Exam 8: Flexible Budgets, Standard Costs, and Variance Analysis

Home Corporation will open a new store on January 1. Based on experience from its other retail outlets, Home Corporation is making the following sales projections: Home Corporation estimates that 70% of the credit sales will be collected in the month following the month of sale, with the balance collected in the second month following the month of sale. The March 31 balance in accounts receivable will be:

The Fraley Corporation, a merchandising firm, has planned the following sales for the next four months: Sales are made 40% for cash and 60% on account. From experience, the company has learned that a month's sales on account are collected according to the following pattern: The company requires a minimum cash balance of $4,000 to start a month. Required: a. Compute the budgeted cash receipts for June. b. Assume the following budgeted data for June: Using this data, along with your answer to part (a) above, prepare a cash budget for June. Clearly show any borrowing needed during the month. The company can borrow in any dollar amount, but will not pay any interest until the following month.

The budgeted selling and administrative expense is calculated by multiplying the budgeted unit sales by the selling and administrative expense per unit.

Seventy percent of Parlee Corporation's sales are collected in the month of sale, 25% in the month following sale, and 5% in the second month following sale. The following are budgeted sales data for the company: Total budgeted cash collections in April would be:

Self-imposed budgets prepared by lower-level managers should be scrutinized by higher levels of management.

The basic idea underlying responsibility accounting is that each manager should be held responsible for the overall profit of the company to ensure that all managers are acting together.

The following are budgeted data for the Bingham Corporation, a merchandising company: The desired ending inventory (at cost) for February would be:

One disadvantage of a self-imposed budget is that budget estimates prepared by front-line managers are often less accurate and reliable than estimates prepared by top managers.

The manufacturing overhead budget at Pendley Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 8,900 direct labor-hours will be required in August. The variable overhead rate is $5.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $133,500 per month, which includes depreciation of $30,260. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for August should be:

Sarter Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year. Each unit of finished goods requires 3 grams of raw material. The company plans to sell 880,000 units during the year. The number of units the company would have to manufacture during the year would be:

Triste Corporation manufactures and sells women's skirts. Each skirt (unit) requires 2.6 yards of cloth. Selected data from Triste's master budget for next quarter are shown below: Each unit requires 1.6 hours of direct labor, and the average hourly cost of Triste's direct labor is $15. What is the cost of Triste Corporation's direct labor in September?

May Corporation, a merchandising firm, has budgeted sales as follows for the third quarter of the year: Cost of goods sold is equal to 65% of sales. The company wants to maintain a monthly ending inventory equal to 130% of the Cost of Goods Sold for the following month. The inventory on June 30 is less than this ideal since it is only $65,000. The company is now preparing a Merchandise Purchases Budget. The budgeted purchases for July are:

The selling and administrative expense budget of Gullette Corporation is based on the number of units sold, which are budgeted to be 2,700 units in April. The variable selling and administrative expense is $1.90 per unit. The budgeted fixed selling and administrative expense is $35,640 per month, which includes depreciation of $7,290. The remainder of the fixed selling and administrative expense represents current cash flows. Required: Prepare the selling and administrative expense budget for April.

Cowles Corporation Inc., makes and sells a single product, Product R. Three yards of Material K are needed to make one unit of Product R. Budgeted production of Product R for the next five months is as follows: The company wants to maintain monthly ending inventories of Material K equal to 30% of the following month's production needs. On July 31, this requirement was not met because only 3,500 yards of Material K were on hand. The cost of Material K is $0.80 per yard. The company wants to prepare a Direct Materials Purchase Budget for the rest of the year. The total cost of Material K to be purchased in August is:

Morie Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.75 direct labor-hours. The direct labor rate is $8.10 per direct labor-hour. The production budget calls for producing 2,000 units in March and 2,300 units in April. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 1,760 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months?

Noel Enterprises has budgeted sales in units for the next five months as follows: Past experience has shown that the ending inventory for each month must be equal to 10% of the next month's sales in units. The inventory on May 31 contained 400 units. The company needs to prepare a production budget for the second quarter of the year. The beginning inventory in units for September is:

The direct labor budget is based on:

The following are budgeted data: Two pounds of material are required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. Purchases of raw materials for May should be:

Dilbert Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: o Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000 for January. O Collections are expected to be 80% in the month of sale, 19% in the month following the sale, and 1% uncollectible. O The cost of goods sold is 65% of sales. O The company desires to have an ending merchandise inventory at the end of each month equal to 60% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase. O Other monthly expenses to be paid in cash are $20,300. O Monthly depreciation is $20,000. O Ignore taxes. The cost of December merchandise purchases would be:

Morrish Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 7,100 direct labor-hours will be required in January. The variable overhead rate is $1.80 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $102,950 per month, which includes depreciation of $19,880. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: