CHAPTER 9
Production Budget:
Assume Tombstone Tortilla's sales budget shows projected sales of 28,000 cases in April and 36,000 cases in May. The company's manager would like to maintain ending safety stock to equal to 10% of the next month's projected sales. How many units should be produced in April?
$28,800
How to:
# units of April sales: 28,000
+ 10% of May's sales: + 3,600 (36,000 x .10 this safety stock/ extrea unsued materials from May)
____________________________
# units we need to be ready: 31,600
- # units in Beg Inv: - 2,800 (28,000 x .10 this is March's Ending Inv= April's Beg Inv.)
_________________________________
# units to produce = 28,800
Assume the Hiking Shoes division of the All About Shoes Corporation had the following results last year (in thousands). Managment's target rate of return is 25% and the weighted average cost of capital is 20%. It's effective tax rate is 30%.
Sales $13,000,000
Operating Income 2,600,000
Total Assets 2,500,000
Current Liabilities 790,000
What is the division's Residual Income (RI)?
RI= Op. Inc - (Rate of Return x Total Assets)
RI= 2,600 - (.25 x 2,500)
R1= $1,975,000
A(n) ___________ is a carefully predetermined cost that is usually expressed on a per unit basis.
A. standard cost
B. allocated cost
C. applied cost
D. flexible cost
A. standard cost
chapter 11 quiz
Chapter 10:
Is this a cost, revenue, profit, or investment center:
Baskin-Robbins is a subsidiary of Dunkin' Brands; Dunkin' Brands owns and operates nearly 2,500 ice cream specialty stores in the U.S.
BONUS 100PTS: DESCRIBE ALL RESPONSIBILITY CENTERS
Investment Center- it focuses on everything: revenue, cost, and managing assets
BONUS 100PTS: DESCRIBE ALL RESPONSIBILITY CENTERS
Martin's manufacturing makes cat toys. Below is their sales budget and production budget for the first quarter of next year.
Month Units to Sell Units to Produce
Jan 8,000 8,300
Feb 9,200 9,375
Mar 9,900 9,850
Each toy requires 2lbs of material that costs $.60/lb. Ending inventory of direct mateials should b e10% of next month's production needs. Martin should purchase 18,845 lbs of material February. (HINT: you already answered this question in Chapter 9 200, so use this answer to calculate the DM BUDGET.)
How much should Martin's budget for DM purchases in February be?
$11,307
Direct Materials Budget:
Martin's manufacturing makes cat toys. Below is their sales budget and production budget for the first quarter of next year.
Month Units to Sell Units to Produce
Jan 8,000 8,300
Feb 9,200 9,375
Mar 9,900 9,850
Each toy requires 2lbs of material that costs $.60/lb. Ending inventory of direct mateials should b e10% of next month's production needs. How much material should Martin's purchase in February be?
18, 845 lbs. in February
Using ____ may cause a manager to reject a project that may be profitable to the company as a whole.
A. Residual Income (RI)
B. Sales Margin
C. Return on Investment (ROI)
D. Operating Margin
C. Return on Investment (ROI)
Fitness Bands Corporation gathered the following information for Job #928:
Standard: 1,600 pints @ $3.25/pint = $5,200 Std. TC
Actual: 2,600 pints @ $3.50/pint = $9,100 Act. TC
What is the Direct Materials price variance? Is it U or F?
$650 U
Act qty pur x ( Act Price - Std Price)
2,600 x (3.5 - 3.25)= 650 U because Actual is greate than Standard
Chapter 9:
Which of the following budgets must be prepared first, as it serves as a basis for most other budgets?
A. Cash budget
B. Operating expenses budget
C. Sales Budget
D. Production Budget
C. Sales Budget (this is an operating budget- remember this one consists of Sales Rev- the first component for Op Inc formula)
The number of on-time deliveries may be an eample of measuring which perspective of the balanced scorecard?
A. Financial
B. Internal Business
C. Learning and Growth
D. Customer
BONUS 100PTS if you can describe all four!
D. Customer
BONUS 100PTS if you can describe all four!
A. Financial- how do we look to shareholders?
B. Internal Business- what business operations do we need to improve and/or excel?
C. Learning and Growth- can we continue to improve and create value?
D. Customer- how do customers see us?
Cash Collections Budget:
Assume George has the following budgeted sales for the quarter:
Jan Feb Mar
COD ($) Sales 17,000 22,000 14,000
Credit Sales 85,000 115,000 120,000
_____________________________________
Total Sales 102,000 137,000 134,000
Credit Sales are collected as follows:
95% collected the month after sale
3% collected two months after the month of sale
2% is never collected
How much cash will be collected in March?
$125,800 collected in March
Assume the Hiking Shoes division of the All About Shoes Corporation had the following results last year (in thousands). Managment's target rate of return is 15% and the weighted average cost of capital is 20%. It's effective tax rate is 30%.
Sales $12,000,000
Operating Income 4,200,000
Total Assets 2,000,000
Current Liabilities 790,000
What is the division's Sales Margin?
SM= OP/SR
SM= 4.2/12
SM=35%
The following information describes a company's usage DL in a recent period:
Actual DL hours used 34,000
Actual rate per hour $22.00
Standard rate per hour $12.25
Standard hours for units produced 26,000
How much is the DL rate variance? Is it favorable or unfavorable?
$331,500 U
Actual Hrs x (Act Rate - Std Rate)
34,000 x (22-12.25)
=$331,500 Unfavorable because Actual is greater than standard
Chapter 11:
A favorable DL efficiency variance and an unfavorable DL rate variance might indicate which of the following?
A. Skilled workers using less acutal hours than standard, paid at a higher rate per hour than the standard rate
B. Unskilled workers using less actual hours than standard, paid at a lower rate per hour than the standard rate
C. Unskilled workers using more actual hours than standard, paid at a higher rate per hour than the standard rate
D. Skilled workers using more acutal hours than standard, paid at a lower rate per hour than the standard rate
A. Skilled workers using less actual hours than standard, paid at a higher rate per hour than the standard rate
WHY? because the company is using more efficient workers who may finish tasks faster, even though they cost more per hour to employ
Key takeaway: While the efficiency variance is positive (good), the higher labor cost due to the unfavorable rate variance offsets some of the efficiency gains, potentially impacting overall profitability.
Assume the Hiking Shoes division of the All About Shoes Corporation had the following results last year (in thousands). Managment's target rate of return is 25% and the weighted average cost of capital is 20%. It's effective tax rate is 30%.
Sales $13,000,000
Operating Income 5,200,000
Total Assets 1,000,000
Current Liabilities 820,000
What is the division's Return on Investment (ROI)?
ROI= OP/TA
ROI=5.2/1.0
ROI=520%
Cash Payments Budget:
Below are the Martin Mfg's Budgeted DM Purchases for the first quarter:
January= $33,630
February= $37,690
March= $39,220
Of each month's purchases, 20% are paid in the month of purchase, while the remainder is paid in the month after the purchase.
Monthly mfg costs are $5,000 for factory rent, $2,500 for depreciation, and $3,000 for other fixed mfg expenses (insurance, property taxes). These expenses are paid in the month in which they are incurred.
How much should Martin budget for cash payments from DM purchases and Manufacturing costs in March?
$45,996
The difference between the actual revenues and expenses and the master/comprehensive budget is known as the
A. master budget variance
B. static budget variance
C. flexible budget variance
D. capital budget variance
A. master budget variance
Michael Corporation manufactures railroad cars, which is its only product. The standards for the railroad cars are as follows:
Std tons of DM (steel) per car= 4
Std cost per ton of steel= $10
During the month of March, the company produced 1,450 cars. Related production data for the month follows:
Actual materials purchases and used (tons)= 6,650
Actual DM total cost= $116,000
What is the direct materials quantity variance for the month? Is it favorable or unfavorable?
$8,500 U
STD P x (Act Qty Used - Std Qty Allowed)
***1450 x 4= 5800 Std Qty Allowed***
10 x (6650-5800)= $8,500 U because Actual is greater than the Standard Allowed
Which variance would tell managers how much of the total labor variance is due to using a different amount of worker hours than anticipated?
DL efficiency variance
In standard costing, variances help businesses understand the difference between actual costs and what was budgeted. Direct Labor (DL) variances measure how well labor is used and at what rate, while Direct Material (DM) variances assess the cost of materials and how efficiently they are used.
CHAPTER 11 QUIZ
Piper Corporation, which manufactures dog toys, is developing DL standards. The basic DL rate is $12.38 per hour. Payroll taxes are 8% of the basic direct labor rate, while fringe benefits such as vacation and health care insurance are $2.84 per hour.
What is the standard rate per direct labor hour?
A. $12.38
B. $15.22
C. $13.37
D. $16.21
D. $16.21
Std Price of DL= Std qty of DL x Std price of DL
12.38x.08=0.9904
.9904+12.38+2.84=16.2104
Combined Cash Budget:
On March 1, Martin estimates it will have a cash balance if $6,000. Cash collections for March are estimated to be $42,000. Cash payments for March were calcualted ot be $45,996. Martin mfg has a policy that its ending cash balance each month must be at least $4,000. What will March's ending balance be before financing? Should they plan to borrow anything in March?
$1,996 borrowings
$4,000 after financing
Summer Nights sells bottles of bug spray for $8.00 each. Variable costs are $2.00 per bottle, while fixed costs are $40,000 per month for volumes up to 40,000 bottles of spray and $58,000 per month for volumes above 40,000 bottles of spray. The flexible budget would reflect monthly operating income for 10,000 bottles of spray and 22,000 bottles of spray of what dollar amounts?
A. $2000 and $118,000, respectively
B. $80,000 and $176,000, respectively
C. $20,000 and $92,000, respectively
D. $40,000 and $92,000, respectively
C. $20,000 and $92,000, respectively (chapter 10 quiz)
A favorable DL efficiency variance might indicate:
Higher-skilled workers were used who performed the task faster than expected (chapter 11 quiz)
Accurately describe three things from chapter 9, 10, and 11. You choose the three topics from the list below (you get 15 seconds to consult your notes):
Chapter 9 Topics:
1. What budgets are in the Operating Budget
2. What two budgets make up the Master/ Comprehensive budget?
3. What is the proper order of the following budgets: production, sales, DM budget (chapter 9 quiz)
Chapter 10 Topics:
1. Explain favorable and unfavorable variances
2. What is decentralization?
3. What are the four components of the balance scorecard?
Chapter 11 Topics:
1. Name two advantages and two disadvantages of using Standards and Variances.
2. Name all four variances and their formulas properly.
3. Human Resources and Production use which variance?
Goodluck- you got this exam!! :)
TAKE TWO MINUTES AND WRITE OUT A HIGH LEVEL OVERVIEW OF EACH CHAPTER- whichever team has the most concepts with detail wins the points.
NO NOTES
GOODLUCK YOU GOT THIS!