Budgeting
This is the first budget we make
Sales budget
What is the inventory equation we use (manipulate) in several budgeting schedules?
Beginning Inventory + Purchases - Sales = Ending Inventory
What do you call the budget based on the actual level of activity for a period?
a flexible budget
A favorable materials quantity variance indicates
that you used less material than your standard
I will accept a special order when my incremental revenue is greater than my __________.
Incremental expense
You start the month with 7,000 units and sell 10,000 units; you plan on selling 11,000 units next month. Your ending inventory must equal 70% of next month's sales. How much direct labor cost will you have if each unit takes 1 direct labor hour and you pay your employees $15/hour?
(sales + ending inventory target - beginning inventory) * hour * rate
(10,000 + 7,700 - 7,000) * 1 DLH/u * $15/hr =
10,700 * 1 * 15 = $160,500
If we plan on making 100,000 units, how much raw material will we have to buy if each unit take 2 pounds of raw material. We will start with 20,000 pounds and end with 25,000.
25,000 + (100,000 * 2) - 20,000 = 205,000
A favorable rate variance means our actual ____ is less/greater than our standard _____
A favorable rate variance means our actual rate is less than our standard rate
An unfavorable manufacturing efficiency variance (based on direct labor hours) indicates
you used more labor hours than standard
I spend $10 in variable costs and $1,000 a month in fixed costs baking cupcakes to decorate. What is the financial advantage if I buy 200 cupcakes from a friend for $1,900. None of my fixed costs can be avoided if I buy the cupcakes
it costs me $2,000 to make the cupcakes; or $1,900 to buy them; financial advantage to buy is $100.
You pay your salesmen $2/unit sold in commissions. Their base salary is $30,000 for the year. If they sell 25,000 units, what is their budgeted fixed selling costs for the year?
$30,000 because the commissions is variable.
How much will you collect in June if you collect 70% of your sales in the month of the sale and 30% the month after. May sales were $100,000 and June sales were $110,000.
(70% * 110,000) + (30% * 100,000) = 107,000
If we originally planned to sell 100 units that cost us $10 each and we actually sold 105 units, what would our product cost in our flexible budget be?
105 units * $10 = $1,050
Your standard is to use 1 ounce of material at $0.50/ounce for each unit of production. You produced 1,000 units and spent $550 on the 1,200 ounces you used.
What is your material quantity variance?
What is your material price variance?
quantity variance: (1,200 - 1,000) * $0.50 = $100 U
materials price variance: $550 - (1,200 * $0.50) = 50 F
I own a bakery and am thinking of dropping my bread products. They generate $150,000 in sales over the year and I spend $80,000 on variable expenses and $100,000 on fixed expenses. None of the fixed expenses will go away if I drop the bread products. What is the financial advantage (disadvantage) of dropping the break products?
Lose $150,000 in sales and $80,000 in variable expense for a net decrease in profits of $70,000 (150k - 80k)
You charge your variable overhead on $5/direct labor hour. You plan on using 1,000 direct labor hours. Your fixed costs are $30,000 a year which includes $10,000 in depreciation. What is your budgeted cash disbursement for manufacturing overhead?
($5 * 1,000) + $30,000 - $10,000 = $25,000
What information do you need in order to complete a production budget? Which budgets will that feed?
Sales, beginning inventory, and desired ending inventory; it will feed the labor, raw materials purchases, and manufacturing overhead budgets.
What is our activityvariance if we planned on selling 100 units with a product cost of $10 each? We ended up selling 105 units and had total expense of $1,060.
(105 - 100) * $10 = $50
What is your labor rate variance?
What is your labor efficiency variance?
labor rate: 158,400 - (9,900 * $15.00) = $9,900 U
labor efficiency: (9,900 - 10,000) * $15.00 = $1,500 F
I bake and decorate cookies. Decorating cookies takes much longer to bake and time (minutes) is my limited resource. I should decorate the cookies that give me the highest what?
Contribution Margin per minute I decorate.
If you are beginning with $20,000 cash and plan on cash receipts of $150,000 and disbursements of $160,000, how much cash will you have to borrow if you require a minimum balance of $15,000?
$20,000 + 150,000 - 160,000 = 10,000; will need to borrow 15,000 - 10,000 = 5,000 to maintain the minimum balance.
What's your total product costs if you spend $10 in raw materials, $20 in direct labor hours, $5 in variable manufacturing overhead, and $3 in sales commission?
$10 + 20 + 5 = $35 (you omit sales commissions because it is not a product cost).
What is our spending variance if we planned on selling 100 units with a product cost of $10 each? We ended up selling 105 units and had total expense of $1,060.
1,060 - (100 * 105) = 10 U
You typically spend $1 on your material. You purchased 1,000 pounds. If your material's price variance was $100 unfavorable, how much did you spend on your raw materials?
((1,000 * $1) + $100) / 1,000 = $1.10
flexible budget total + unfavorable variance to get total actual cost; then divide by units purchased
I make two products. One product has a total contribution margin of $10 and product 2 has a total contribution margin of $12. Product one uses 5 units of my constrained resource while product 2 uses 8. Which product should I make first? How much more would I be willing to pay in order to meet all of product 1 and 2 demand?
$10/5 = $2 CM/constrained resource
$12/8 = $1.50 CM/constrained resource
focus on product 1; pay $1.50 more in order to produce all of product 1 and 2.