Solution manual accounting 25th edition warren chapter 22

JEN LASSITER Cash Budget For the Four Months Ending December 31, 2014 Estimated cash receipts from: Estimated cash payments for: Season football tickets $ 150 Cash balance at beginning o

CHAPTER 22 BUDGETING DISCUSSION QUESTIONS

1 The three major objectives of budgeting are (1) to establish specific goals for future

operations, (2) to execute plans to achieve the goals, and (3) to periodically compare

actual results with the goals

2 If goals set by the budgets are viewed as unrealistic or unachievable, employees and

managers may become discouraged and may not be committed to the achievement of the

goals, resulting in the budget becoming less effective as a planning and control tool

3 A budget that is set too loosely may fail to motivate managers and other employees to perform

efficiently In addition, a loose budget may cause a “spend it or lose it” mentality, where excess budget resources are spent in order to protect the budget from future reductions

4 Conflicting goals can cause employees or department managers to act in their own self-

interests to the detriment of the organization’s objectives

5 A static budget is most appropriate in situations where costs are not variable to an underlying

activity level As a result, it is reasonable to plan spending on the basis of a fixed quantity of resources for the year This will occur in some administrative functions, such as human

resources, accounting, or public relations

6 Computers not only speed up the budgeting process, but they also reduce the cost of budget

preparation when large quantities of data need to be processed In addition, by using

computerized simulation models, management can determine the impact of various operating alternatives on the master budget

7 The production requirements must be carefully coordinated with the sales budget to ensure

that production and sales are kept in balance during the period Ideally, manufacturing

operations should be maintained at 100% of capacity, with no idle time or overtime, and

there should be neither excessive inventories nor inventories insufficient to fill sales orders

8 Purchases of direct materials should be closely coordinated with the production budget so

that inventory levels can be maintained within reasonable limits

9 a The cash budget contributes to effective cash planning This involves advance planning

so that a cash shortage does not arise and excess cash is not permitted to remain “idle.”

b The excess cash can be invested in readily marketable income-producing securities or

used to reduce loans

10 The plans for financing the capital expenditures budget may affect the cash budget.

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Plus desired ending inventory, December 31, 2014……… 20,300

Less estimated beginning inventory, January 1, 2014……… 18,400

PE 22–2B

Plus desired ending inventory, December 31, 2014……… 2,700

Less estimated beginning inventory, January 1, 2014……… 3,500

CHAPTER 22 Budgeting

PE 22–3A

Square yards required for production:

Diaries (191,900 × 7 sq yd.)……… 1,343,300 Plus desired ending inventory, December 31, 2014……… 32,900

Less estimated beginning inventory, January 1, 2014……… 29,100 Total square yards to be purchased……… 1,347,100 Unit price (per sq yd.)……… $0.80 Total direct materials to be purchased……… $1,077,680

PE 22–3B

Pounds of wax required for production:

Candles [(74,200 × 8 oz.) ÷ 16 oz.]……… 37,100 Plus desired ending inventory, December 31, 2014……… 2,100

Less estimated beginning inventory, January 1, 2014……… 2,500

Unit price (per lb.)……… $4.10 Total direct materials to be purchased……… $150,470

PE 22–4A

Hours required for assembly:

Diaries (191,900 × 9 min.)……… 1,727,100 min Convert minutes to hours……… ÷ 60 min.

PE 22–4B

Hours required for assembly:

Candles (74,200 × 12 min.)……… 890,400 min Convert minutes to hours……… ÷ 60 min.

Hourly rate……….…… × $14.00

PE 22–5A

Direct materials:

Direct materials inventory, January 1, 2014

Direct materials purchases (from PE 22–3A) 1,077,680

Cost of direct materials available for use $1,100,960

Less direct materials inventory,

Less work in process inventory, December 31, 2014 19,500

PE 22–5B

Direct materials:

Direct materials inventory, January 1, 2014

Direct materials purchases (from PE 22–3B) 150,470

Cost of direct materials available for use $160,720

Less direct materials inventory,

PE 22–6A

July Collections from June sales (70% × $320,000)……… $224,000 Collections from July sales (30% × $350,000)……… 105,000 Total receipts from sales on account……… $329,000

PE 22–6B

April Payments for March purchases (90% × $11,900)……… $10,710 Payments for April purchases (10% × $12,700)……… 1,270 Total payments for purchases on account……… $11,980

Ex 22–1

a.

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 shows that she will be $500 short of the tuition amount ($4,500 – $4,000) by the time she needs to pay her spring tuition Thus, Lassiter will likely need to

adjust the plan before the fall term even begins Some possibilities would be to rent a lower cost apartment or to get a roommate Other considerations include increasing her part-time job hours and reducing her monthly entertainment and food allowance, or making up the income difference with additional hours during Christmas break Lassiter might also see about scholarship opportunities to

reduce the tuition payment The budget gives Lassiter time to adjust her plans

to future events In this case, Lassiter can see that her present plan will not

provide sufficient cash, thus giving her four months to adjust If Lassiter did

not budget but went ahead with the original plan, she would be $500 short at the end of December, with no time left to adjust.

JEN LASSITER Cash Budget For the Four Months Ending December 31, 2014

Estimated cash receipts from:

Estimated cash payments for:

Season football tickets $ 150

Cash balance at beginning of

Ex 22–2

CYBERWARE Flexible Selling and Administrative Expenses Budget

For the Month Ending March 31, 2014

Variable cost:

Miscellaneous selling expense (15% of sales) 12,000 15,000 18,000

Miscellaneous administrative expense (2% of sales) 1,600 2,000 2,400

Fixed cost:

Total selling and administrative expenses $66,700 $ 77,700 $ 88,700

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Ex 22–3

a.

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.

Total flexible budget……… $438,000 $480,000 $522,000 Actual cost……… 450,000 492,000 540,000 Excess of actual cost over budget……… $ (12,000) $ (12,000) $ (18,000) The excess of actual cost over the flexible budget suggests that the Machining

Department has not performed as well as originally thought The department is

spending more than would be expected The flexible budget is a superior budgeting approach in this situation, since wages and utility costs vary with production Thus, the budget for these costs should adjust (flex) to the actual level of production Actual costs can rightfully be compared to the flexible budget, because both numbers are based on actual volumes.

GILMAN COMPANY—MACHINING DEPARTMENT

Flexible Production Budget For the Three Months Ending March 31, 2014

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Ex 22–4

STEELCASE INC.—FABRICATION DEPARTMENT

Flexible Production Budget

August 2014 (assumed data)

Units Small Scale Large Scale

Product and Area

Unit Sales Volume

Units Model DL Model XL

Ex 22–7

ROLLINS AND COHEN, CPAs Professional Fees Earned Budget For the Year Ending December 31, 2014

Billable Hours

Hourly Rate

Total Revenue Audit Department:

Ex 22–9

MORETTI’S FROZEN PIZZA INC.

Direct Materials Purchases Budget For the Month Ending September 30, 2014

Units required for production:

Ex 22–10

COCA-COLA ENTERPRISES—WAKEFIELD PLANT

Direct Materials Purchases Budget For the Month Ending May 31, 2014

(assumed data)

Concentrate

2-Liter Bottles

Carbonated Water Materials required for production:

Total direct materials to be

Ex 22–11

SAFETY GRIP COMPANY Direct Materials Purchases Budget For the Year Ending December 31, 2014

Pounds required for production:

Forming Department

Assembly Department Hours required for production:

Ex 22–13

AMBASSADOR SUITES INC.

Direct Labor Cost Budget For a Weekday or a Weekend Day

Room occupancy

Housekeeping

Restaurant staff

Ex 22–14

a.

LEVI STRAUSS & CO.

Production Budget May 2014 (assumed data)

b.

LEVI STRAUSS & CO.

Direct Labor Cost Budget

May 2014 (assumed data)

Total direct labor cost $19,500 $26,286 $15,495 $15,000 $76,281

Ex 22–15

SWEET TOOTH CANDY COMPANY Factory Overhead Cost Budget For the Month Ending August 31, 2014 Variable factory overhead costs:

Fixed factory overhead costs:

Note: Advertising expenses, sales commissions, and executive officer salaries are

selling and administrative expenses.

DELAWARE CHEMICAL COMPANY Cost of Goods Sold Budget For the Month Ending June 30, 2015

Direct materials:

Direct materials inventory, June 1 $ 15,200

Cost of direct materials available for use $3,165,200

Less direct materials inventory, June 30 16,100

Cost of direct materials placed in

Ex 22–17

MINGWARE CERAMICS INC.

Cost of Goods Sold Budget For the Month Ending September 30, 2014

Direct materials:

Cost of direct materials placed in

Ex 22–18

PETCARE SUPPLIES INC

Schedule of Collections from Sales For the Three Months Ending July 31, 2014

Receipts from cash sales:

Cash sales (10% × current month’s sales) $12,600 $ 14,500 $ 16,200 May sales 1 on account:

Ex 22–19

OFFICEMART INC

Schedule of Collections from Sales For the Three Months Ending December 31, 2014

Receipts from cash sales:

Cash sales (25% × current month’s sales) $14,500 $16,250 $18,000 September sales on account:

Collected in October (Accounts Receivable

Ex 22–20

GREEN MOUNTAIN FINANCIAL INC.

Schedule of Cash Payments for Selling and Administrative Expenses

For the Three Months Ending May 31, 2014

Note: Insurance, property taxes, and depreciation are expenses that do not result

in cash payments in March, April, or May.

Ex 22–21

EASTGATE PHYSICAL THERAPY INC.

Schedule of Cash Payments for Operations For the Three Months Ending March 31, 2015

Payments of prior month’s expense 1 $15,000 $ 26,430 $ 32,610

Note: Insurance and depreciation are expenses that do not result in cash payments

in January, February, or March.

PROBLEMSProb 22–1A

1.

2.

Unit Sales, Year Ended 2014

Increase/(Decrease) Actual Over Budget

Percentage Increase/

(Decrease)

2015 Budgeted Units (rounded) 8" × 10" Frame:

Prob 22–1A (Concluded)

Sales Budget For the Year Ending December 31, 2015

Product and Area

Unit Sales Volume

Unit Selling Price Total Sales 8" × 10" Frame:

Product and Area

Unit Sales Volume

Unit Selling Price Total Sales Backyard Chef:

GOURMET GRILL COMPANY Production Budget For the Month Ending July 31, 2014

Units Backyard Chef

Master Chef

Prob 22–2A (Continued)

3.

GOURMET GRILL COMPANY Direct Materials Purchases Budget For the Month Ending July 31, 2014

Grates (units)

Stainless Steel (lbs.)

Burner assemblies (units)

Prob 22–2A (Concluded)

4.

GOURMET GRILL COMPANY Direct Labor Cost Budget For the Month Ending July 31, 2014

Stamping Department

Forming Department

This line is calculated as 920 Backyard Chef units from the production budget multiplied

by the hours per unit in each department estimated for the Backyard Chef.

460 = 920 × 0.5; 552 = 920 × 0.6; 920 = 920 × 1.0

2

This line is calculated as 430 Master Chef units from the production budget multiplied

by the hours per unit in each department estimated for the Master Chef.

258 = 430 × 0.6; 344 = 430 × 0.8; 645 = 430 × 1.5

Unit Sales Volume

Unit Selling Price Total Sales

FEATHERED FRIENDS INC.

Production Budget For the Month Ending December 31, 2014

Units Bird

House

Bird Feeder

Prob 22–3A (Continued)

FEATHERED FRIENDS INC

Direct Materials Purchases Budget For the Month Ending December 31, 2014

Required units for production:

Prob 22–3A (Continued)

FEATHERED FRIENDS INC.

Direct Labor Cost Budget For the Month Ending December 31, 2014

Fabrication Department

FEATHERED FRIENDS INC.

Factory Overhead Cost Budget For the Month Ending December 31, 2014

Prob 22–3A (Continued)

6.

FEATHERED FRIENDS INC.

Cost of Goods Sold Budget For the Month Ending December 31, 2014

Work in process inventory, December 1, 2014 $ 29,000

Direct materials:

Direct materials inventory, December 1, 2014 2 $ 1,640

Cost of direct materials available for use $ 48,344

Less direct materials inventory,

Prob 22–3A (Concluded)

7.

8.

FEATHERED FRIENDS INC.

Selling and Administrative Expenses Budget For the Month Ending December 31, 2014 Selling expenses:

FEATHERED FRIENDS INC.

Budgeted Income Statement For the Month Ending December 31, 2014

Operating expenses:

Other income:

Other expenses:

Estimated cash receipts from:

Collection of accounts receivable a 68,400 75,780 79,920

Estimated cash payments for:

Prob 22–4A (Concluded)

Payment of accounts payable, beginning

2 The budget indicates that the minimum cash balance will not be maintained in

July This is due to the capital expenditures requiring significant cash

outflows during this month This situation can be corrected by borrowing

and/or by the sale of the marketable securities, if they are held for such

purposes At the end of May and June, the cash balance will exceed the

minimum desired balance, and the excess could be considered for temporary

investment.

Prob 22–5A

1.

REGINA SOAP CO Budgeted Income Statement For the Year Ending December 31, 2015

Administrative expenses:

Office and officers salaries 7 $ 96,400

Miscellaneous administrative expense 9 14,000

Prob 22–5A (Concluded)

2.

REGINA SOAP CO.

Budgeted Balance Sheet December 31, 2015 ASSETS Current assets:

Property, plant, and equipment:

LIABILITIES Current liabilities:

STOCKHOLDERS’ EQUITY

Less: Dividends to be paid in 2015 (18,000 × $0.15 × 4 qtrs.)……… $10,800

Plant and equipment to be acquired in 2015……… 75,000 (85,800 )

Home Alert System:

Percentage Increase/

(Decrease)

2015 Budgeted Units (rounded) Home Alert System:

Prob 22–1B (Concluded)

Sales Budget For the Year Ending December 31, 2015

Product and Area

Unit Sales Volume

Unit Selling

Home Alert System:

Product and Area

Unit Sales Volume

ROYAL FURNITURE COMPANY Production Budget For the Month Ending February 28, 2014

Units