Solution manual managerial accounting concept and applications by cabrera chapter 15 answer

Forexample, a budget should not cover a period when purchasing activity is high and omit the period when sales volume and cash collection arerelatively high.. The budget period should en

2 Budgets have a dual purpose, for planning and for following up theimplementation of the plan The great benefits from budgeting lie inthe quick investigation of deviations and in the subsequent correctiveaction Budgets should not be prepared in the first place if they areignored, buried in files, or improperly interpreted.

3 Two major features of a budgetary program are (1) the accountingtechniques which developed it and (2) the human factors whichadminister it The human factors are far more important The success

of a budgetary system depends upon its acceptance by the companymembers who are affected by the budget Without a thoroughlyeducated and cooperative management group at all levels ofresponsibility, budgets are a drain on the funds of the business and are ahindrance instead of help to efficient operations

4 Manufacturing overhead costs are budgeted at normal operatingcapacity, and the costs are applied to the products using apredetermined rate The predetermined rate is computed by dividing afactor that can be identified with both the products and the overheadinto the overhead budgeted at the normal operating capacity Budgetsmay also be used in costing products in a standard cost accountingsystem

5 The production division operates to produce the products that are sold.Production and sales must be coordinated Products must bemanufactured so that they will be available to meet sales deliverydates Activity of the production division will depend upon the salesthat can be made Also, the sales division is limited by the capabilities

of the production department in manufacturing products Successfuloperations depend upon a coordination of sales and production.

6 Labor hour required for production can be translated into labor pesos

by multiplying the number of hours budgeted by the appropriate laborrates The rates to be used will depend upon the rates established forjob classifications and the policy with respect to premium pay forovertime or shift differences

7 A long-range plan for the acquisition of plant assets is broken downand entered in the current budget as the plan unfolds The portion ofthe plan which is to be executed in the next year is included in thebudget for that year

8 A budget period is not limited to any particular unit of time At aminimum, a budget should cover at least one operating cycle Forexample, a budget should not cover a period when purchasing activity

is high and omit the period when sales volume and cash collection arerelatively high The budget period should encompass the entire cycleextending from the purchasing operation to the subsequent sale of theproducts and the realization of the sales in cash Ordinarily, a budget

of operations is prepared for a year which in turn is divided intoquarters and months Long-term budgets, such as budgets for projects

or capital investments, may extend five to ten years or more into thefuture

9 A rolling budget or a progressive budget or sometimes calledcontinuous budget, is a budget which is prepared throughout the year

As one month elapses, a budget is prepared for one more month in thefuture At any one time for example, the company will have a budgetfor one year into the future, when July of one year is over, a budget forthe following July will be added at the other end of the budget Thisprocess of adding a new month as a month expires is continuous

10 Variances that are revealed by a comparison of actual results with abudget are investigated if it appears that an investigation is warranted.The investigation may show that stricter control measures are needed

or that some weaknesses in the operation should be corrected It mayalso reveal that the budget plan should be revised The comparison isone step in the control and direction of business operations

11 A comparison of actual results with a budget can contribute informationthat can be applied in the preparation of better budgets in the future.Subsequent investigation of variances provides management with abetter knowledge of operations This knowledge can be applied in thepreparation of more realistic budgets for subsequent fiscal periods

12 A self-imposed budget is one in which persons with responsibility overcost control prepare their own budgets, i.e., the budget is not imposedfrom above The major advantages are: (1) the views and judgments ofpersons from all levels of an organization are represented in the finalbudget document; (2) budget estimates generally are more accurate andreliable, since they are prepared by those who are closest to theproblems; (3) managers generally are more motivated to meet budgetswhich they have participated in setting; (4) self-imposed budgetsreduce the amount of upward “blaming” resulting from inability to meetbudget goals One caution must be exercised in the use of self-imposedbudgets The budgets prepared by lower-level managers should becarefully reviewed to prevent too much slack.

13 No, although this is clearly one of the purposes of the cash budget Theprincipal purpose is to provide information on probable cash needs

during the budget period, so that bank loans and other sources of

financing can be anticipated and arranged well in advance of the actualtime of need

14 Zero-based budgeting requires that managers start at zero levels everyyear and justify all costs as if all programs were being proposed for thefirst time In traditional budgeting, by contrast, budget data are usuallygenerated on an incremental basis, with last year’s budget being thestarting point

15 A budget is a detailed quantitative plan for the acquisition and use offinancial and other resources over a given time period Budgetary

control involves the use of budgets to control the actual activities of a

firm

16 1 Budgets communicate management’s plans throughout the

organization

2 Budgets force managers to think about and plan for the future

3 The budgeting process provides a means of allocating resources tothose parts of the organization where they can be used mosteffectively

4 The budgeting process can uncover potential bottlenecks beforethey occur

5 Budgets coordinate the activities of the entire organization byintegrating the plans of its various parts Budgeting helps to ensurethat everyone in the organization is pulling in the same direction

6 Budgets define goals and objectives that can serve as benchmarksfor evaluating subsequent performance

17 A master budget represents a summary of all of management’s plansand goals for the future, and outlines the way in which these plans are

to be accomplished The master budget is composed of a number ofsmaller, specific budgets encompassing sales, production, rawmaterials, direct labor, manufacturing overhead, selling andadministrative expenses, and inventories The master budget generallyalso contains a budgeted income statement, budgeted balance sheet,and cash budget

18 The flow of budgeting information moves in two directions—upwardand downward The initial flow should be from the bottom of theorganization upward Each person having responsibility over revenues

or costs should prepare the budget data against which his or hersubsequent performance will be measured As the budget data arecommunicated upward, higher-level managers should review thebudgets for consistency with the overall goals of the organization andthe plans of other units in the organization Any issues should beresolved in discussions between the individuals who prepared thebudgets and their managers

All levels of an organization should participate in the budgeting process

—not just top management or the accounting department Generally,the lower levels will be more familiar with detailed, day-to-dayoperating data, and for this reason will have primary responsibility fordeveloping the specifics in the budget Top levels of managementshould have a better perspective concerning the company’s strategy

19 Budgeting can assist a company forecast its workforce staffing needsthrough direct labor and other budgets By careful planning through thebudget process, a company can often smooth out its activities and avoiderratic hiring and laying off employees

II Matching Type

P500,000 × 20% 100,000 100,000Total cash collections P541,000 P654,000 P790,000 P1,985,000Notice that even though sales peak in August, cash collections peak inSeptember This occurs because the bulk of the company’s customers pay

in the month following sale The lag in collections that this creates is evenmore pronounced in some companies Indeed, it is not unusual for acompany to have the least cash available in the months when sales aregreatest

Requirement 2

Accounts receivable at September 30:

From August sales: P900,000 × 10% P 90,000From September sales: P500,000 × (70% + 10%) 400,000Total accounts receivable P490,000

Exercise 2 (Production Budget)

July August Septembe Quarter

* 10% of the following month’s sales

Exercise 3 (Materials Purchase Budget)

Quarter – Year 2 Year 3 First Second Third Fourth First

Required production of calculators 60,000 90,000 150,000 100,000 80,000 Number of chips per calculator ×   3 ×   3 ×   3 ×   3 ×   3 Total production needs—chips 180,000 270,000 450,000 300,000 240,000

Year 2

Production needs—chips 180,000 270,000 450,000 300,000 1,200,000 Add desired ending inventory—

chips 54,000 90,000 60,000 48,000 48,000 Total needs—chips 234,000 360,000 510,000 348,000 1,248,000 Less beginning inventory—chips 36,000 54,000 90,000 60,000 36,000 Required purchases—chips 198,000 306,000 420,000 288,000 1,212,000 Cost of purchases at P2 per chip P396,000 P612,000 P840,000 P576,000 P2,424,000

Exercise 4 (Direct Labor Budget)

Requirement 1

Assuming that the direct labor workforce is adjusted each quarter, thedirect labor budget would be:

1st Quarter Quarter 2nd Quarter 3rd Quarter 4th Year

Units to be produced 5,000 4,400 4,500 4,900 18,800 Direct labor time per unit (hours)

× 0.40 × 0.40 × 0.40 × 0.40 × 0.40 Total direct labor hours needed

2,000 1,760 1,800 1,960 7,520 Direct labor cost per hour × P11.00 × P11.00 × P11.00 × P11.00 × P11.00 Total direct labor cost P 22,000 P 19,360 P 19,800 P 21,560 P 82,720

Requirement 2

Assuming that the direct labor workforce is not adjusted each quarter and

that overtime wages are paid, the direct labor budget would be:

1st Quarter Quarter 2nd Quarter 3rd Quarter 4th Year

Units to be produced 5,000 4,400 4,500 4,900 18,800 Direct labor time per unit

(hours) × 0.40 × 0.40 × 0.40 × 0.40 × 0.40 Total direct labor hours needed

2,000 1,760 1,800 1,960 7,520 Regular hours paid 1,800 1,800 1,800 1,800 7,200 Overtime hours paid 200 - - 160 360 Wages for regular hours

(@ P11.00 per hour) P19,800 P19,800 P19,800 P19,800 P79,200 Overtime wages

(@ P11.00 per hour × 1.5) 3,300 - - 2,640 5,940 Total direct labor cost P23,100 P19,800 P19,800 P22,440 P85,140

Exercise 5 (Manufacturing Overhead Budget)

Requirement 1

Kiko Corporation Manufacturing Overhead Budget

1 st Quarter Quarter 2nd Quarter 3rd Quarter 4th Year

Budgeted direct labor-hours 5,000 4,800 5,200 5,400 20,400 Variable overhead rate x P1.75 x P1.75 x P1.75 x P1.75 x P1.75 Variable manufacturing overhead P 8,750 P 8,400 P 9,100 P 9,450 P 35,700 Fixed manufacturing overhead 35,000 35,000 35,000 35,000 140,000 Total manufacturing overhead 43,750 43,400 44,100 44,450 175,700 Less depreciation 15,000 15,000 15,000 15,000 60,000 Cash disbursements for

manufacturing overhead P28,750 P28,400 P29,100 P29,450 P115,700

Requirement 2

Total budgeted manufacturing overhead for the year (a) P175,700 Total budgeted direct labor-hours for the year (b) 20,400

Exercise 6 (Selling and Administrative Budget)

Helene Company Selling and Administrative Expense Budget

Quarter Quarter Quarter Quarter

Budgeted unit sales 12,000 14,000 11,000 10,000 47,000 Variable selling and

administrative expense per

unit x P2.75 x P2.75 x P2.75 x P2.75 x P2.75 Variable expense P33,000 P 38,500 P 30,250 P 27,500 P129,250 Fixed selling and

administrative expenses:

Advertising 12,000 12,000 12,000 12,000 48,000 Executive salaries 40,000 40,000 40,000 40,000 160,000 Insurance 6,000 6,000 12,000 Property taxes 6,000 6,000 Depreciation 16,000 16,000 16,000 16,000 64,000 Total fixed selling and

administrative expenses 68,000 74,000 74,000 74,000 290,000 Total selling and administrative

expenses 101,000 112,500 104,250 101,500 419,250 Less depreciation 16,000 16,000 16,000 16,000 64,000 Cash disbursements for selling

and administrative expenses

Dividends 2 * 2 * 2 * 2 * 8Total disbursements 88 110 * 100 92 390Excess (deficiency) of cash

available over disbursements

*Given

Requirement 2

Payments to suppliers:

August purchases (accounts payable) P16,000September purchases: P25,000 × 20% 5,000Total cash payments P21,000

Requirement 3

COOKIE PRODUCTSCash BudgetFor the Month of SeptemberCash balance, September 1 P 9,000Add cash receipts:

Collections from customers 36,000Total cash available before current financing 45,000Less disbursements:

Payments to suppliers for inventory P21,000Selling and administrative expenses 9,000 *Equipment purchases 18,000Dividends paid 3,000Total disbursements 51,000Excess (deficiency) of cash available over

disbursements (6,000)Financing:

Borrowings 11,000Repayments 0Interest 0

Total financing 11,000Cash balance, September 30 P  5,000

  * P13,000 – P4,000 = P9,000

Problem 2 (Production and Purchases Budget)

Requirement 1

Production budget:

July August Septembe r October

Budgeted sales (units) 40,000 50,000 70,000 35,000Add desired ending inventory 20,000 26,000 15,500 11,000

Less beginning inventory 17,000 20,000 26,000 15,500

Requirement 2

During July and August the company is building inventories in anticipation

of peak sales in September Therefore, production exceeds sales duringthese months In September and October inventories are being reduced inanticipation of a decrease in sales during the last months of the year.Therefore, production is less than sales during these months to cut back oninventory levels

Requirement 3

Raw materials purchases budget:

July August Septembe r Quarter Third

Required production (units) 43,000 56,000 59,500 158,500Material P214 needed per unit × 3 lbs × 3 lbs × 3 lbs × 3 lbs.Production needs (lbs.) 129,000 168,000 178,500 475,500Add desired ending inventory

(lbs.) 84,000 89,250 45,750 * 45,750Total Material P214 needs 213,000 257,250 224,250 521,250Less beginning inventory (lbs.) 64,500 84,000 89,250 64,500Material P214 purchases (lbs.) 148,500 173,250 135,000 456,750