CHAPTER 20: BUDGETS
This budget is prepared first in the master budget and sets the tone for everything that follows.
Sales Budget
If actual costs > standard costs, the variance is…
Unfavorable
Assets = 45,000; Liabilities = 12,000.
What is the Stockholder's Equity?
33,000
The formula for the predetermined overhead rate.
Estimated annual overhead cost ÷ the estimated annual operating activity
What is a relevant cost?
A cost that differs between decision alternatives.
DM purchases?
DM required = 99,000
Desired ending DM = 18,000
Beginning DM = 13,200
99,000 + 18,000 – 13,200 = 103,800 lbs.
Price variance:
1,500 lbs cost $5,700
Standard price = $4/lb
$300 Favorable
Journal entry for performing services for $1,200 cash.
Debit Cash 1,200
Credit Service Revenue 1,200
Estimated OH $500,000; estimated machine hours 100,000. Compute the plantwide rate.
$5 per machine hour
What is a sunk cost?
A cost that has already been incurred and cannot be changed.
State the formula for the Production Budget.
Expected Sales + Desired Ending FG – Beginning FG = Required Production Units
Labor quantity/efficiency variance:
Std: 2 hrs @ $15
Actual: 1,800 units, 3,000 hrs
$9,000 Favorable
List all four financial statements
Income Statement
Statement of Retained Earnings
Balance Sheet
Statement of Cash Flows
Give one example of a cost driver used in ABC.
Number of setups (or inspections, material moves, design changes, etc.)
Product A can be sold now for $25 per unit or processed further with an extra cost of $7 to sell for $34.
Should the company process further or sell now?
Incremental revenue = $9; incremental cost = $7 → process further for a $2 gain per unit.
Southgate needs a $400k ending balance.
Beginning: 480,000
Receipts: 304,000
Disbursements: 544,000
Borrowing needed?
Ending before borrowing = 480 + 304 – 544 = 240,000
To get to 400,000, borrow $160,000.
Who’s responsible for each variance?
Materials price variance: Purchasing department
Materials quantity variance: Production department
Labor price variance: HR/payroll or production (if misallocated workers)
Labor efficiency (quantity) variance: Production department
What is a revenue account's normal balance?
Credit
A job used DM $4,500, DL $3,200, and 200 DLH. The OH rate is $10 per DLH. State the total job cost.
$9,700
A company has fixed costs of $90,000. It sells a single product for $45 with variable costs of $30.
How many units must it sell to achieve a target net income of $30,000?
(90,000 + 30,000) ÷ (45 – 30) = 120,000 ÷ 15 = 8,000 units.
A company expects sales of 50,000 units next quarter. Management wants ending finished goods inventory equal to 30% of next quarter’s sales, and beginning inventory is 8,000 units. Next quarter’s sales are projected to increase to 60,000 units.
Compute the required production for the current quarter.
60,000 units
MOH variance:
Actual OH = $118,000
Standard hours = 20,600
Predetermined OH rate = $6
$5,600 Favorable
Compute total MOH. Indirect materials $800; factory utilities $600; assembly-line wages $1,900; advertising $500.
MOH = $1,400 ($800 + $600). DL = $1,900; Advertising = period cost.
When OH is underapplied, what is the closing entry impact on Cost of Goods Sold? (increase or decrease).
Increase Cost of Goods Sold
Selling price = $25, variable cost = $15, fixed costs = $60,000.
What are the break-even sales in dollars?
CM ratio = (25 – 15)/25 = 0.4 → 60,000 ÷ 0.4 = $150,000.