MANAGEMENT ACCOUNTING - Solutions Manual

CHAPTER 22
BUSINESS PLANNING
I. Questions
1. Strategy, plans, and budgets are interrelated and affect one another.
Strategy describes how an organization matches its own capabilities with
the opportunities in the marketplace to accomplish its overall objectives.
Strategy analysis underlies both long-run and short-run planning. In
turn, these plans lead to the formulation of budgets. udgets provide
feedback to managers about the likely effects of their strategic plans.
!anagers use this feedback to revise their strategic plans.
". udgeted performance is better than past performance for judging
managers. #hy$ !ainly because the inefficiencies included in past
results can be detected and eliminated in budgeting. %lso, new
opportunities in the future, which did not e&ist in the past, may be
ignored if past performance is used.
'. % company that shares its own internal budget information with other
companies can gain multiple benefits. (ne benefit is better coordination
with suppliers, which can reduce the likelihood of supply shortages.
etter coordination with customers can result in increased sales as
demand by customers is less likely to e&ceed supply. etter coordination
across the whole supply chain can also help a company reduce
inventories and thus reduce the costs of holding inventories.
). *he sales forecast is typically the cornerstone for budgeting, because
production +and, hence, costs, and inventory levels generally depend on
the forecasted level of sales.
-. Sensitivity analysis adds an e&tra dimension to budgeting. It enables
managers to e&amine how budgeted amounts change with changes in the
underlying assumptions. *his assists managers to monitor those
assumptions that are most critical to a company attaining its budget or
make timely adjustments to plans when appropriate.
.. /actors reducing the effectiveness of budgeting of companies include0
1. 1ack of a well-defined strategy,
". 1ack of a clear linkage of strategy to operational plans,
22-1
Chapte 22 Business Planning
'. 1ack of individual accountability for results, and
). 1ack of meaningful performance measures.
II. Problems
Po!le" 1 #Bu$%ete$ In&o"e State"ent'
2lobalcom 3ompany
udgeted Income Statement for "44.
+in thousands,
5et sales 6.,77.
89uipment +6.,444 & 1.4. & 1.14, 1,74:
!aintenance contracts +61,:44 & 1.4.,
*otal net sales 6:,74)
3ost of goods sold +6),.44 & 1.4' & 1.4., -,4""
2ross margin ',::"
(perating costs0
!arketing costs +6.44 ; 6"-4, :-4
<istribution costs +61-4 & 1.4., 1-7
3ustomer maintenance costs +61,444 ; 61'4, 1,1'4
%dministrative costs 744
*otal operating costs ',4'7
(perating income 6 :)'
Po!le" 2 #Co"pehensi(e Opeatin% Bu$%et'
Requirement 1
S&he$ule 1) Re(enue Bu$%et
/or the =ear 8nded <ecember '1, "44.
Units Selling Price Total Revenues
Skateboards 1,444 6)-4 6)-4,444
*otal
Requirement 2
S&he$ule 2) Po$u&tion Bu$%et #in Units'
for the =ear 8nded <ecember '1, "44.
Skateboards
22-2
Business Planning Chapte 22
udgeted unit sales +Schedule 1, 1,444
%dd target ending finished goods inventory "44
*otal re9uirements 1,"44
<educt beginning finished goods inventory 144
>nits to be produced 1,144
Requirement 3
S&he$ule *A) +ie&t Mateials Usa%e Bu$%et
/or the =ear 8nded <ecember '1, "44.
Wood Fiberglass Total
Ph,si&al Bu$%et
*o be used in production -,-44
+#ood0 1,144 & -.44 b.f.
/iberglass0 1,144 & ..44 yards, .,.44
-,-44 .,.44
Cost Bu$%et
%vailable from beginning inventory
+#ood0 ",444 b.f. & 6":.44 -.,444
/iberglass0 1,444 b.f. & ).:4, ),:44
*o be used from purchases this period
+#ood0 +-,-44 ? ",444, & 6'4.44 14-,444
/iberglass0 +.,.44 ? 1,444, & 6-.44, ":,444
*otal cost of direct materials to be used 61.1,444 6'",:44 617',:44
S&he$ule *B) +ie&t Mateials Pu&hases Bu$%et
/or the =ear 8nded <ecember '1, "44.
Wood Fiberglass Total
Ph,si&al Bu$%et
6roduction usage +from Schedule '%, -,-44 .,.44
%dd target ending inventory 1,-44 ",444
*otal re9uirements @,444 :,.44
<educt beginning inventory ",444 1,444
6urchases -,444 @,.44
Cost Bu$%et
+#ood0 -,444 & 6'4.44 61-4,444
/iberglass0 @,.44 & 6-.44, 6':,444
61-4,444 6':,444 61::,444
Requirement 4
S&he$ule -) +ie&t Manu.a&tuin% La!o Bu$%et
/or the =ear 8nded <ecember '1, "44.
Labor ategor!
ost "river
Units
"#L $ours %er
"river Unit
Total
$ours
Wage
Rate Total
!anufacturing labor 1,144 -.44 -,-44 6"-.44 61'@,-44
22-*
Chapte 22 Business Planning
Requirement &
S&he$ule /) Manu.a&tuin% O(ehea$ Bu$%et
/or the =ear 8nded <ecember '1, "44.
't (udgeted Levels o) &*&++
"irect #anu)acturing Labor,$ours
Aariable manufacturing overhead
costs +6@.44 & -,-44, 6 ':,-44
/i&ed manufacturing overhead costs ..,444
*otal manufacturing overhead costs 614),-44
Requirement -
udgeted manufacturing overhead rate0 B 617.44 per hour
Requirement .
udgeted manufacturing overhead cost per output unit0
B
B 67-.44 per output unit
Requirement /
S&he$ule 0A) Co"putation o. Unit Costs o. Manu.a&tuin% 1inishe$
Goo$s in 2220
ost %er Unit
o) 0n%ut
a
0n%uts
b
Total
<irect materials
#ood 6'4.44 -.44 61-4.44
/iberglass -.44 ..44 '4.44
22--
614),-44
-,-44
614),-44
1,144
Business Planning Chapte 22
<irect manufacturing labor "-.44 -.44 1"-.44
*otal manufacturing overhead 7-.44
6)44.44
a
cost is per board foot, yard or per hour
b
inputs is the amount of input per board
Requirement 1
S&he$ule 0B) En$in% In(ento, Bu$%et
<ecember '1, "44.
Units ost %er Unit Total
<irect materials
#ood 1,-44 6 '4.44 6 )-,444
/iberglass ",444 -.44 14,444
/inished goods
Skateboards "44 )44.44 :4,444
*otal 8nding Inventory 61'-,444
Requirement 1+
S&he$ule 3) Cost o. Goo$s Sol$ Bu$%et
for the year 8nded <ecember '1, "44.
From
Sc2edule Total
eginning finished goods
inventory, Canuary 1,
"44. 2iven 6 '@,):4
<irect materials used '% 617',:44
<irect manufacturing labor ) 1'@,-44
!anufacturing overhead - 14),-44
3ost of goods manufactured )'-,:44
3ost of goods available for
sale )@',":4
<educt ending finished
goods inventory,
<ecember '1, "44. . :4,444
3ost of goods sold 6'7',":4
Requirement 11
Bu$%ete$ In&o"e State"ent .o Pa&i.i&
22-/
Chapte 22 Business Planning
for the =ear 8nded <ecember '1, "44.
Devenues Schedule 1 6)-4,444
3osts
3ost of goods sold Schedule @ '7',":4
2ross margin -.,@"4
(perating costs
!arketing costs
+6"-4 & '4, 6 @,-44
(ther costs '4,444 '@,-44
(perating income 6 17,""4
III. Multiple Choice Questions
1. % .. % 11. <
". @. 1". <
'. 3 :. < 1'.
). < 7. % 1). 3
-. < 14. 3 1-. %
22-0