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cost accounting
Cost Accounting Foundations And Evolutions 6th Edition Michael R. Kinney, Jenice Prather-Kinsey, Cecily A. Raiborn - Solutions
WHAT IS THE STARTING POINT OF A MASTER BUDGET AND WHY?LO.1
HOW ARE THE VARIOUS COMPONENTS IN A MASTER BUDGET PREPARED, AND HOW DO THEY RELATE TO ONE ANOTHER?LO.1
WHY IS THE CASH BUDGET SO IMPORTANT IN THE MASTER BUDGETING PROCESS?LO.1
WHAT BENEFITS ARE PROVIDED BY A BUDGET?LO.1
(APPENDIX) HOW DOES A BUDGET MANUAL FACILITATE THE BUDGETING PROCESS?LO.1
Budgeting is important so that companies• can visualize the future and move in a focused direction.• plan effectively.• agree on and communicate organizational goals and objectives.• develop quantitative translations of their goals and objectives.• commit resources to desired
Strategic planning and budgeting are related because they• tie the long-term and short-term (tactical) plans together.• use the same underlying key variables to iden¬ tify success.• harmonize external considerations and internal factors.• require current information regarding the econ¬
The starting point of a master budget• reflects a single level of output demand.• is static to facilitate the numerous arrangements (employees, suppliers, prices, resource quality, capacity availability, etc.) that must be in place before beginning operations.• affects all other
Master budget components• include the»- Sales budget, which reflects units and dollars.»- Production budget, which adds sales and de¬ sired finished goods ending inventory and subtracts finished goods beginning inventory.»- Purchases budget, which adds production and desired raw material or
The cash budget is critical to the master budgeting process because it• is essential for an organization to have cash to survive.• translates accrual-based information (such as sales revenues) into actual cash flows.• can help indicate whether credit practices are ef¬ fective (i.e., whether
Budgets benefit organizations by• guiding management to align organizational goals with activities and resource commitments.• promoting employee participation and depart¬ mental coordination.• enhancing the managerial functions of planning, controlling, and problem solving.• allowing
Why is the master budget an important source of information for managers and operating personnel?LO.1
How does the strategic plan influence preparation of the master budget?LO.1
Distinguish between a tactical plan and a strategic plan. How are these plans related?LO.1
After a master budget has been prepared, what is its role in managerial con¬ trol?LO.1
Differentiate between the operating and financial budgets that are contained in a master budget. Why are both types needed?LO.1
Discuss the sequence in which the major components of the master budget are prepared. Why is it necessary to prepare the components in such a se¬ quence?LO.1
Why is a firm’s production budget influenced by the finished goods inven¬ tory policy?LO.1
The cash budget and the pro forma statement of cash flows both provide in¬ formation about cash. What information about cash is common to these two sources, and what information is unique to the two sources?LO.1
What is budgetary slack, and what actions might top managers take to rid their firms’ budgets of slack?LO.1
(Appendix) Why is it necessary for a company to prepare a budget manual?LO.1
(Revenue budget) In 2006, the Teachers’ Credit Union (TCU) had $2,000,000 in business loans at an average interest rate of 5.5 percent as well as $1,600,000 in consumer loans with an average rate of 10 percent. The credit union also has $500,000 invested in government securities that pay interest
(Production budget) Jessica Corp. has the following projected sales, in units, for the first four months of 2006:The company desires to have an ending inventory each month equal to one-half of next month’s estimated sales; however, this criterion was not in effect at the end of 2005. Ending
(Production budget) David Company’s sales budget has the following unit sales projections for each quarter of calendar year 2006:Sales for the first quarter of 2007 are expected to be 600,000 units. Ending inventory of finished goods for each quarter is scheduled to equal 10 per¬ cent of the
iaterial purchases budget) San Angelo Co. has projected sales of 42,960 pairs of cowboy boots in October. Each pair of boots requires 2.5 linear feet of leather. The beginning inventory of leather and boots, respectively, are 2,000 yards and 2,152 pairs. San Angelo Co. wants to have 3,000 yards of
material purchases budget) King Culvert Company has budgeted sales of 380,000 feet of its concrete culvert products for June 2006. Each foot of product requires 8 pounds of concrete ($0.11 per pound) and 15 pounds of gravel ($0.05 per pound). Actual beginning inventories and projected ending
(Production and related schedules) Lewis Corp. manufactures and sells plastic boxes and trays. Sales are projected to be evenly spread over the annual pe¬ riod. Estimated product sales and material needs for each unit of product follow:Material A costs $0.05 per pound, and Material B costs $0.08
(Cash collections) Clark Inc. is preparing its first-quarter monthly cash bud¬ get for 2006. The following information is available about actual and ex-pected sales:Tracing collections from prior year monthly sales and discussions with the credit manager helped develop a profile of collection
(Cash budget) The October 1, 2006, Accounts Receivable balance for Rosa Architectural Company is $607,500. Of that balance, $450,000 represents re¬ maining accounts receivable from September billings. The normal collection pattern for the firm is 20 percent of billings in the month of service, 55
(Cash collections, accounts receivable) Leon’s Club is developing a forecast for June 2006 cash receipts from sales. Total sales for June 2006 are ex¬ pected to be $850,000. Of each month’s sales, 75 percent is expected to be on credit. The Accounts Receivable balance at May 31 is $173,250 of
(Cash balance) Some projected information for May 2006 for Elaine Corp. follows:Using this information, what is the company’s projected increase in cash for May 2006?LO.1 Income after income tax $560,000 Accrued income tax expense 41,000 Decrease in accounts receivable for month 4,000 Decrease
(Cash disbursements) Use the following information to determine Larose Co.’s projected cash disbursements for May 2006.LO.1 Sales for May $2,000,000 Gross profit on sales 40% Wages expense for May $512,500 Other cash expenses for May $235,250 Decrease in accounts payable during May $40,000
(Cash budget) The following cash budget is for the second quarter of next year. Complete the missing numbers on the cash budget, assuming that the accountant has requested a minimum cash balance of $3,500 at the start of each month. All borrowings, repayments, and investments are made in even $500
(Various budgets) Compute the required answer for each of the following in¬ dependent situations.a. For next year, Harrington Suits projects $20,000,000 of sales and total fixed manufacturing costs of $5,000,000. Variable manufacturing costs are estimated at 40 percent of sales. Assuming no change
(Projected income statement) Last year's income statement for Joyner Com-pany follows.This year, sales in units are expected to increase by 20 percent; material and labor costs are expected to increase by 10 percent. Overhead is applied to production based on a percentage of direct labor costs.
(Budgeted income; cash; accounts receivable) In preparing its budget for July, Dynamic Inc. has the following accounts receivable information available:a. What is the projected balance of Accounts Receivable at July 31?b. Which of these amounts (if any) will affect the cash budget?c. Which of these
(Pro forma income statement) The following budget information is available for Global Company for May.• Sales are expected to be $400,000. All sales are on account, and a provi¬ sion for bad debts is made monthly at 2.5 percent of sales.• Inventory was $35,000 on April 30 and an increase of
(Pro forma income) You have been asked to determine whether the pur¬ chase of a new piece of production machinery can be cost justified for your company. The machine will increase fixed overhead by $350,000 per year but reduce variable expenses per unit by 35 percent. Budgeted 2006 sales of the
(Essay) Many managers believe that if all amounts in their spending budgets are not spent during a period, they will lose allocations in future periods and that they will receive little or no recognition for the cost savings.Prepare an essay that discusses the behavioral and ethical issues involved
(Continuous budgeting) You own a small boat manufacturing company. At a recent manufacturers’ association meeting, you overheard one of the other company owners say that he liked using a continuous budgeting process. Discuss what you believe are the advantages and disadvantages of continu¬ ous
(Research) Find the Web page for a charitable organization that operates in¬ ternationally as well as domestically.a. Prepare a list of activities in which this organization is currently in¬ volved.b. What would be the greatest challenges in budgeting for such an organi¬ zation?c. Do you think
(Planning) High-level executives have often indicated that competitors’ ac¬ tions are the top external factor impacting their businesses and their busi¬ ness plans.a. Why do you believe that competitors’ actions are so important to busi¬ ness planning?b. How would competitors’ actions
(Production and purchases budgets) Schorg Products has prepared the fol¬ lowing unit sales forecast for 2006:Estimated ending finished goods inventories are 25,000 units at December 31, 2005; 36,000 units at June 30, 2006; and 60,000 units at December 31, 2006.In manufacturing each unit of this
(Production; purchases; cash disbursements) Brenda’s Tea Company has bud¬ geted sales of 300,000 cans of iced tea mix during June 2006 and 375,000 cans during July. Production of the mix requires 14 ounces of tea and 2 ounces of sugar. June 1 inventories of tea and sugar are as follows:The
(Production; purchases; cash budgets) King Hats expects sales and collec¬ tions for the first three months of 2006 to be as follows:The December 31, 2005, balance sheet revealed the following selected ac¬ count balances: Cash, $18,760; Raw Materials Inventory, $3,812.50; Finished Goods Inventory,
(Budgeted sales and S&A; other computations) Larson Mfg. has projected cost of goods sold (CGS) for June 2006 of $1,200,000. Of this amount, $75,000 represents fixed overhead costs. Total variable costs for the company each month average 70 percent of sales. The company’s cost to retail (CGS to
(Cash budget) The January 31, 2006, balance sheet of Weymann World fol¬ lows:Additional information about the company follows:• Expected sales for February and March are $120,000 and $130,000, re¬ spectively.• The collection pattern from the month of sale foiward is 50 percent, 48 percent,
(Cash budget; challenging) Jud’s Department Store typically makes 80 percent of its sales on credit. It bills sales twice monthly, on the 10th of the month for the last half of the prior month’s sales and on the 20th of the month for the first half of the current month’s sales. All sales are
Cash budget; challenging) Freeman Manufacturing has incurred substantial losses for several years and has decided to declare bankruptcy. The com¬ pany petitioned the court for protection from creditors on March 31, 2006, and submitted the following balance sheet:Freeman’s management informed the
Cash budget; advanced) Collegiate Management Education (CME), Inc., is a nonprofit organization that sponsors a wide variety of management seminars throughout the Southwest. In addition, it is heavily involved in research into improved methods of teaching and motivating college administrators. Its
(Pro forma results) Katherine Company has decided to reprice its sole prod¬ uct, a metal desk, for the upcoming year. Current variable production cost is $50 per unit, and total fixed costs are $2,000,000. Fixed manufacturing costs are 80 percent of total fixed costs and are allocated to the
(Comprehensive) Moonbeam Co. produces and sells upscale mixers and breadmakers. In October 2006, Moonbeams’s budget department gathered the following data to meet budget requirements for 2006.To produce one unit of each product, the following major internal compo¬ nents are used (in addition to
(Master budget preparation; advanced) Color Blaze Company manufactures a red industrial dye. The company is preparing its 2006 master budget and has presented you with the following information.1. The December 31, 2005, balance sheet for the company follows.2. The Accounts Receivable balance at
(Preparing and analyzing a budget) Randazzo Ridenour & Co., LLP, a local accounting firm, has a formal budgeting system. The firm has five partners, two managers, four seniors, two secretaries, and two bookkeepers. The bud-geting process has a bottom-line focus; that is, the budget and planning
(Revising and analyzing an operating budget) Lopez Agency, a division of Chalmette Industries (Cl), offers consulting services to clients for a fee. Cl's corporate management is pleased with the performance of Lopez Agency for the first nine months of the current year and has recommended that
What is a standard cost card? What information does it contain? How does it relate to a bill of materials and an operations flow document?LO.1
Why are the quantities shown in the bill of materials not always the same quantities shown in the standard cost card? How is the material standard developed?LO.1
A total variance can be calculated for each cost component of a product. Into what variances can this total be separated and to what does each re¬ late? (Discuss separately for material and labor.)LO.1
What is meant by the term standard hours? Does the term refer to inputs or outputs?LO.1
Why are the overhead spending and overhead efficiency variances said to be controllable? Is the volume variance controllable? Why or why not?LO.1
How are actual and standard costs recorded in a standard cost system?LO.1
What are the three primary uses of a standard cost system? In a business that routinely manufactures the same products or performs the same ser¬ vices, why are standards helpful?LO.1
What is meant by the process of management by exception? How do man¬ agers use a standard cost system in their efforts to control costs?LO.1
Why do managers care about the utilization of capacity? Are they controlling costs when they control utilization?LO.1
(Appendix) What variances can be computed for direct material and direct labor when some materials or labor inputs are substitutes for others? What information does each of these variances provide?LO.1
(Direct material variances) Belichick Patio makes wrought iron table and chair sets. During April, the purchasing agent bought 12,800 pounds of scrap iron at $0.89 per pound. During the month, 10,700 pounds of scrap iron were used to produce 300 table and chair sets. Each set requires a standard
(Direct material variances) In November, Gruden Publishing Company’s costs and quantities of paper consumed in manufacturing its 2007 Executive Plan¬ ner and Calendar were as follow:a. Calculate the total cost of purchases for November.b. Compute the material price variance (based on quantity
(Direct labor variances) The accounting firm of Reid and Associates set the following standard for its inventory audit of DelRio Co.: 300 hours at an av¬ erage billing rate of $145. The firm actually worked 270 hours during the in¬ ventory audit process. The total labor variance for the audit was
(Direct labor variances) Snyder Lumber builds standard prefabricated wooden frames for apartment walls. Each frame requires 10 direct labor hours at an average standard hourly rate of $22. During May, the company produced 630 frames in 6,200 direct labor hours. Payroll records indicate that workers
(Direct material and direct labor variances) In December, Billie Parcells, pres¬ ident of Parcells Co., received the following information from Joe Gibbs, the new controller, in regard to November production of gym bags:Ms. Parcells asked Mr. Gibbs to provide her the following information:a.
(Direct material and labor variances) Steve Spurrier Cottonworks produces 100 percent cotton T-shirts. For each T-shirt, standard direct material and la¬ bor costs follow:Actual March production and costs for the company to produce 5,000 T-shirts are:a. Compute the direct material and direct labor
(Missing information for materials and labor) For each independent case, fill in the missing figures.LO.1 Case A Case B Case C Case D Units produced 800 ? 240 1,500 Standard hours per unit 3 0.8 ? ? Standard hours allowed ?1 600 480 ? Standard rate per hour $7 ? $9.50 $6 Actual hours worked 2,330
(Overhead variances) Wannstedt Corp. has a fully automated bicycle produc¬ tion facility in which almost 97 percent of conversion costs are driven by machine hours. Gregg Williams, the company’s cost accountant, has com¬ puted the following overhead variances for January:Williams has gone on
(Computation of all overhead variances) The manager of Missouri’s Depart¬ ment of Transportation has determined that it typically takes 30 minutes for the department’s employees to register a new car. In Boone County, the fixed overhead rate computed on an estimated 4,000 direct labor hours is
(Four-variance approach; journal entries) Vermeil Manufacturing set 60,000 di¬ rect labor hours as the 2006 capacity measure for computing its predeter¬ mined variable overhead rate. At that level, budgeted variable overhead costs are $270,000. Vermeil will apply budgeted fixed overhead of
(Missing data; three-variance approach) Jeff Fisher Corporation’s flexible bud¬ get fonmila for total overhead is $720,000 plus $16 per direct labor hour.The combined overhead rate is $40 per direct labor hour. The following data have been recorded for the year:Usea, three-variance approach to
(Variances and cost control) Cowher Dimension applies overhead using ma¬ chine hours. The total overhead application rate is $40 per hour based on a normal monthly capacity of 24,000 machine hours. Overhead is 30 percent variable and 70 percent fixed. Each unit of product requires 12 machine
(Variances and conversion cost category) Billick Brake manufactures brake rotors. Until recently, the company applied overhead to production using di¬ rect labor hours. However, company facilities were recently automated, and the accounting system was revised to show only two cost categories,
(Developing standard cost card and discussion) Johnna Fox Desserts Com¬ pany produces fruit-flavored frozen desserts. Company products have typi¬ cally had strong regional sales, but recently other companies have begun marketing similar products in the area. Price competition has become in¬
Behavioral implications of standard costing) Contact a local company that uses a standard cost system. Make an appointment with a manager at that company to interview her or him on the following issues:• the characteristics that should be present in a standard cost system to encourage positive
(Standard setting; team project) As a four-person team, choose an activity that is commonly performed every day, such as taking a shower/bath, preparing a meal, or doing homework. Have each team member time him¬ self/herself performing that activity for two days and then develop a stan¬ dard time
(Cost control evaluation) The Jim Haslett Concrete Company makes precast concrete steps for use with manufactured housing. The company had the following 2007 budget based on expected production of 3,200 units:The plant manager, Leslie Martz, whose annual bonus includes (among other factors) 20
(Ethics essay) Jack Austin is a plant manager who has done a good job of controlling some overhead costs during the current period and a poor job of controlling others. Austin’s boss has asked him for a variance report for the period.a. Discuss the ethics of using a two-variance approach to
(Direct labor variances; advanced) Many companies face the prospect of pay¬ ing workers overtime wages; some of these payments are at time-and-a-half wages.a. How does overtime pay affect direct labor cost? Variable overhead?b. Obviously, paying overtime to already employed workers makes better
Essay ethics) An HMO medical program began reimbursing hospitals ac¬ cording to diagnostic-related groups (DRGs). Each DRG has a specified stan¬ dard "length of stay.” If a patient leaves the hospital early, the hospital is favorably financially impacted, but a patient staying longer than the
(Appendix) Herman Edwards Company produces 12-ounce cans of mixed pecans and cashews. Standard and actual information follows.Determine the material price, mix, and yield variances.LO.1 Standard Quantities and Costs (12-oz. can) Pecans: 6 ounces at $3.00 per pound Cashews: 6 ounces at $4.00 per
(Appendix) Mike Shanahan Ltd. is a mechanical engineering firm that em¬ ploys both engineers and draftspeople. The average hourly rates are $80 for engineers and $40 for draftspeople. For one project, the standard was set at 375 hours of engineer time and 625 hours of draftsperson time. Actual
(Appendix) Holly Sherman Legal Services has three labor classes: secretaries, paralegals, and attorneys. Standard wage rates are as follows: secretaries, $25 per hour; paralegals, $40 per hour; and attorneys, $85 per hour. The firm has established a standard of 0.5 hours of secretarial time and 2.0
(Material and labor variances) Jim Mora Marine uses a standard cost system for materials and labor in producing fishing boats. Production requires three materials: fiberglass, paint, and a prepurchased trim package. The standard costs and quantities for materials and labor are as follows:Calculate
(Variance calculation and journal entries) DomCapers Toy Co. makes small plastic toys having the following material and labor standards:During October, 29,000 pounds of material were acquired at $4.15 per pound; only 25,300 pounds of that was used in production during the month to make 50,000 toys.
Incomplete data) Schottenheimer Medical Supply manufactures latex surgical gloves. Most processing is done by machines, which can produce 400 pairs of gloves per hour. Each pair of gloves requires 0.85 square foot of latex, which has a standard price of $0.80 per square foot. Machine operators are
(incomplete data Capers Home Study Products makes wooden lap desks. A small fire on October 1 partially destroyed the records relating to September’s production. The charred remains of the standard cost card appears here.From other fragments of records and several discussions with employees, you
(Adjusting standards) Lovie Corp., started in early 2000, manufactures tradi¬ tional Hawaiian dresses. At that time, the following material and labor stan¬ dards were developed:Material 3.0 yards at $6 per yard Labor 1.5 hours at $10 per hour In May 2006, Lovie Corp. hired a new cost accountant,
(Calculation of four variances) Murlarkey’s Ceramics has an expected monthly capacity of 3,000 units but only 1,900 units were produced and 2,000 direct labor hours were used during October 2006 due to a fire on the production floor. Actual variable overhead for October was $16,000 and actual
(Four-variance approach; journal entries) Mike Tice Products makes picnic ta¬ bles, swings, and benches. Standard hours allowed for each product are as follows:The standard variable overhead rate is $4 per direct labor hour; the standard fixed overhead application rate at expected annual capacity
(Variance analysis with unknowns) Dennis Green Co. produces neon signs. The company’s standard costs for labor and overhead follow:Calculate the amounts for the following unknowns:a. Total applied factory overheadb. Volume variance C. Variable overhead spending varianced. Variable overhead
(Combined overhead rates) Kwan and Yamaguchi Industries manufactures a down-filled sleeping bag with the following standard cost information for 2007:• Each sleeping bag requires 1 hour of machine time to produce.• Variable overhead is applied at the rate of $9 per machine hour.• Fixed
(Comprehensive) Tom Coughlin Co. manufactures metal screen doors with the following standard quantity and cost information:Overhead rates were based on normal monthly capacity of 6,000 machine hours.During November, the company produced only 850 doors because of a labor strike that occurred during
(Comprehensive; all variances; all methods) B. Callahan Painting Services paints interiors of residences and commercial structures. The firm’s manage¬ ment has established cost standards per 100 square feet based on the amount of area to be painted.a. Compute the direct material variances.b.
(Variancc disposition) Dennis Erickson Manufacturing had the following vari¬ ances at year-end 2006:a. Prepare the journal entry at December 31 to dispose of the variances, assuming that all are insignificant.b. After posting your entiy in part (a), what is the balance in Cost of Goods Sold?C.
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