BRIEF EXERCISE 1

Elements of the Budget

Identify the budgets in Column B from which dollar amounts are transferred directly in constructing the budgets listed in Column A.

Column A                                                                 Column B

1. Budgeted income statement                                a. Direct materials budget

2. Budgeted balance sheet                                      b. Cost of goods sold budget

3. Cash flow budget                                               c. Production budget

4. Cost of goods sold budget                                  d. Payables budget

5. Production budget                                              e. Sales budget

                                                                            f. Budgeted income statement

EXERCISE 2

Budgeting Purchases

and Cash Payments

The following information is from the manufacturing budget and the budgeted financial statements of Fabor Fabrication:

Direct materials inventory, Jan. 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 73,000

Direct materials inventory, Dec. 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85,000

Direct materials budgeted for use during the year . . . . . . . . . . . . . . . . . . . . . . . . 264,000

Accounts payable to suppliers of materials, Jan. 1 . . . . . . . . . . . . . . . . . . . . . . . . 46,000

Accounts payable to suppliers of materials, Dec. 31 . . . . . . . . . . . . . . . . . . . . . . . 77,000

Compute the budgeted amounts for:

a. Purchases of direct materials during the year.

b. Cash payments during the year to suppliers of materials.

EXERCISE 3

Budgeting Cash Receipts

Sales on account for the first two months of the current year are budgeted as follows:

Jan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $800,000

Feb. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 880,000

All sales are made on terms of 2/10, n/30 (2% discount if paid in 10 days, full amount by 30 days); collections on accounts receivable are typically made as follows:

Collections within the month of sale:

Within discount period . . . . . . . . . . . . . . . . . . .70%

After discount period . . . . . . . . . . . . . . . . . . . .10

Collections within the month following sale:

Within discount period . . . . . . . . . . . . . . . . . . .12

After discount period . . . . . . . . . . . . . . . . . . . .6

Returns, allowances, and uncollectibles . . . . . . . 2

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%

Compute the estimated cash collections on accounts receivable for the month of February.

EXERCISE 4

Budgeting an Ending Cash

Balance

On March 1 of the current year, Spicer Corporation compiled information to prepare a cash budget for March, April, and May. All of the company's sales are made on account. The following information has been provided by Spicer's management:

Month Credit Sales

Jan. . . . . . . . . . . . . . . . . . . .$300,000 (actual)

Feb. . . . . . . . . . . . . . . . . . . . 400,000 (actual)

Mar. . . . . . . . . . . . . . . . . . . . 600,000 (estimated)

Apr. . . . . . . . . . . . . . . . . . . . 700,000 (estimated)

May. . . . . . . . . . . . . . . . . . . . 800,000 (estimated

The company's collection activity on credit sales historically has been as follows:

Collections in the month of the sale . . . . . . . . . . . . . . . 50%

Collections one month after the sale . . . . . . . . . . . . . . .30

Collections two months after the sale . . . . . . . . . . . . . .15

Uncollectible accounts . . . . . . . . . . . . . . . . . . . . . . . . .5

Spicer's total cash expenditures for March, April, and May have been estimated at $1,200,000 (an average of $400,000 per month). Its cash balance on March 1 of the current year is $500,000. No financing or investing activities are anticipated during the second quarter. Compute Spicer's budgeted cash balance at the ends of March, April, and May.

EXERCISE 5

Relationships among

Standard Costs, Actual

Costs, and Cost Variances

The standard costs and variances for direct materials, direct labor, and factory overhead for the month of May are as follows:

Variances

Standard Cost Unfavorable Favorable

Direct materials . . . . . . . . . . . . . . . . . . . .$ 85,000 Standard Cost

Price variance . . . . . . . . . . . . . . . . . . . . . $5,000 Unfavorable

Quantity variance . . . . . . . . . . . . . . . . . . $3,000 Favorable

Direct labor . . . . . . . . . . . . . . . . . . . . . . 150,000 Standard Cost

Rate variance . . . . . . . . . . . . . . . . . . . . .2,700 Favorable

Efficiency variance . . . . . . . . . . . . . . . . . .6,200 Unfavorable

Manufacturing overhead . . . . . . . . . . . . . 300,000 Standard Cost

Spending variance . . . . . . . . . . . . . . . . . 4,000 Favorable

Volume variance . . . . . . . . . . . . . . . . . . .5,000 Favorable

Determine the actual costs incurred during the month of May for direct materials, direct labor, and manufacturing overhead

EXERCISE 6

Computing Materials Cost

Variances and Volume

Variance

Gumchara Corporation reported the following information with respect to the materials required to manufacture amalgam florostats during the current month:

Standard price per gram of materials . . . . . . . . . . . . . . . . . . . . . . .  $4

Standard quantity of materials per amalgam florostat . . . . . . . . . . . .5 grams

Actual materials purchased and used in production . . . . . . . . . . . . . .6,000 grams

Actual amalgam florostats produced during the month . . . . . . . . . . . 1,000 units

Actual cost of materials purchased . . . . . . . . . . . . . . . . . . . . . . . . .  $18,000

Normal monthly output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 units

a. Determine Gumchara's materials price variance.

b. Determine Gumchara's materials quantity variance.

c. Will Gumchara's overhead volume variance be favorable or unfavorable? Why?

EXERCISE 7

Computing Labor Cost

Variances

Marlo Enterprises produces radon mitigation pumps. Information pertaining to the company's

monthly direct labor usage is provided below:

Standard labor rate per hour . . . . . . . . . . . . . . . . . . . . . . . . . $16

Standard hours allowed per radon mitigation pump . . . . . . . . . 0.5 hours

Actual pumps produced during the current month . . . . . . . . . .9,000 units

Actual labor hours worked during the current month . . . . . . . .3,600 hours

Actual labor cost for the current month . . . . . . . . . . . . . . . . . $64,800

a. Compute the company's labor rate variance.

b. Compute the company's labor efficiency variance.

c. An extremely large order of radon mitigation pumps was filled during the month for exportation to Saudi Arabia. Filling this order resulted in extended hours for many of the company's workers. Which labor variance reflects the extra hours worked by Marlo's employees? Was their time well utilized? Explain.