8-11 Jeopardy

Chapter 8

100

Explain the sequence of sub-budgets within the master budget.

• The master budget always starts with the sales budget. From there it goes to the production budget, then the DL/DM/MOH budget, and finally ending in the cash budget. 

200

What is the idea of budgetary control, and what are some reasons why companies prepare budgets?

• Budgetary control is a form of planning that allows companies to track expenses, compare them to planned expenses, and decide whether corrective action should be taken place.

300

A company has the following inventory requirements: The finished goods inventory on hand at the end of each month must equal 5,000 units plus 15% of next month’s sales.

Calculate the FG inventory for June, July, and August based on the following projected sales:

June – 32,000

July – 35,000

August – 40,000

September – 38,000

• June: 5000 + (.15 * 35000) = 10,250
• July: 5000 + (.15 * 40000) = 11,000
• August: 5000 + (.15 * 38000) = 10,700

400

Your company asks you to prepare the following budgets given the following information:

1. Sales budget for the third quarter, given the following budgeted unit sales. Each unit sells for $25 each.

• July – 100,000 units
• August – 125,000 units
• September – 135,000 units

2. Direct labor and direct material budget for the month of August. Each unit of product requires 3.5 pounds of material and 2 hours of labor at $20 per hour.

• 100,000 * 25 = $2,500,000
• 125,000 * 25 = $3,125,000
• 135,000 * 25 = $3,375,000
• Direct labor:
• 125,000 * 0.5 * $25 = $1,562,500
• Direct material:
• 125,000 * 2 * $1.5 = $375,000

500

Management has prepared the following summary of your company’s budgeted cash flows.

1st quarter

2nd quarter

3rd quarter

4th quarter

Total cash receipts

$180,000

$330,000

$210,000

$230,000

Total cash disbursements

$250,000

$230,000

$220,000

$240,000

The company’s beginning cash balance for the upcoming fiscal year is $20,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank.

Prepare the cash budget for the fiscal year.

answer key

Chapter 9

100

What is the difference between the flexible budget and the master budget?

• Flexible budgets are budgets that are adjusted to the actual level of activity, whereas the master budget is created once at the beginning of the year and is never changed after.

200

During the quarter ending June 30, a company manufactured 40,000 products using 22,500 pounds of raw materials. The materials cost $200,000. The company budgeted each helmet to require 0.5 pounds, at a cost of $8 per pound.

What is the standard quantity of materials required to make 40,000 products?

• 0.5 * 40,000 = 20,000

300

During the quarter ending June 30, a company manufactured 40,000 products using 22,500 pounds of raw materials. The materials cost $200,000. The company budgeted each helmet to require 0.5 pounds, at a cost of $8 per pound.

Calculate the materials price variance.

• MPV = AQ (SP - AP)
• AQ = 22,500
• SP = $8
• AP = 200,000 / 22,500 = $9
• 22,500 (8 – 9) = 22,500 Unfavorable

400

QuickFurniture assembles custom furniture. During the most recent month, the company assembled 1,800 units. The following data was collected:

1. Purchased 9,200 units of raw materials at $35 per unit, for a total of $322,000. The standard amount was 10,000 units at $30 per unit.
2. Used 8,900 units of raw materials in production.
3. Worked 3,200 direct labor hours at a total labor cost of $76,800.
4. The standard labor rate is $24 per hour, and the predetermined overhead rate is $28 per labor hour.

Questions:

1. What is the material price variance?
2. What is the labor rate variance?

MPV = AQ (SP - AP)

9200 (30-35) = 46,000 U

LRV = AH (AR-SR)

3200 (24-24) = 0; no variance

500

skip :)

skip :)

Chapter 10

100

What is one benefit and one disadvantage of decentralization?

• Benefit: allows organizations to be respond to changes more quickly
• Disadvantage: lower-level managers may be less experienced in decision making

200

What is responsibility accounting?

• The idea that managers should only be held responsible for the section of the business that they oversee. Cost and revenue center managers are only held responsible for cost/revenue, profit center managers are responsible for both cost and revenue, and investment center managers are responsible for all 3 – cost, revenues, and investments.

300

Omega Corp. reported sales of $3,500,000 for the current year, with beginning assets of $2,100,000 and end-of-year assets totaling $2,300,000. The company achieved a contribution margin of $2,925,000 while incurring variable expenses of $575,000 and fixed expenses of $950,000. Additionally, Omega had Selling, General & Administrative (SG&A) expenses of $1,200,000. The company operates with a minimum required rate of return of 12%. Interestingly, Omega Corp. recently renovated its headquarters, adding a new employee lounge with pool tables and installing energy-efficient lighting, which is expected to reduce utility costs over time. Calculate ROI and RI.

• ROI = NOI / AOA
• 2.925m – 950k / (4,400,000 / 2) = 90%
• RI = NOI – (AOA * min RR%)
• 2.925m – 950k – ( (4,400,000 / 2) * 12%) = $1,711,000

400

The management of Tiberius Industries wants to analyze the production process to improve efficiency. For the second quarter of operations during the current year, the following data were reported:

• Inspection time: 0.4 days
• Wait time (from order to start of production): 15.5 days
• Process time: 3.1 days
• Move time: 1.1 days
• Queue time: 5.2 days

Required:

1. Compute the throughput time.
2. Compute the manufacturing cycle efficiency (MCE) for the quarter.

9.8, 31.6%

500

The management of Canyon Ridge Hotel has identified the following 10 performance measures for its balanced scorecard:

1. Percentage of front desk staff completing a hospitality and customer service course at the local college (Canyon Ridge will cover the course costs)
2. Monthly hotel profit
3. Number of room types offered (standard, deluxe, suite, etc.)
4. Cleanliness of rooms as rated by customers on surveys
5. Monthly room revenue

• Average time to check-in guests

7. Customer satisfaction with room amenities (Wi-Fi, bedding, toiletries) as measured by customer surveys
8. Average time to respond to a room service request
9. Percentage of housekeeping staff completing a cleanliness and hygiene course at the local college (Canyon Ridge will cover the course costs)
10. Customer satisfaction with concierge services as measured by customer surveys

Required:

Using the above information, construct a balanced scorecard for Canyon Ridge Hotel. Show how each performance measure relates to the four perspectives of the balanced scorecard (Financial, Customer, Internal Processes, and Learning & Growth) and indicate the links between the different performance measures.

answer key

Chapter 11

100

Explain the difference between opportunity, sunk, and differential costs.

• Opportunity costs – not an actual cost on our financial statements, but still something that we take into account. If we have multiple options, the opportunity cost of choosing any one option is the value of what we give up, aka the value of the other options.
• Sunk costs – costs that have already been spent and cannot be recovered regardless of which option is chosen.
• Differential costs – costs that differ between 2 alternatives.

200

What type of costs are relevant/irrelevant?

• Costs that differ between the alternatives are relevant, whereas costs that either have already been incurred or remain the same are irrelevant.

300

Mountain Sports Co. has three product lines: skis, snowboards, and winter clothing. The winter clothing line has been underperforming. The following data has been giving:

• Contribution margin for winter clothing: $80,000
• Annual fixed costs directly tied to winter clothing: $70,000
• Expected loss in revenue from ski and snowboard lines if winter clothing is discontinued: $30,000

Instructions:

• Identify the relevant costs and calculate the impact of dropping winter clothing.
• Should Mountain Sports Co. drop the winter clothing line? Explain your reasoning.

• Relevant costs: Contribution margin loss from climbing ($200,000), direct fixed cost savings ($80,000), and potential sales impact on the camping line.
• Decision: Don’t drop the winter clothing line as you would be losing $20,000.

400

Mosaic Textiles produces three types of fabrics that all require processing on the same type of dyeing machine, which has limited capacity of 3,000 hours per month. Each fabric has a different contribution margin and requires a different amount of machine hours:

• Fabric A: Contribution margin of $18 per unit; 1.5 hours per unit.
• Fabric B: Contribution margin of $28 per unit; 2 hours per unit.
• Fabric C: Contribution margin of $20 per unit; 0.8 hours per unit.

How should Mosaic allocate machine hours to maximize its monthly contribution margin?

• Maximize contribution margin per resource per hour of the constraint. Constraint is machine hours, so choose whichever resource produces the most amount of CM per machine hour.
• 
  
  • A – 18 / 1.5 = $12/hr
  • B – 28/2 = $14/hr
  • C  - 20/0.8 = $25/hour <- choose resource C

500

GreenTech Manufacturing has extra capacity this quarter and has received a special one-time order for 1,500 custom parts at $95 per part from a new client. Normal pricing for similar parts is $125, with a variable production cost of $70 per part and a fixed production cost allocation of $20 per part. If GreenTech accepts the order, it will need to spend an additional $3,000 on specialized materials required only for this client’s design. Accepting the order would not affect regular sales. Should GreenTech accept the order?

• Revenue earned from accepting special order: 1500 * 95 = 142,500
• Relevant costs of accepting special order: 1500 * 70 = 105,000
• Decision – accept the special order. Increase in profit of $37,500