As discussed in Chapter 21, the master budget assists a company in planning, directing, and controlling...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
As discussed in Chapter 21, the master budget assists a company in planning, directing, and controlling performance. The control function, or budgetary performance evaluation, compares the actual performance against the budget. To illustrate, Western Rider Inc., a manufacturer of blue jeans, uses standard costs in its budgets. The standards for direct materials, direct labor, and factory overhead are separated into the following two components: . Standard price Standard quantity Objective 2 The standard cost per unit for direct materials, direct labor, and factory overhead is computed as follows: Standard Cost per Unit - Standard Price x Standard Quantity Western Rider's standard costs per unit for its XL jeans are shown in Exhibit 1. Exhibit 1 Standard Cost for XL Jeans Manufacturing Costs Direct materials Direct labor Factory overhead Total standard cost per pair Standard Price $5.00 per sq.yd. $9.00 per hr. $6.00 per hr Standard Quantity per Pair 1.5 sq yds. 0.80 hr.per pair 0.80 hr. per pair = Standard Cost per Pair of XL Jeans $7.50 7:20 4.80 $19.50 As shown in Exhibit 1, the standard cost per pair of XL. jeans is $19.50, which consists of $7.50 for direct materials, $7.20 for direct labor, and $4.80 for factory overhead. The standard price and standard quantity are separated for each product cost. For example, Exhibit 1 indicates that for each pair of XL jeans, the standard price for direct materials is $5.00 per square yard and the standard quantity is 1.5 square yards. The standard price and quantity are separated because the department responsible for their control is normally different. For example, the direct materials price per square yard is controlled by the Purchasing Department, and the direct materials quantity per pair is controlled by the Production Department. As illustrated in Chapter 21, the master budget is prepared based on planned sales and production. The budgeted costs for materials purchases, direct labor, and factory overhead are determined by multiplying their standard costs per unit by the planned level of production. Budgeted (standard) costs are then compared to actual costs during the year for control purposes. 22-2a Budget Performance Report The differences between actual and standard costs are called cost variances. A favorable cost variance occurs when the actual cost is less than the standard cost. An unfavorable cost variance occurs when the actual cost exceeds the standard cost. These cost variances are illustrated in Exhibit 2. Exhibit 2 Cost Variances Favorable Cost Variance Actual cost Standard cost at actual volumes Unfavorable Cost Variance Actual cost Standard cost at actual volumes The report that summarizes actual costs, standard costs, and the differences for the units produced is called a budget performance report. To illustrate, assume that Western Rider Inc. produced the following pairs of jeans during June: XL jeans produced and sold Actual costs incurred in June: Direct materials Direct labor Factory overhead Total costs incurred 5,000 pairs $ 40,150 38,500 22,400 $101,050 Exhibit 3 illustrates the budget performance report for June for Western Rider. Exhibit 3 Budget Performance Report Manufacturing Costs Direct materials... Direct labor Factory overhead Total manufacturing costs. *5,000 pairs x $7.50 per pair= $37,500 5,000 pairs x $7.20 per pair = $36,000 5,000 pairs x $4.80 per pair - $24,000 Western Rider Inc. Budget Performance Report For the Month Ended June 30 Actual Costs $ 40,150 38,500 22,400 $101,050 Standard Cost at Actual Volume (5,000 pairs of XL Jeans)* $37,500 36,000 24,000 $97,500 Cost Variance- (Favorable) Unfavorable $2,650 2,500 (1,600) $3,550 The budget performance report shown in Exhibit 3 is based on the actual units produced in June of 5,000 XL jeans. Even though 6,000 XL jeans might have been planned for production, the budget performance report is based on actual production. Why might firms use nonfinancial performance measures? What measures might a hospital use? Target? Chase Bank? City Colleges of Chicago? Select one of the above listed types of businesses and describe the inputs, activities, and outputs as described on page 1051 in your text. I expect you to respond to the posted question with a minimum 250 word response AND interact with your fellow students' thoughts and ideas by posting an additional 2 posts adding your thoughts and insights to what they had to say. Saying "good job" or "I agree" would not count toward this grade. Please spread your interactions out throughout the week. I cannot grant full points if you post one reply after the other on a single day. As discussed in Chapter 21, the master budget assists a company in planning, directing, and controlling performance. The control function, or budgetary performance evaluation, compares the actual performance against the budget. To illustrate, Western Rider Inc., a manufacturer of blue jeans, uses standard costs in its budgets. The standards for direct materials, direct labor, and factory overhead are separated into the following two components: . Standard price Standard quantity Objective 2 The standard cost per unit for direct materials, direct labor, and factory overhead is computed as follows: Standard Cost per Unit - Standard Price x Standard Quantity Western Rider's standard costs per unit for its XL jeans are shown in Exhibit 1. Exhibit 1 Standard Cost for XL Jeans Manufacturing Costs Direct materials Direct labor Factory overhead Total standard cost per pair Standard Price $5.00 per sq.yd. $9.00 per hr. $6.00 per hr Standard Quantity per Pair 1.5 sq yds. 0.80 hr.per pair 0.80 hr. per pair = Standard Cost per Pair of XL Jeans $7.50 7:20 4.80 $19.50 As shown in Exhibit 1, the standard cost per pair of XL. jeans is $19.50, which consists of $7.50 for direct materials, $7.20 for direct labor, and $4.80 for factory overhead. The standard price and standard quantity are separated for each product cost. For example, Exhibit 1 indicates that for each pair of XL jeans, the standard price for direct materials is $5.00 per square yard and the standard quantity is 1.5 square yards. The standard price and quantity are separated because the department responsible for their control is normally different. For example, the direct materials price per square yard is controlled by the Purchasing Department, and the direct materials quantity per pair is controlled by the Production Department. As illustrated in Chapter 21, the master budget is prepared based on planned sales and production. The budgeted costs for materials purchases, direct labor, and factory overhead are determined by multiplying their standard costs per unit by the planned level of production. Budgeted (standard) costs are then compared to actual costs during the year for control purposes. 22-2a Budget Performance Report The differences between actual and standard costs are called cost variances. A favorable cost variance occurs when the actual cost is less than the standard cost. An unfavorable cost variance occurs when the actual cost exceeds the standard cost. These cost variances are illustrated in Exhibit 2. Exhibit 2 Cost Variances Favorable Cost Variance Actual cost Standard cost at actual volumes Unfavorable Cost Variance Actual cost Standard cost at actual volumes The report that summarizes actual costs, standard costs, and the differences for the units produced is called a budget performance report. To illustrate, assume that Western Rider Inc. produced the following pairs of jeans during June: XL jeans produced and sold Actual costs incurred in June: Direct materials Direct labor Factory overhead Total costs incurred 5,000 pairs $ 40,150 38,500 22,400 $101,050 Exhibit 3 illustrates the budget performance report for June for Western Rider. Exhibit 3 Budget Performance Report Manufacturing Costs Direct materials... Direct labor Factory overhead Total manufacturing costs. *5,000 pairs x $7.50 per pair= $37,500 5,000 pairs x $7.20 per pair = $36,000 5,000 pairs x $4.80 per pair - $24,000 Western Rider Inc. Budget Performance Report For the Month Ended June 30 Actual Costs $ 40,150 38,500 22,400 $101,050 Standard Cost at Actual Volume (5,000 pairs of XL Jeans)* $37,500 36,000 24,000 $97,500 Cost Variance- (Favorable) Unfavorable $2,650 2,500 (1,600) $3,550 The budget performance report shown in Exhibit 3 is based on the actual units produced in June of 5,000 XL jeans. Even though 6,000 XL jeans might have been planned for production, the budget performance report is based on actual production. Why might firms use nonfinancial performance measures? What measures might a hospital use? Target? Chase Bank? City Colleges of Chicago? Select one of the above listed types of businesses and describe the inputs, activities, and outputs as described on page 1051 in your text. I expect you to respond to the posted question with a minimum 250 word response AND interact with your fellow students' thoughts and ideas by posting an additional 2 posts adding your thoughts and insights to what they had to say. Saying "good job" or "I agree" would not count toward this grade. Please spread your interactions out throughout the week. I cannot grant full points if you post one reply after the other on a single day.
Expert Answer:
Answer rating: 100% (QA)
Before going to discuss about why any firms uses its nonfinancial measures let we discuss about what ... View the full answer
Related Book For
Financial Accounting Theory and Analysis Text and Cases
ISBN: 978-1118582794
11th edition
Authors: Richard G. Schroeder, Myrtle W. Clark, Jack Cathey
Posted Date:
Students also viewed these business writing questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The following audit procedures were performed in the audit of inventory to satisfy specific balance-related audit objectives as discussed in Chapter 6. The audit procedures assume that the auditor...
-
The following audit procedures were performed in the audit of inventory to satisfy specific balance-related audit objectives as discussed in Chapter 6. The audit procedures assume that the auditor...
-
In a closed economy, prices are constant/fixed. Behaviour is characterised by the following relationships. C=0.9375 (Y-T), T=10 and I=50-250i Money demand Md=Y-100i The supply of money and government...
-
You are considering three stocks for investment purposes. The required return on the market portfolio is 14%, and the riskless return is 9%. Based on the information given, in which (if any) of these...
-
Briefly explain two deductions that an individual has for adjusted gross income.
-
Use Pascal's Triangle in Figure 12.32 to find the number of triangles in a complete graph with 11 vertices. Row 0 Row 1 Row 2 1 2 Row 3 1 3 3 Row 4 4 6 4 7 Row 5 + + 10 10 5 Row 6 1 6 15 20, 15 6 1...
-
Sid Davidson is the personnel director of Babson and Willcount, a company that specializes in consulting and research. One of the training programs that Sid is considering for the middle-level...
-
Find the derivative of /(x) = (1 + 7x )(x - x-) in two ways. Use the Product Rule. F'(X)= Perform the multiplication first. f' ( X) = Do your answers agree? Yes No
-
The Scottsville Textile Mill1 produces five different fabrics. Each fabric can be woven on one or more of the mills 38 looms. The sales departments forecast of demand for the next month is shown in...
-
Consider the U.S. State and Federal Court System and answer the following questions. What is the difference between the state and federal court system? How do you determine whether a case should be...
-
Aman ( age 5 5 ) and Jazdeep ( age 4 8 ) are married. They have two children, Brianna ( age 2 0 ) and Ruchi ( age 1 2 ) . Aman has total compensation ( before any deductions or exclusions ) of $ 1 5...
-
Junkyard Corporation's next dividend is $2.75, which is expected to grow at a rate of 3% per year. Junkyard has a cost of capital of 12% and an EPS of $4.92. 143 competitor, Raptors Inc, pays a...
-
The required rate of return for AT&T, Inc (T) is 14.5%. Its expected ROE is 17.5% and its expected EPS is $2.5. If the firm's retention ratio is 30%, calculate its justified trailing and forward P/E...
-
Identifying Financial Scenarios Provide brief descriptions of various financial situations without specifying the type of interest or investment. For example, a scenario might involve someone...
-
1. Summary From the beginning, there have been several difficulties in the creation of the new Clinical Data Warehousing (CDW) product. These difficulties include imprecise specifications, problems...
-
analysis that explains the change in Retained E
-
Discuss the information available from the following techniques in the analysis of inorganic pigments used in antique oil paintings: (i) Powder X-ray diffraction, (ii) Infrared and Raman...
-
Entity theory is one of the two prominent theories of consolidation. Required: Under entity theory a. How would the value of goodwill be determined? Explain why. b. How would the initial value of...
-
An objective of SFAS No. 13 is that lessors and lessees should account for leases similarly. Team 1: Argue that a lessee should be able to account for a lease as operating leases while lessors may...
-
Mark or Make is a bourbon distillery. Sales have been steady for the past three years and operating costs have remained unchanged. On January 1, 2017, Mark or Make took advantage of a special deal to...
-
(Stock vs. portfolio basic statistics) John and Mary are considering investing in a combination of ABC stock and XYZ stock. The return on ABC is determined by a coin flip: If the coin is heads, the...
-
(Minimum variance portfolio and efficient portfolio to match target return) During the decade 20052014, Ford and Microsoft (MSFT) were negatively correlated (see data below). Find the following two...
-
Fitch and Wall have been in partnership for many years sharing profits and losses in the ratio 5 : 3 respectively. The following was their balance sheet as at 31 December 2002. On 1 January 2003,...
Study smarter with the SolutionInn App