………………………………
…
12,325 0
…
…
…
…
…
E 9-43
1.
Payments on account:
From May credit sales:
(0.23 × $248,000)………………………………………………………………
…
$ 57,040
…
…
Schedule of Cash Receipts
For July
Bennett Inc.
Schedule of Cash Receipts
For July and August
Roybal Inc.
CHAPTER 9 Profit Planning
E 9-43 (Continued)
2.
Payments on account:
From June credit sales:
E 9-44
Payments on accounts payable:
From July purchases (0.80 × $77,000)…………………………………..…
…
$ 61,600
From August purchases (0.20 × $73,000)…………………………………..
…
14,600
Schedule of Cash Receipts
For August
Roybal Inc.
Fein Company
Schedule of Cash Payments
For August
…
CHAPTER 9 Profit Planning
E 9-45
Beginning cash balance……………………………..…………
…
$ 736
Collections:
Cash sales………………………………………………………
…
18,600
Credit sales:
Current month ($54,000 × 0.40)…………………………
…
21,600
May credit sales ($35,000 × 0.30)………………………
…
10,500
2. Yes, the business does show a negative cash balance for the month of June. A
Cash Budget
For June
…
CHAPTER 9 Profit Planning
P 9-46
A
ugus
t
September
Cash fees……………………………………………..………
…
$ 48,500 $ 60,000
Received from sales in:
June (0.75 × 0.26 × $200,000 × 1.03)………
…
40,170 —
P 9-47
1.
a. Schedule 1:Sales Budget
January February March Total
Units…………………
…
40,000 50,000 60,000 150,000
PROBLEMS
Allison Manufacturing
For the Quarter Ended March 31
Aragon and Associates
Schedule of Cash Receipts
For August and Septembe
r
…
CHAPTER 9 Profit Planning
P 9-47 (Continued)
c. Schedule 3: Direct Materials Purchases Budget
Component
Units to
be produced………
…
48,000 60,000 60,000 166,000
× Direct
materials…………… 10 10 6 6
TotalMarch
Metal
Component
January
48,000
6
Metal
February
ComponentMetalMetal
58,000
10
Component
58,000
6
166,000
10
…