Short Answers:
1. Describe the unit level approach to cost behavior analysis. Discuss the appropriateness of this approach.
2. Briefly describe the cost-volume-profit analysis model and discuss how it can be used.
3. Many managers believe that if all amounts in their spending budgets are not spend during a period, they will lose allocation in future periods and that they will receive little or no recognition for the cost savings.
Discuss the behavioral and ethical issues involved in a spend-it-or lose-it attitude. Include in your discussion the issue of negotiating budget allocation requests prior to the beginning of the period.
4. Make a distinction between the manager's basic responsibilities for the following types of responsibility centers:
a. Cost center
b. Revenue center
c. Profit center
d. Investment center
5. Discuss how establishing standards benefits performance evaluation and decision making in an organization.
6. Compare the various quantitative models used to evaluate capital budgeting proposals. Which model(s) is(are) preferred if used as the only criterion?
Problems -
Problem 1 - Cash Budget
The ABC Store is a wholesale restaurant supply company. Each month 20% of the sales are paid in cash. The remaining sales are made on credit. Of the credit sales 30% are collected in the current month and 60% are collected in the following month. The remaining 10% is written off in the second month following the sale.
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Sales Budget
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Purchases Budget
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Salaries & Wages
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Selling & Admin Budget
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January
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$225,000
|
$45,000
|
$30,000
|
$65,000
|
|
February
|
$310,000
|
$60,000
|
$40,000
|
$70,000
|
|
March
|
$350,000
|
$65,000
|
$50,000
|
$75,000
|
|
April
|
$400,000
|
$55,000
|
$55,000
|
$80,000
|
|
May
|
$300,000
|
$45,000
|
$45,000
|
$70,000
|
|
June
|
$275,000
|
$40,000
|
$35,000
|
$68,000
|
Purchases are paid for in the following month. Salaries & Wages and Selling & Admin dare paid within the month they are budgeted. The beginning cash balance for April is expected to be $297,000. Prepare a cash budget for April using this information.
Problem 2 - Other Budgets
JMP Co. sells team logo basketballs. The company manager provided you with the following information.
Inventory at January 1 3800 basketballs
Desired ending inventory 16% of next month's sales
|
|
January
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February
|
March
|
|
Expected unit sales
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15,500
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17,500
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18,250
|
|
Selling price per basketball
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$12.00
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$12.00
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$15.00
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Prepare a sales budget for February. Show all your work.
Prepare a purchase budget for February. Show all your work.
Problem 3 - High Low
Machine hours and electricity costs for Blake Industries for the past year were as follows:
Month Machine Hours Electricity Costs
January 2,000 $18,900
February 2,400 21,500
March 1,400 14,000
April 2,600 23,500
May 3,300 29,200
June 3,300 22,700
Required:
a. Using the high-low method, develop an estimate of variable electricity costs per machine hour.
b. Using the high-low method, develop an estimate of fixed electricity costs per month.
c. Using the high-low method, develop a cost function for monthly electricity costs.
d. Estimate electricity costs for a month in which 1,300 machine hours are worked.
Problem 4 - Breakeven
You make 300 batches of chocolate chip cookies to sell at a mall kiosk. You pay $125 to rent the kiosk for the week and $25 (in total) for the ingredients of the cookies. You intend to sell the cookies for $8 a batch. You hire a high school student to sell the cookies and pay her a sales commission of $3 for each batch sold.
a. Compute the break-even quantity.
b. How many batches of cookies must you sell to earn a $800 pretax profit?
Problem 5 - Variances
Southwest Company produces a number of products, including a small decorative flag. The firm, which began operations at the beginning of the current year, uses a standard cost system. The standard costs for one flag are provided below:
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Direct Material (0.4 yds @ $1.00 per yard)
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$0.40
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Direct Labor (1.25 hours @ $8 per hour)
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10.00
|
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Variable overhead (1.25 hours @ $2 per hour)
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2.50
|
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Fixed overhead (1 hr @ $0.50 per hour)
|
0.50
|
|
Total Cost per flag
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$13.40
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The $0.50 fixed overhead rate is based on total budgeted fixed overhead costs of $17,000. There were no changes in any inventory account during the period. The company produced and sold 40,000 units at the following costs:
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Actual Qty
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Actual Cost
|
|
Direct materials
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18,000 yards
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$13,500 (total)
|
|
Direct Labor
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58,000 hours
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$469,800 (total)
|
|
Variable Overhead
|
|
$126,000
|
|
Fixed Overhead
|
|
$16,400
|
Required: Compute and label as Favorable (F) or Unfavorable (U) the following variances:
(a) direct materials price variance
(b) direct materials usage variance
(c) labor usage variance
(d) labor rate variance