CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING 6-1 a. b. c. d.

The budgeting cycle includes the following elements: Planning the performance of the company as a whole as well as planning the performance of its subunits. Management agrees on what is expected. Providing a frame of reference, a set of specific expectations against which actual results can be compared. Investigating variations from plans. If necessary, corrective action follows investigation. Planning again, in light of feedback and changed conditions.

6-2 The master budget expresses management s operating and financial plans for a specified period !usually a fiscal year" and includes a set of budgeted financial statements. It is the initial plan of what the company intends to accomplish in the period. 6-3 #trategy, plans, and budgets are interrelated and affect one another. #trategy specifies how an organi$ation matches its own capabilities with the opportunities in the marketplace to accomplish its ob%ectives. #trategic analysis underlies both long&run and short&run planning. In turn, these plans lead to the formulation of budgets. 'udgets provide feedback to managers about the likely effects of their strategic plans. Managers use this feedback to revise their strategic plans. 6-4 (e agree that budgeted performance is a better criterion than past performance for %udging managers, because inefficiencies included in past results can be detected and eliminated in budgeting. )lso, future conditions may be expected to differ from the past, and these can also be factored into budgets. 6-5 Production and marketing traditionally have operated as relatively independent business functions. 'udgets can assist in reducing conflicts between these two functions in two ways. *onsider a beverage company such as *oca&*ola or Pepsi&*ola: *ommunication. Marketing could share information about seasonal demand with production. *oordination. Production could ensure that output is sufficient to meet, for example, high seasonal demand in the summer. 6-6 In many organi$ations, budgets impel managers to plan. (ithout budgets, managers drift from crisis to crisis. +esearch also shows that budgets can motivate managers to meet targets and improve their performance. Thus, many top managers believe that budgets meet the cost&benefit test. 6-7 ) rolling budget, also called a continuous budget, is a budget or plan that is always available for a specified future period, by continually adding a period !month, ,uarter, or year" to the period that %ust ended. ) four&,uarter rolling budget for -.// is superseded by a four&,uarter rolling budget for )pril -.// to March -./-, and so on.

0&/

6.8

The steps in preparing an operating budget are as follows: /. Prepare the revenues budget -. Prepare the production budget !in units" 1. Prepare the direct material usage budget and direct material purchases budget 2. Prepare the direct manufacturing labor budget 3. Prepare the manufacturing overhead budget 0. Prepare the ending inventories budget 4. Prepare the cost of goods sold budget 5. Prepare the nonmanufacturing costs budget 6. Prepare the budgeted income statement

6-9 The sales forecast is typically the cornerstone for budgeting, because production !and, hence, costs" and inventory levels generally depend on the forecasted level of sales. 6-10 #ensitivity analysis adds an extra dimension to budgeting. It enables managers to examine how budgeted amounts change with changes in the underlying assumptions. This assists managers in monitoring those assumptions that are most critical to a company in attaining its budget and allows them to make timely ad%ustments to plans when appropriate. 6.11 Kaizen budgeting explicitly incorporates continuous improvement anticipated during the budget period into the budget numbers. 6.12 7onoutput&based cost drivers can be incorporated into budgeting by the use of activity& based budgeting !)''". )'' focuses on the budgeted cost of activities necessary to produce and sell products and services. 7onoutput&based cost drivers, such as the number of parts, number of batches, and number of new products can be used with )''. 6-13 The choice of the type of responsibility center determines what the manager is accountable for and thereby affects the manager s behavior. 8or example, if a revenue center is chosen, the manager will focus on revenues, not on costs or investments. The choice of a responsibility center type guides the variables to be included in the budgeting exercise. 6-14 'udgeting in multinational companies may involve budgeting in several different foreign currencies. 8urther, management accountants must translate operating performance into a single currency for reporting to shareholders, by budgeting for exchange rates. Managers and accountants must understand the factors that impact exchange rates, and where possible, plan financial strategies to limit the downside of unexpected unfavorable moves in currency valuations. In developing budgets for operations in different countries, they must also have good understanding of political, legal and economic issues in those countries. 6-15 7o. *ash budgets and operating income budgets must be prepared simultaneously. In preparing their operating income budgets, companies want to avoid unnecessary idle cash and unexpected cash deficiencies. The cash budget, unlike the operating income budget, highlights periods of idle cash and periods of cash shortage, and it allows the accountant to plan cost effective ways of either using excess cash or raising cash from outside to achieve the company s operating income goals.

0&-

6-16 /.

!/3 min." S !"# $%&'"() #"*+,-" #"((,.'. 2011 1/!%2" /-,-.. /0,2.. A( 2011 S"!!,.' P*,-"# 9-6. 9-2. E34"-("& 2012 C5 .'" ,. 1/!%2" :0; &/.; E34"-("& 2012 1/!%2" /-,61/2,40.

R/%#" 0 S/.# +adon Tests <ead Tests

R/%#" 0 S/.# S !"# B%&'"( 6/* (5" Y" * E.&"& D"-"2$"* 31) 2012 S"!!,.' P*,-" 9-6. 9-2. U.,(# S/!& /-,61/2,40. T/( ! R"+".%"# 91,43.,-5. 1,32-,2.. 94,-6-,05. E34"-("& 2012 1/!%2" /-,61/3,-3-

+adon Tests <ead Tests -. R/%#" 0 S/.# +adon Tests <ead Tests 2011 1/!%2" /-,-.. /0,2..

P! .."& 2012 S"!!,.' P*,-"# 9-6. 9-1.

E34"-("& 2012 C5 .'" ,. 1/!%2" :0; &4;

R/%#" 0 S/.# S !"# B%&'"( 6/* (5" Y" * E.&"& D"-"2$"* 31) 2012 S"!!,.' P*,-" 9-6. 9-1. U.,(# S/!& /-,61/3,-3T/( ! R"+".%"# 91,43.,-5. 1,3.4,60. 94,-35,-2.

+adon Tests <ead Tests

=xpected revenues at the new -./- prices are 94,-35,-2., which is lower than the expected -./revenues of 94,-6-,05. if the prices are unchanged. #o, if the goal is to maximi$e sales revenue and if >im +ouse s forecasts are reliable, the company should not lower its price for a lead test in -./-.

0&1

6-17

!3 min."

S !"# .& 4*/&%-(,/. $%&'"(. -..,... -3,... --3,... /3,... -/.,...

'udgeted sales in units )dd target ending finished goods inventory Total re,uirements ?educt beginning finished goods inventory @nits to be produced 6-18 !3 min." D,*"-( 2 ("*, !# 4%*-5 #"# $%&'"(.

?irect materials to be used in production !bottles" )dd target ending direct materials inventory !bottles" Total re,uirements !bottles" ?educt beginning direct materials inventory !bottles" ?irect materials to be purchased !bottles" 6-19 !/. min." B%&'"(,.' 2 ("*, ! 4%*-5 #"#. Production 'udget: 'udgeted sales )dd target ending finished goods inventory Total re,uirements ?educt beginning finished goods inventory @nits to be produced ?irect Materials Purchases 'udget: ?irect materials needed for production !24,... 1" )dd target ending direct materials inventory Total re,uirements ?educt beginning direct materials inventory ?irect materials to be purchased

-,3..,... 5.,... -,35.,... 3.,... -,31.,...

6,.,#5"& G//&# 7%.,(#8 23,... /5,... 01,... /0,... 24,...

D,*"-( M ("*, !# 7,. ' !!/.#8 /2/,... 3.,... /6/,... 0.,... /1/,...

0&2

6-20 /.

!1. min." R"+".%"# .& 4*/&%-(,/. $%&'"(. S"!!,.' P*,-" 9..-3 /.3. U.,(# S/!& 2,5..,...a /,-..,...b T/( ! R"+".%"# 9/,-..,... /,5..,... 91,...,...

/-&ounce bottles 2&gallon units

a b

2..,... A /- months B 2,5..,... /..,... A /- months B /,-..,...

-.

'udgeted unit sales !/-&ounce bottles" )dd target ending finished goods inventory Total re,uirements ?educt beginning finished goods inventory @nits to be produced 'eginning B 'udgeted : Target 'udgeted inventory sales ending inventory production B /,-..,... : -..,... /,1..,... B /..,... 2&gallon units

2,5..,... 0..,... 3,2..,... 6..,... 2,3..,...

1.

6-21 !1. min." B%&'"(,.'9 &,*"-( 2 ("*, ! %# '") 2 .%: -(%*,.' -/#( .& '*/## 2 *',.. /. D,*"-( M ("*, ! U# '" B%&'"( ,. ;% .(,(< .& D/!! *# M ("*, ! =//! P5<#,- ! U.,(# B%&'"( ?irect materials re,uired for 'lue +ugs !-..,... rugs A 10 skeins and ..5 gal." 4,-..,... skeins D<" /0.,... gal. T/( !

C/#( B%&'"( )vailable from beginning direct materials inventory: !a" (ool: 235,... skeins 9 60/,5.. ?ye: 2,... gallons To be purchased this period: !b" (ool: !4,-..,... & 235,..." skeins A 9- per skein /1,252,... ?ye: !/0.,... C 2,..." gal. A 90 per gal. DDDDDDDDD 9/2,223,5. ?irect materials to be used this period: !a" : !b" .

9 -1,05. 610,... 9 636,05. 9/3,2.3,25.

0&3

-. 91/, 0-., ... (eaving budgeted B B 9-.33 per ?M<E overhead rate /-, 2.., ... ?M<E 9/4, -5., ... ?yeing budgeted B B 9/- per ME overhead rate /, 22., ... ME 1. B%&'"("& U.,( C/#( /: B!%" R%' C/#( 4"* U.,( /: I.4%( 90 /1 /-.33 I.4%( 4"* U.,( /: O%(4%( 10 skeins ..5 gal. 0- hrs. / 4.- mach&hrs. 0- ?M<E

(ool ?ye ?irect manufacturing labor ?yeing overhead (eaving overhead Total
/

T/( ! 4-... 2.5. 5.0... 50.2. /35./. 9//-4.1. 9

..- machine hour per skein 10 skeins per rug B 4.- machine&hrs. per rug.

2. R"+".%" B%&'"( S"!!,.' U.,(# P*,-" T/( ! R"+".%"# -..,... 9-,... 92..,...,... /53,... 9-,... 914.,...,...

'lue +ugs 'lue +ugs 3a. S !"# > 200)000 *%'# C/#( /: G//&# S/!& B%&'"(

6*/2 S-5"&%!" 'eginning finished goods inventory ?irect materials used ?irect manufacturing labor !95.0 A -..,..." ?yeing overhead !950.2. A -..,..." (eaving overhead !9/35./. A -..,..." *ost of goods available for sale ?educt ending finished goods inventory *ost of goods sold 9 9/3,2.3,25. /0/,-..,... /4,-5.,... 1/,0-.,...

T/( ! .

--3,3.3,25. --3,3.3,25. . 9--3,3.3,25.

0&0

3b. S !"# > 185)000 *%'# C/#( /: G//&# S/!& B%&'"( 6*/2 S-5"&%!" 'eginning finished goods inventory ?irect materials used ?irect manufacturing labor !95.0 A -..,..." ?yeing overhead !950.2. A -..,..." (eaving overhead !9/35./. A -..,..." *ost of goods available for sale ?educt ending finished goods inventory !9/,/-4.1. A /3,..." *ost of goods sold 0. +evenue <ess: *ost of goods sold Fross margin 6-22 /. -. 200)000 *%'# #/!& 92..,...,... --3,3.3,25. 9 /42,262,3-. 185)000 *%'# #/!& 914.,...,... -.5,363,65. 9 /0/,2.2,.-. 9 9 /3,2.3,25. /0/,-..,... /4,-5.,... 1/,0-.,... T/( ! .

--3,3.3,25. --3,3.3,25. /0,6.6,3. . 9-.5,363,65.

!/3C-. min." R"+".%"#) 4*/&%-(,/.) .& 4%*-5 #"# $%&'"(. 6..,... motorcycles 2..,... yen B 10.,...,...,... yen 'udgeted sales !motorcycles" )dd target ending finished goods inventory Total re,uirements ?educt beginning finished goods inventory @nits to be produced ?irect materials to be used in production, 55.,... A - !wheels" )dd target ending direct materials inventory Total re,uirements ?educt beginning direct materials inventory ?irect materials to be purchased !wheels" *ost per wheel in yen ?irect materials purchase cost in yen 6..,... 5.,... 65.,... /..,... 55.,... /,40.,... 0.,... /,5-.,... 3.,... /,44.,... /0,... -5,1-.,...,...

1.

7ote the relatively small inventory of wheels. In >apan, suppliers tend to be located very close to the ma%or manufacturer. Inventories are controlled by %ust&in&time and similar systems. Indeed, some direct materials inventories are almost nonexistent.

0&4

6-23

!/3&-3 min." B%&'"(# :/* 4*/&%-(,/. .& &,*"-( 2 .%: -(%*,.' ! $/*. R/!"(("* C/24 .< B%&'"( :/* P*/&%-(,/. .& D,*"-( M .%: -(%*,.' L $/* :/* (5" ;% *("* E.&"& M *-5 31) 2013

'udgeted sales !units" )dd target ending finished goods inventorya !units" Total re,uirements !units" ?educt beginning finished goods inventory !units" @nits to be produced ?irect manufacturing labor&hours !?M<E" per unit Total hours of direct manufacturing labor time needed ?irect manufacturing labor costs: (ages !9/.... per ?M<E" Pension contributions !9..3. per ?M<E" (orkers compensation insurance !9../3 per ?M<E" =mployee medical insurance !9..2. per ?M<E" #ocial #ecurity tax !employer s share" !9/.... ...43 B 9..43 per ?M<E" Total direct manufacturing labor costs
a

? .% *< /.,... /0,... -0,... /0,... /.,... A -.. -.,... 9-..,... /.,... 1,... 5,... /3,... 9-10,...

6"$*% *< /-,... /-,3.. -2,3.. /0,... 5,3.. A -.. /4,... 9/4.,... 5,3.. -,33. 0,5.. /-,43. 9-..,0..

M *-5 5,... /1,3.. -/,3.. /-,3.. 6,... /.3 /1,3.. 9/13,... 0,43. -,.-3 3,2.. /.,/-3 9/36,1..

;% *("* 1.,... /1,3.. 21,3.. /0,... -4,3..

3.,3.. 93.3,... -3,-3. 4,343 -.,-.. 14,543 9363,6..

/..; of the first following month s sales plus 3.; of the second following month s sales. 7ote that the employee #ocial #ecurity tax of 4.3; is irrelevant. #uch taxes are withheld from employees wages and paid to the government by the employer on behalf of the employeesG therefore, the 4.3; amounts are not additional costs to the employer.

0&5

6-24

!-.C1. min." A-(,+,(<-$ #"& $%&'"(,.'.

/. This ,uestion links to the )'* example used in the Problem for #elf&#tudy in *hapter 3 and to Huestion 3&-2 !)'*, retail product&line profitability".
A-(,+,(< Irdering 96. /2G -2G /2 ?elivery 95- /-G 0-G /6 #helf&stocking 9-/ /0G /4-G 62 *ustomer support 9../5 2,0..G 12,-..G /.,43. Total budgeted indirect costs Percentage of total indirect costs C/#( H,"* *-5< 'atch&level 'atch&level Iutput&unit& level Iutput&unit& level S/:( D*,.@# 9/,-0. 652 110 5-5 91,2.5 /-.3; 6*"#5 P*/&%-" 9 -,/0. 3,.52 1,0/0,/30 9/4,./0-.4; P -@ '"& 6//& 9/,-0. /,335 /,642 /,613 90,4-4 -2.5; T/( ! 9 2,05. 4,0-0 3,6-5,6/6 9-4,/24

-. +efer to the last row of the table in re,uirement /. 8resh produce, which probably represents the smallest portion of *IF#, is the product category that consumes the largest share !0-.4;" of the indirect resources. 8resh produce demands the highest level of ordering, delivery, shelf&stocking and customer support resources of all three product categoriesJit has to be ordered, delivered and stocked in small, perishable batches, and supermarket customers often ask for a lot of guidance on fresh produce items. 1. )n )'' approach recogni$es how different products re,uire different mixes of support activities. The relative percentage of how each product area uses the cost driver at each activity area is: A-(,+,(< Irdering ?elivery #helf&stocking *ustomer support C/#( H,"* *-5< 'atch&level 'atch&level Iutput&unit&level Iutput&unit&level S/:( D*,.@# -4; /1 0 6 6*"#5 P -@ '"& P*/&%-" 6//& 20; -4; 04 -. 0/ 11 06 -T/( ! /..; /.. /.. /..

'y recogni$ing these differences, 8# managers are better able to budget for different unit sales levels and different mixes of individual product&line items sold. @sing a single cost driver !such as *IF#" assumes homogeneity in the use of indirect costs !support activities" across product lines which does not occur at 8#. Ither benefits cited by managers include: !/" better identification of resource needs, !-" clearer linking of costs with staff responsibilities, and !1" identification of budgetary slack.

0&6

6-25 /.

!-.C1. min." A ,B". 44*/ -5 (/ -(,+,(<-$ #"& $%&'"(,.' 7-/.(,.% (,/. /: 6-248. B%&'"("& C/#(-D*,+"* R ("# ? .% *< 6"$*% *< M *-5 96.... 956.02.. 956.-5/2 5-... 5/.04-. 5/.1231 -/... -..6/0. -..51-1 ../5 ../461 ../450

A-(,+,(< Irdering ?elivery #helf&stocking *ustomer support

C/#( H,"* *-5< 'atch&level 'atch&level Iutput&unit&level Iutput&unit&level

The March -.// rates can be used to compute the total budgeted cost for each activity area in March -.//:
A-(,+,(< Irdering 956.-5/2 /2G -2G /2 ?elivery 95/.1231 /-G 0-G /6 #helf&stocking 9-..51-1 /0G /4-G 62 *ustomer support 9../450 2,0..G 12,-..G /.,43. Total C/#( H,"* *-5< 'atch&level 'atch&level Iutput&unit&level Iutput&unit&level S/:( D*,.@# 9/,-3. 640 111 5-/ 91,15. 6*"#5 P*/&%-" 9 -,/21 3,.21 1,351 0,/.5 9/0,544 P -@ '"& 6//& 9/,-3. /,320 /,635 /,6-. 90,042 T/( ! 9 2,021 4,303 3,542 5,526 9-0,61/

-. ) kai$en budgeting approach signals management s commitment to systematic cost reduction. *ompare the budgeted costs from Huestion 0&-2 and 0&-3. O*&"*,.' 92,05. 2,021 D"!,+"*< 94,0-0 4,303 S5"!:S(/-@,.' 93,6-3,542 C%#(/2"* S%44/*( 95,6/6 5,526

Huestion 0&-2 Huestion 0&-3 !Kai$en"

The kai$en budget number will show unfavorable variances for managers whose activities do not meet the re,uired monthly cost reductions. This likely will put more pressure on managers to creatively seek out cost reductions by working LsmarterM within 8# or by having LbetterM interactions with suppliers or customers. Ine limitation of kai$en budgeting, as illustrated in this ,uestion, is that it assumes small incremental improvements each month. It is possible that some cost improvements arise from large discontinuous changes in operating processes, supplier networks, or customer interactions. *ompanies need to highlight the importance of seeking these large discontinuous improvements as well as the small incremental improvements.

0&/.

6-26

!/3 min." R"#4/.#,$,!,(< .& -/.(*/!! $,!,(<. /. !a" Production manager !b" Purchasing Manager

The purchasing manager has control of the cost to the extent that heNshe is doing the purchasing and can seek or contract for the best price. The production manager should work with the purchasing manager from the warehouse. They can, together, possibly find a combination of better engine and better price for the engine than the production manager has found. -. !a" Production Manager !b" =xternal 8orces In the case of the utility rate hike the production manager would be responsible for the costs, but they are hard to control. The rates are fixed by the utility company, and there is usually no choice in which utility company is used. The production manager can try to reduce waste !turn off lights when not in use, turn of machines when not running, don t leave water running, etch" but other than conservation measures, the manager has no say in the utility rates. The manager might consider purchasing more energy&efficient machines. 1. !a" Oan 1 driver !b" #ervice manager The driver of each van has the responsibility to stay within budget for the costs of the service vehicle. The service manager should set policies to which the drivers must adhere, including not using the van for personal use. )lthough costly, the service manager could install FP# in the vans to make sure they are where they are supposed to be, and can also fire the driver of Oan 1 for misusing company property. !@sing the van for personal driving affects the tax deductibility of the van for the firm as well". 2. !a" )nderson s service manager !b" 'igstore (arehouse manager #ince 'igstore (arehouse has a maintenance contract with )nderson, both the warehouse manager and )nderson s service manager should work together to make sure routine maintenance is scheduled for the 'igstore (arehouse forklifts. This will decrease the number and cost of the repair emergencies. The manager should also consider the average cost of these service calls over the months where there were no calls. 3. !a" #ervice manager !b" This dependsP The answer to this ,uestion really depends on why 8red #nert works so slowly. If it is because 8red is chatting with the customers !which may be why they like him" then the service manage should tell him to only bill for actual time worked. If it is because 8red works intentionally slowly to get the overtime, then the service manager should consider disciplining him unless he is too valuable in other ways. If it is because he does not have ade,uate training, then E+ should 0&//

be involved, and the service manager should work with 8red to get him more training and with E+ to make sure future hires are ade,uately trained. 0. !a" #ervice manager !b" =xternal forces <ike the cost of utilities, the cost of gasoline is determined externally. Eowever, unlike the case of utilities, it is possible that the service manager can contract with a gasoline company to buy gas at a fixed price over a period of time. The advantage for )nderson is that the price is set, and the advantage for the gasoline company is that they are certain to have a long term customer even if the price is lower than for a random customer.

0&/-

6-27 /.

!1. min." C #5 :!/C . !<#,#) -5 4("* 44".&,3. The cash that Fame Fuys can expect to collect during May and >une is calculated below. *ash collected in 8rom service revenue May !9/,2.. x .64" >une !9-,0.. x .64" 8rom sales revenue *ash sales 8rom credit card sales May !.3 x 90,-.. x .64" >une !.3 x 96,4.. x .64" 8rom cash sales May !../ x 90,-.." >une !../ x 96,4.." *redit sale collections 8rom )pril !.2 x 93,3.. x .6" !.2 x 93,3.. x ..5" 8rom May !.2 x 90.-.. x .6" Total collections May 9/,135... 9-,3--... >une

1,..4... 2,4.2.3. 0-.... 64.... /,65.... 90,603... /40... -,-1-... 9/.,0.2.3.

-.

!a" 'udgeted expenditures for May are as follows. Inventory purchases +ent, utilities, etc. (ages TIT)< C/#(# 92,13. /,2.. /,... 90,43.

Qes, Fame Fuys will be able to cover its May costs since receipts are 90,603 and expenditures are only 90,43.. !b" O*,',. ! .%2$"*# M < R"+".%"# &"-*" #" 10D 9/..... 0,200.3.a 0,43.... 9!/51.3." M < R"+".%"# &"-*" #" 5D 9/..... 0,4/3.43b 0,43.... 9 03.43 M < C/#(# ,.-*" #" 8D 9/..... 0,603... 4,-6.... 9!--3..."

'eginning cash *ollections *ash *osts Total

a b

9/..... 0,603... 0,43.... 91/3...

8rom re,uirement /, this is ..6. A !/,135 : 1,..4 : 0-." : /,65. B 90,200.3. 8rom re,uirement /, this is ..63 A !/,135 : 1,..4 : 0-." : /,65. B 90,4/3.43

0&/1

1.

The cost of inventory purchases without the discount is 92,13., which Fame Fuys would not have to pay until >une if they buy the inventory on account in May. Eowever, if they take the discount and pay in May, the cost will be 92,13. x !/..; & -;" B 92,-01. This means they will save 954. This makes total expenditures for May Inventory purchases +ent, utilities, etc. (ages TIT)< C/#(# 92,-01... /,2..... /,...... 90,001...

Fame Fuys total cash available is 9/.. !cash balance" : 90,-.. !cash receipts" so they will have to borrow 9101 at a rate of -2; !or -; per month." 'ased on the information from R/, they will be able to pay this back in >une !assuming cash expenditures don t increase dramatically", so they will incur interest costs of 9101 x ..- B 94.-0 !rounded up". #ince it will cost them less than 95 to save 954, it makes sense to go ahead and take the short&term loan to pay the account payable early.

0&/2

6-28 /a.

!2. min."

B%&'"( #-5"&%!"# :/* 2 .%: -(%*"*.

A.,'5(# B! .@"(# /-. 9/3. 9/5,... R ,&"*# B! .@"(# /5. 9/43 91/,3..

+evenues 'udget
T/( ! 926,3.. @nits sold #elling price 'udgeted revenues

b.

Production 'udget in @nits

'udgeted unit sales )dd budgeted ending fin. goods inventory Total re,uirements ?educt beginning fin. goods inventory 'udgeted production A.,'5(# B! .@"(# /-. -. /2. /. /1. R ,&"*# B! .@"(# /5. -3 -.3 /3 /6.

c.

?irect Materials @sage 'udget !units"

R"& C//! Knights blankets: /. 'udgeted input per f.g. unit -. 'udgeted production 1. 'udgeted usage !/ A -" +aiders blankets: 2. 'udgeted input per f.g. unit 3. 'udgeted production 0. 'udgeted usage !2 A 3" 4. Total direct materials usage !1 : 0" ?irect Materials *ost 'udget 5. 'eginning inventory 6. @nit price !8I8I" /.. *ost of ?M used from beginning inventory !5 A 6" //. Materials to be used from purchases !4 C 5" /-. *ost of ?M in March /1. *ost of ?M purchased and used in March !// A /-" /2. ?irect materials to be used !/. : /1" 1 /1. 16. C C C 16. 1. 95 9-2. 10. 96 91,-2. 91,25. B! -@ C//! C C C 1.1 /6. 0-4 0-4 /. 9/. 9/.. 0/4 96 93,331 93,031 C C C /1. 2. 90 9-2. 6. 90 932. 945. A.,'5(# !/'/ 4 (-5"# / /1. /1. R ,&"*# !/'/ 4 (-5"# C C C / /6. /6. /6. 33 93 9-43 /13 94 9623 9/,--. 9/.,-4 5 9//,/1 1 9533 T/( !

0&/3

?irect Materials Purchases 'udget R"& C//! 'udgeted usage !from line 4" )dd target ending inventory Total re,uirements ?educt beginning inventory Total ?M purchases Purchase price !March" Total purchases 16. -. 2/. 1. 15. 96 91,2-. B! -@ C//! 0-4 -. 024 /. 014 96 93,411 A.,'5(# !/'/# /1. -. /3. 2. //. 90 900. R ,&"*# !/'/# /6. -. -/. 33 /33 94 9/,.53 T/( !

DDDDDD 9/.,565

d.

?irect Manufacturing <abor 'udget

B%&'"("& U.,(# P*/&%-"& /1. /6. D,*"-( M .%:. L $/*H/%*# 4"* O%(4%( U.,( /.3 -.. T/( ! H/%*# /63 15. 343 H/%*!< R (" 9-0 9-0

Knights blankets +aiders blankets

T/( ! 93,.4. 96,55. 9/2,63.

e.

Manufacturing Iverhead 'udget Oariable manufacturing overhead costs !343 A 9/3" 8ixed manufacturing overhead costs Total manufacturing overhead costs 95,0-3 6,-.. 9/4,5-3

Total manuf. overhead cost per hour B 9/4,5-3 N 343 B 91/ per direct manufacturing labor&hour 8ixed manuf. overhead cost per hour B 9 6,-.. N 343 B 9/0 per direct manufacturing labor&hour f. *omputation of unit costs of ending inventory of finished goods A.,'5(# R ,&"*# B! .@"(# B! .@"(# ?irect materials +ed wool !96 A 1, ." 9 -4.. 9 ... 'lack wool !96 x ., 1.1" ... -6.4 Knights logos !90 x /, ." 0.. ... +aiders logos !94 x ., /" ... 4.. ?irect manufacturing labor !9-0 A/.3, -" 16.. 3-.. Manufacturing overhead Oariable !9/3 A/.3, -" --.3 1... 8ixed !9/0 A/.3, -" -2.. 1-.. Total manufacturing cost 9//5.3 9/3..4

0&/0

=nding Inventories 'udget C/#( 4"* U.,( ?irect Materials +ed wool 'lack wool Knight logo patches +aider logo patches 8inished Foods Knight blankets +aider blankets Total g. 96.. 6.. 0.. 4.. U.,(# -. -. -. -. T/( ! 9 /5... /5... /-... /2... 0-... //5.3 /3..4 -. -3 -,14... 1,404.3 0,/14.3 90,434.3 9

*ost of goods sold budget 'eginning fin. goods inventory, March /, -./- !9/,-/. : 9-,-13" 1,223.. ?irect materials used !from ?ir. materials cost budget" 9//,/11.. ?irect manufacturing labor !?ir. manuf. labor budget" /2,63... Manufacturing overhead !Manuf. overhead budget" /4,5-3.. *ost of goods manufactured 21,6.5.. *ost of goods available for sale 24,131.. ?educt ending fin. goods inventory, March 1/, -./- !Inventories budget" *ost of goods sold 92/,-/3.3

0,/14.3

-.

)reas where continuous improvement might be incorporated into the budgeting process: !a" ?irect materials. =ither an improvement in usage or price could be budgeted. 8or example, the budgeted usage amounts for the fabric could be related to the maximum improvement !current usage C minimum possible usage" of yards of fabric for either blanket. It may also be feasible to decrease the price paid, particularly with ,uantity discounts on things like the logo patches. !b" ?irect manufacturing labor. The budgeted usage of /.3 hoursN- hours could be continuously revised on a monthly basis. #imilarly, the manufacturing labor cost per hour of 9-0 could be continuously revised down. The former appears more feasible than the latter. !c" Oariable manufacturing overhead. 'y budgeting more efficient use of the allocation base, a signal is given for continuous improvement. ) second approach is to budget continuous improvement in the budgeted variable overhead cost per unit of the allocation base. !d" 8ixed manufacturing overhead. The approach here is to budget for reductions in the year&to&year amounts of fixed overhead. If these costs are appropriately classified as fixed, then they are more difficult to ad%ust down on a monthly basis.

0&/4

6-29 723 min." A-(,+,(<-$ #"& $%&'"(9 @ ,B". ,24*/+"2".(#. /. I.-*" #" ,. C/#(# :/* (5" Y" * A##%2" D*<P//! %#"# N"C D<" @nits to dye *ost differential !9/&9.-." per ounce x 1 ounces Increase in costs 0.,... x 9-.2. 9/22,...

#ince the fine is only 9/.-,..., they would be financially better off by not switching. -. If ?ryPool switches to the new dye, costs will increase by 9/22,.... If ?ryPool implements kai$en costing, costs will be reduced as follows: Iriginal monthly costs I.4%( 8abric <abor Total
S

U.,( -/#( 90 91

N%2$"* /: %.,(# 0,...S 0,...S

T/( ! -/#( 910,... 9/5,... 932,...

A..% ! -/#( 921-,.. . 9-/0,.. . 9025,.. .

!/-,... : 0.,..."N/- months B 0,... units

Monthly decrease in costs 6 $*,Month / Month Month 1 Month 2 Month 3 Month 0 Month 4 Month 5 Month 6 Month /. Month // Month /L $/* -/#( Month / Month Month 1 Month 2 Month 3 Month 0 Month 4 Month 5 Month 6 Month /. Month // Month /-

910,... 13,02. 13,-52 12,61/ 12,35/ 12,-13 11,561 11,332 11,-/5 1-,550 1-,334 1-,-1/ 92.6,./ .

9/5,... /4,5-. /4,02/4,200 /4,-6/ /4,//5 /0,624 /0,445 /0,0/. /0,222 /0,-5. /0,//4 9-.2,3/1 90/1,3-1 912,244

TIT)< ?iff between costs with and without Kai$en improvements

0&/5

This means costs increase a net !9/22,... C 12,244" B 9/.6,3-1 #ince ?ryPool would otherwise have to spend 9/.-,... to pay the fine, their net costs would only be 94,3-1 higher than if they did not switch to the new dye or implement kai$en costing. 1. +eduction in materials can be accomplished by reducing waste and scrap. +eduction in direct labor can be accomplished by improving the efficiency of operations and decreasing down time. =mployees who make and dye the T&shirts may have suggestions for ways to do their %obs more efficiently. 8or instance, employees may recommend process changes that reduce idle time, setup time, and scrap. To motivate workers to improve efficiency, many companies have set up programs that share productivity gains with the workers. ?ryPool must be careful that productivity improvements and cost reductions do not in any way compromise product ,uality.

0&/6

6-30

!1.C2. min." R"+".%" .& 4*/&%-(,/. $%&'"(#.

This is a routine budgeting problem. The key to its solution is to compute the correct quantities of finished goods and direct materials. @se the following general formula: B:C /. S- *$/*/%'5 C/*4/* (,/. R"+".%" B%&'"( :/* 2012 Thingone Thingtwo 'udgeted revenues -. U.,(# 0.,... 2.,... P*,-" 9/03 -3. T/( ! 9 6,6..,... /.,...,... 9/6,6..,...

S- *$/*/%'5 C/*4/* (,/. P*/&%-(,/. B%&'"( 7,. %.,(#8 :/* 2012 'udgeted sales in units )dd target finished goods inventories, ?ecember 1/, -./Total re,uirements ?educt finished goods inventories, >anuary /, -./@nits to be produced T5,.'/." 0.,... -3,... 53,... -.,... 03,... T5,.'(C/ 2.,... 6,... 26,... 5,... 2/,...

1.

S- *$/*/%'5 C/*4/* (,/. D,*"-( M ("*, !# P%*-5 #"# B%&'"( 7,. E% .(,(,"#8 :/* 2012
D,*"-( M ("*, !# A B ?irect materials to be used in production T Thingone !budgeted production of 03,... units times 2 lbs. of ), - lbs. of '" T Thingtwo !budgeted production of 2/,... units times 3 lbs. of ), 1 lbs. of ', / lb. of *" Total )dd target ending inventories, ?ecember 1/, -./Total re,uirements in units ?educt beginning inventories, >anuary /, -./?irect materials to be purchased !units" -0.,... -.3,... 203,... 10,... 3./,... 1-,... 206,... /1.,... /-1,... -31,... 1-,... -53,... -6,... -30,... C && 2/,... 2/,... 4,... 25,... 0,... 2-,...

0&-.

2.

S- *$/*/%'5 C/*4/* (,/. D,*"-( M ("*, !# P%*-5 #"# B%&'"( 7,. &/!! *#8 :/* 2012 B%&'"("& P%*-5 #"# 7U.,(#8 206,... -30,... 2-,... E34"-("& P%*-5 #" P*,-" 4"* %.,( 9/3 1

?irect material ) ?irect material ' ?irect material * 'udgeted purchases 3.

T/( ! 93,0-5,... /,-5.,... /-0,... 94,.12,...

S- *$/*/%'5 C/*4/* (,/. D,*"-( M .%: -(%*,.' L $/* B%&'"( 7,. &/!! *#8 :/* 2012 B%&'"("& P*/&%-(,/. 7U.,(#8 03,... 2/,... D,*"-( M .%: -(%*,.' L $/*-H/%*# 4"* U.,( 1 R (" 4"* H/%* 9//0

Thingone Thingtwo Total 0.

T/( ! H/%*# /1.,... /-1,...

T/( ! 9/,30.,... /,605,... 91,3-5,...

S- *$/*/%'5 C/*4/* (,/. B%&'"("& 6,.,#5"& G//&# I.+".(/*< ( D"-"2$"* 31) 2012
Thingone: ?irect materials costs: ), 2 pounds A 9/925 ', - pounds A 93 /. ?irect manufacturing labor costs, - hours A 9/Manufacturing overhead costs at 9-. per direct manufacturing labor&hour !- hours A 9-." 'udgeted manufacturing costs per unit 8inished goods inventory of Thingone 9/-- A -3,... units Thingtwo: ?irect materials costs: ), 3 pounds A 9/90. ', 1 pounds A 93 /3 *, / each A 91 1 ?irect manufacturing labor costs, 1 hours A 9/0 Manufacturing overhead costs at 9-. per direct manufacturing labor&hour !1 hours A 9-." 'udgeted manufacturing costs per unit 8inished goods inventory of Thingtwo 9/50 A 6,... units 'udgeted finished goods inventory, ?ecember 1/, -./-

9 35 -2 2. 9/-91,.3.,...

9 45 25 0. 9/50 /,042,... 92,4-2,...

0&-/

6-31

!1. min." B%&'"("& ,.-/2" #( ("2".(. E #"-/2 C/24 .< B%&'"("& I.-/2" S( ("2".( :/* 2012 7,. (5/%# .&#8 +evenues =,uipment !90,... A /..0 A /./." Maintenance contracts !9/,5.. A /..0" Total revenues *ost of goods sold !92,0.. A /..1 A /..0" Fross margin Iperating costs: Marketing costs !90.. : 9-3." ?istribution costs !9/3. A /..0" *ustomer maintenance costs !9/,... : 9/1." )dministrative costs Total operating costs Iperating income 90,660 /,6.5 95,6.2 3,.-1,5553. /36 /,/1. 6.. 1,.16 9 521

0.1-

!/3 min." R"#4/.#,$,!,(< /: 4%*-5 #,.' '".(.

The cost of the biscuits is usually the responsibility of the purchasing agent, and usually controllable by the *entral (arehouse. Eowever, in this scenario, >anet the cook has taken the responsibility for the cost of the replacement biscuits from the purchasing agent by making a purchasing decision. #ince 'arney holds the purchasing agent responsible for biscuit costs, and presuming that >anet knew this, >anet should have discussed her decision with the purchasing agent before sending the kitchen helper to the store. 'arney should not be angry because his employees acted to satisfy the customers on a short term emergency basis. Presuming the *entral (arehouse does not consistently have problems with their free$er, there is no way the purchasing agent could foresee the biscuit shortage and plan accordingly. )lso, the problem only lasted three days, which, in the course of the year !or even the month" will not seriously harm the profits of a restaurant that sells a variety of foods. Eowever, had they run out of biscuits for three days, this could have long term implications for customer satisfaction and customer loyalty, and in the long run could harm profits as customers find other restaurants in which to eat breakfast.

0&--

6-33 /.

!0. min." C/24*"5".#,+" 4*/$!"2 C,(5 ABC -/#(,.' R"+".%" B%&'"( 6/* (5" M/.(5 /: A4*,! U.,(# S"!!,.' P*,-" T/( ! R"+".%"# 35. 9/6. 9 //.,-.. -2. -43 00,... 9/40,-.. P*/&%-(,/. B%&'"( 6/* (5" M/.(5 /: A4*,! P*/&%-( C (- !! - D/'-"*,::,35. -2. 23 -3 0-3 -03 -3 2. 0.. --3

*at&allac ?og&eriffic Total -.

'udgeted unit sales )dd target ending finished goods inventory Total re,uired units ?educt beginning finished goods inventory @nits of finished goods to be produced 1a.

D,*"-( M ("*, ! U# '" B%&'"( ,. ;% .(,(< .& D/!! *# 6/* (5" M/.(5 /: A4*,! M ("*, ! P! #(,M"( ! P5<#,- ! U.,(# B%&'"( ?irect materials re,uired for *at&allac !0.. units A 1 lbs. and ..3 lb." ?og&errific !--3 units A 3 lbs. and / lb." Total ,uantity of direct material to be used /,5.. lbs. /,/-3 lbs. -,6-3 lbs. 1.. lbs. --3 lbs. 3-3 lbs. T/( !

C/#( B%&'"( )vailable from beginning direct materials inventory !under a 8I8I cost&flow assumption" Plastic: -1. lbs. A 91.5. per lb. 9 542 Metal: 4. lbs. A 91.-. per lb. To be purchased this period . Plastic: !-,6-3 C -1." lbs. 92 per lb. /.,45. Metal: !3-3 C 4." lbs. 91 per lb. DD DDDD ?irect materials to be used this period 9//,032

9 --2 /,103 9 /,356

9/1,-21

0&-1

D,*"-( M ("*, ! P%*-5 #"# B%&'"( 6/* (5" M/.(5 /: A4*,! M ("*, ! P! #(,M"( ! P5<#,- ! U.,(# B%&'"( To be used in production !re,uirement 1" )dd target ending inventory Total re,uirements ?educt beginning inventory Purchases to be made C/#( B%&'"( Plastic: 1,.63 lbs. 92 Metal: 3-. lbs. 91 Purchases 2. D,*"-( M .%: -(%*,.' L $/* C/#(# B%&'"( 6/* (5" M/.(5 /: A4*,! O%(4%( U.,(# P*/&%-"& 7*"E%,*"2".( 28 0.. --3 DMLH 4"* U.,( 1 3 T/( ! H/%*# /,5.. /,/-3 H/%*!< = '" R (" 9/2 /2 -,6-3 lbs. 2.. lbs. 1,1-3 lbs. -1. lbs. 1,.63 lbs. 9/-,15. DDDDDD 9/-,15. 3-3 lbs. 03 lbs. 36. lbs. 4. lbs. 3-. lbs.

T/( !

9 /,30. 9 /,30.

9 /1,62.

*at&allac ?og&errific Total

T/( ! 9-3,-.. /3,43. 92.,63. T/( !

3. M -5,." S"(%4 O+"*5" & @nits to be produced @nits per batch 7umber of batches #etup time per batch Total setup time C (- !! 0.. U -3 -2 /.-3 hrs. 1. hrs. D/'-"**,:,--3 U/1 /5 -... hrs. 10 hrs.

00 hrs.

'udgeted machine setup costs B 9/1. per setup hour 00 hours B 95,35. P*/-"##,.' O+"*5" & 'udgeted machine&hours !ME" B !/1 ME per unit A 0.. units" : !-. ME per unit A --3 units" B 4,5.. ME : 2,3.. ME B /-,1.. ME 'udgeted processing costs B 93 per ME A /-,1.. ME B 90/,3.. I.#4"-(,/. O+"*5" & 'udgeted inspection&hours B !..3 -2 batches" : !..0 /5 batches" B /- : /..5 B --.5 inspection hrs. 'udgeted inspection costs B 9-. per inspection hr. --.5 inspection hours B 9230 0&-2

M .%: -(%*,.' O+"*5" & B%&'"( 6/* (5" M/.(5 /: A4*,! Machine setup costs 9 5,35. Processing costs 0/,3.. Inspection costs 230 Total costs 94.,310 0. U.,( C/#(# /: E.&,.' 6,.,#5"& G//&# I.+".(/*< A4*,! 30) 2033 P*/&%-( C (- !! D/'-"**,:,C/#( 4"* I.4%( 4"* I.4%( 4"* U.,( /: U.,( /: U.,( /: I.4%( O%(4%( T/( ! O%(4%( T/( ! Plastic 9 2 1 lbs. 9 /-... 3 lbs. 9 -.... Metal 1 ..3 lbs. /.3. / lb. 1... ?irect manufacturing labor /2 1 hrs. 2-... 3 hrs. 4.... Machine setup /1. ...3 hrs. / 0.3. ../0 hr/ -..5. Processing 3 /1 ME 03... -. ME /..... Inspection -. ...- hr..2. ...25 hr...60 Total 9/-4.2. 9-/2.40
/ -

1. setup&hours U 0.. units B ...3 hours per unitG 10 setup&hours U --3 units B ../0 hours per unit /- inspection hours U 0.. units B ...- hours per unitG /..5 inspection hours U --3 units B ...25 hours per unit

E.&,.' I.+".(/*,"# B%&'"( A4*,! 30) 2033 ;% .(,(< ?irect Materials Plastic Metals 8inished goods *at&allac ?og&errific Total ending inventory 2.. 03 23 -3 C/#( 4"* %.,( 92 1 9/-4.2. -/2.40 T/( ! 9/,0.. /63 93,411 3,106 9/,463

//,/.9/-,564

0&-3

4. C/#( /: G//&# S/!& B%&'"( 6/* (5" M/.(5 /: A4*,!) 2033 'eginning finished goods inventory, )pril, / !9-,3.. : 94,22." ?irect materials used !re,uirement 1" ?irect manufacturing labor !re,uirement 2" Manufacturing overhead !re,uirement 3" *ost of goods manufactured *ost of goods available for sale ?educt: =nding finished goods inventory, )pril 1. !re,mt. 0" *ost of goods sold 9/1,-2 1 2.,63 . 4.,31 0 /-2,4-6 /12,006 //,/.9/-1,304 9 6,62.

5. N/.2 .%: -(%*,.' C/#(# B%&'"( 6/* (5" M/.(5 /: A4*,!) 2033 #alaries !91-,... U - /..3" 9/0,5.. Ither fixed costs !91-,... U -" /0,... #ales commissions !9/40,-.. /;" /,40Total nonmanufacturing costs 912,306. B%&'"("& I.-/2" S( ("2".( 6/* (5" M/.(5 /: A4*,!) 2033 +evenues 9/40,-.. *ost of goods sold /-1,304 Fross margin 3-,011 Iperating !nonmanufacturing" costs 12,30Iperating income 9 /5,.4/

0&-0

6.34 !-3 min." 7C/.(,.% (,/. /: 6-338 C #5 $%&'"( 7A44".&,38 C #5 B%&'"( A4*,! 30) 2033 *ash balance, )pril /, -.xx )dd receipts *ash sales !9/40,-.. A /.;" *redit card sales !9/40,-.. A 6.; A 65;" Total cash available for needs !x" ?educt cash disbursements ?irect materials !95,2.. : 9/1,62. A 3.;" ?irect manufacturing labor Manufacturing overhead !94.,310 V 9--,3.. depreciation" 7onmanufacturing salaries #ales commissions Ither nonmanufacturing fixed costs !9/0,... V 9/-,3.. deprn" Machinery purchase Income taxes Total disbursements !y" 8inancing +epayment of loan / Interest at -2; !9-,0.. -2; " /Total effects of financing !z" =nding cash balance, )pril 1. !x" V !y" V !z" 9 3,-.. /4,0-. /33,2.5 9/45,--5 9 /3,14. 2.,63. 25,.10 /0,5.. /,401,3.. /1,5.. 3,2.. 9/23,0/5 9 -,0.. 3-

9 -,039 -6,635

0&-4

6-35 /.

!0. min."

C/24*"5".#,+" /4"* (,.' $%&'"() $%&'"("& $ ! .-" #5""(.

S-5"&%!" 19 R"+".%"# B%&'"( :/* (5" Y" * E.&"& D"-"2$"* 31) 2012 U.,(# S"!!,.' P*,-" T/( ! R"+".%"# #nowboards /,... 923. 923.,... S-5"&%!" 29 P*/&%-(,/. B%&'"( 7,. U.,(#8 :/* (5" Y" * E.&"& D"-"2$"* 31) 2012 'udgeted unit sales !#chedule /" )dd target ending finished goods inventory Total re,uirements ?educt beginning finished goods inventory @nits to be produced S./C$/ *&# /,... -.. /,-.. /.. /,/..

-.

1.

S-5"&%!" 3A9 D,*"-( M ("*, !# U# '" B%&'"( :/* (5" Y" * E.&"& D"-"2$"* 31) 2012
=//& 6,$"*'! ## 0,0.. 0,0.. T/( !

P5<#,- ! U.,(# B%&'"(

(ood: /,/.. A 3... b.f. 8iberglass: /,/.. A 0... yards To be used in production C/#( B%&'"( )vailable from beginning inventory (ood: -,... b.f. A 9-5... 8iberglass: /,... b.f. A 92.5. To be used from purchases this period (ood: !3,3.. C -,..." A 91.... 8iberglass: !0,0.. C /,..." A 93... Total cost of direct materials to be used 3,3.. 3,3..

9 30,... 9 2,5.. /.3,... 9/0/,... -5,... 91-,5.. 9/61,5..

S-5"&%!" 3B9 D,*"-( M ("*, !# P%*-5 #"# B%&'"( :/* (5" Y" * E.&"& D"-"2$"* 31) 2012
=//& P5<#,- ! U.,(# B%&'"( Production usage !from #chedule 1)" )dd target ending inventory Total re,uirements ?educt beginning inventory Purchases C/#( B%&'"( (ood: 3,... A 91.... 8iberglass: 4,0.. A 93... Purchases 3,3.. /,3.. 4,... -,... 3,... 9/3.,... 9/3.,... 915,... 915,... 9/55,... 6,$"*'! ## 0,0.. -,... 5,0.. /,... 4,0.. T/( !

0&-5

2.

S-5"&%!" 49 D,*"-( M .%: -(%*,.' L $/* B%&'"( :/* (5" Y" * E.&"& D"-"2$"* 31) 2012
L $/* C ("'/*< Manufacturing labor C/#( D*,+"* U.,(# /,/.. DML H/%*# 4"* D*,+"* U.,( 3... T/( ! H/%*# 3,3.. = '" R (" 9-3... T/( ! 9/14,3..

3.

S-5"&%!" 59 M .%: -(%*,.' O+"*5" & B%&'"( :/* (5" Y" * E.&"& D"-"2$"* 31) 2012
A( B%&'"("& L"+"! /: 5)500 D,*"-( M .%: -(%*,.' L $/*-H/%*# Oariable manufacturing overhead costs !94... A 3,3.." 8ixed manufacturing overhead costs Total manufacturing overhead costs 9 15,3.. 00,... 9/.2,3..

0. 4. 5.

9/.2,3.. B 9/6... per hour 3,3.. 9/.2,3.. 'udgeted manufacturing overhead cost per output unit: /,/.. B 963... per output

'udgeted manufacturing overhead rate:

unit S-5"&%!" 6A9 C/24%( (,/. /: U.,( C/#(# /: M .%: -(%*,.' 6,.,#5"& G//&# ,. 2012
C/#( 4"* U.,( /: I.4%( ?irect materials (ood 8iberglass ?irect manufacturing labor Total manufacturing overhead 91.... 3... -3...

I.4%(#$ 3... 0... 3...

T/( ! 9/3.... 1.... /-3... 63... 92.....

cost is per board foot, yard or per hour inputs is the amount of each input per board

6.

S-5"&%!" 6B9 E.&,.' I.+".(/*,"# B%&'"() D"-"2$"* 31) 2012 U.,(# ?irect materials (ood 8iberglass 8inished goods #nowboards Total =nding Inventory /,3.. -,... -.. C/#( 4"* U.,( 9 1.... 3... 2..... T/( ! 9 23,... /.,... 5.,... 9/13,...

0&-6

/.. S-5"&%!" 79 C/#( /: G//&# S/!& B%&'"( :/* (5" Y" * E.&"& D"-"2$"* 31) 2012 6*/2 S-5"&%!" 'eginning finished goods inventory >anuary /, -./., 9142.5. A /.. ?irect materials used ?irect manufacturing labor Manufacturing overhead *ost of goods manufactured *ost of goods available for sale ?educt ending finished goods inventory, ?ecember 1/, -./*ost of goods sold Fiven 1) 2 3 9/61,5.. /14,3.. /.2,3.. 213,5.. 241,-5. 0' 5.,... 9161,-5. T/( ! 9 14,25.

//. B%&'"("& I.-/2" S( ("2".( :/* S!/4"# :/* (5" Y" * E.&"& D"-"2$"* 31) 2012 +evenues #chedule / 923.,... *ost of goods sold #chedule 4 161,-5. Fross margin 30,4-. Iperating costs Oariable marketing costs !9-3. A 1." 9 4,3.. 8ixed nonmanufacturing costs 1.,... 14,3.. Iperating income 9 /6,--. /-. B%&'"("& B ! .-" S5""( :/* S!/4"# # /: D"-"2$"* 31) 2012 *ash Inventory #chedule 0' Property, plant, and e,uipment !net" Total assets *urrent liabilities <ong&term liabilities #tockholders e,uity Total liabilities and stockholders e,uity 9 /.,... /13,... 53.,... 9663,... 9 /4,... /45,... 5..,... 9663,...

0&1.

6-36

!1. min." C #5 $%&'"(,.') -5 4("* 44".&,3.

M < ?%." /-. 932,... ?%." ?%!< -.. 96.,... ?%!< 9/.,5.. -4,... /5,... A%'%#( /.. 923,... A%'%#( S"4("2$"* 0. 9-4,... S"4("2$"* O-(/$"* O-(/$"* 2.

/. Pro%ected #ales
#ales in units +evenues !#ales in units A 923." C/!!"-(,/.# /: R"-",+ $!"# M < 8rom sales in: May !1.; 910,..." >une !3.;G 1.; 932,..." >uly !-.;G 3.;G 1.; 96.,..." )ugust !-.;G 3.; 923,..." #eptember !-.; 9-4,..." Total C !-%! (,/. /: P < $!"# M < M ("*, ! .& L $/* U#") U.,(# 'udgeted production ?irect materials (ood !board feet" 8iberglass !yards" ?irect manuf. labor !hours" D,#$%*#"2".( /: P <2".(# ?irect materials (ood !/,...G 3..G 1.. 91." 8iberglass !/,-..G 0..G 10. 93" ?irect manuf. labor !3..G 1..G -.. 9-3" Interest payment !0; 91.,... U/-" 1 *, $!" O+"*5" & C !-%! (,/. Oariable overhead rate Iverhead driver !direct manuf. labor&hours" Oariable overhead expense ?%." -.. /,... /,-.. /,... ?%!< /.. 3.. 0.. 3.. A%'%#( 0. 1.. 10. 1.. S"4("2$"* 2. -.. -2. -.. O-(/$"* 5. 910,...

9/0,-.. 23,... 6,... 94.,-..

933,5..

9 -4,... --,3.. 3,2.. 932,6..

91.,... 0,... /-,3.. /3. 9 4

9/3,... 1,... 4,3.. /3. 9 4

96,... /,5.. 3,... /3. 9 4

3.. 9 1,3..

1.. 9 -,/..

-.. 9/,2..

0&1/

C #5 B%&'"( :/* (5" 2/.(5# /: ?%!<) A%'%#() S"4("2$"* 2012

'eginning cash balance )dd receipts: *ollection of receivables Total cash available ?educt disbursements: Material purchases ?irect manufacturing labor Oariable costs 8ixed costs Interest payments Total disbursements =nding cash balance

?%!< 9/.,... 33,5.. 903,5.. 910,... /-,3.. 1,3.. 5,... /3. 0.,/3. 9 3,03.

A%'%#( 9 3,03. 4.,-.. 943,53. 9/5,... 4,3.. -,/.. 5,... /3. 13,43. 92.,/..

S"4("2$"* 92.,/.. 32,6.. 963,... 9/.,5.. 3,... /,2.. 5,... /3. -3,13. 906,03.

-. Qes. #lopes has a budgeted cash balance of 906,03. on /.N/N-./- and so it will be in a position to pay off the 91.,... /&year note on Ictober /, -./-. 1. 7o. #lopes does not maintain a 9/.,... minimum cash balance in >uly. To maintain a 9/.,... cash balance in each of the three months, it could perhaps encourage its customers to pay earlier by offering a discount. )lternatively, #lopes could seek short&term credit from a bank.

0&1-

6-37

!2.C3. min."

C #5 $%&'"(,.'.

I( 2, =5/!"# !" C/. S( ("2".( /: B%&'"("& C #5 R"-",4(# .& D,#$%*#"2".(# 6/* (5" M/.(5# /: D"-"2$"* 2011 .& ? .% *< 2012 *ash balance, beginning )dd receipts: *ollections of receivables !#chedule /" !a" Total cash available for needs ?educt disbursements: 8or merchandise purchases !#chedule -" 8or variable costs !#chedule 1" 8or fixed costs !#chedule 1" !b" Total disbursements *ash balance, end of month !a C b" D"-"2$"* 2011 9 55,... -63,-3. 151,-3. 9-6/,-5. 00,... 4,3.. 102,45. 9 /5,24. ? .% *< 2012 9 /5,24. -03,.3. -51,3-. 9--1,.2. 3.,... 4,3.. -5.,32. 9 -,65.

@nder the current pro%ections, the cash balance as of >anuary 1/, -./-, is 9-,65., which is not sufficient to enable repayment of the 9/..,... note. Schedule 1: Collections of Receivables C/!!"-(,/.# ,. ?ecember >anuary
a d

O-(. S !"# 916,-..a

N/+. S !"# 960,...b 922,5..d

D"-. S !"# 9/0.,.3.c 9 66,...e

? .. S !"# &&&& 9/-/,-3.f

T/( ! 9-63,-3. 9-03,.3.

../2 A 9-5.,... ../2 A 91-.,...

b e

..1. A 91-.,... c ..3. A 911.,... A .64 ..1. A 911.,... f ..3. A 9-3.,... A .64

0&11

Schedule 2:

ayments for !erchandise D"-"2$"* 43.a 1,1.. 2,.3. 5/3b 1,-13 9-35,5.. D"-"2$"* ? .% *< 42.c -,3.. 1,-2. 43. -,26. 9/66,-.. ? .% *< 9//6,3-. /.1,3-. 9--1,.2.

Target ending inventory !in units" )dd units sold !sales U 9/.." Total re,uirements ?educt beginning inventory !in units" Purchases !in units" Purchases in dollars !units A 95." *ash disbursements: 8or ?ecember: accounts payableG 0.; of current month s purchases 8or >anuary: 2.; of ?ecember s purchases
a

9/10,... 9/33,-5. DDDDDDD 9-6/,-5.

3.. units : ../. !9-3.,... U 9/.." 903,-.. U 95. c 3.. units : ../.!9-2.,... U 9/.."
b

Schedule ": !ar#eting, $istribution, and Customer%Service Costs Total annual fixed costs, 9/-.,..., minus 91.,... depreciation Monthly fixed cost re,uiring cash outlay Oariable cost ratio to sales B
90..,... 9/-.,... B ..9-,2..,...

96.,... 9 4,3..

?ecember variable costs: ..- A 911.,... sales >anuary variable costs: ..- A 9-3.,... sales

900,... 93.,...

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6-38 /.

!0. min." C/24*"5".#,+" 4*/$!"2F ABC 2 .%: -(%*,.') (C/ 4*/&%-(#. R"+".%"# B%&'"( 6/* (5" Y" * E.&,.' D"-"2$"* 31) 2011 S"!!,.' P*,-" T/( ! R"+".%"# 9 0 94-,... 9-. 9-5.,... 913-,...

*ombs 'rushes Total

U.,(# /-,... /2....

-a. Total budgeted marketing costs B 'udgeted variable marketing costs : 'udgeted fixed marketing costs B 9/2,/.. : 90.,... B 942,/.. Marketing allocation rate B 942,/.. N 913-,... B 9..-/ per sales dollar -b. Total budgeted distribution costs B 'udgeted variable distribution costs : 'udgeted fixed distribution costs B 9. : 945. B 945. *ombs: 'rushes: Total /-,... units U /,... units per delivery /2,... units U /,... units per delivery /- deliveries /2 deliveries -0 deliveries

?elivery allocation rate B 945. N -0 deliveries B 91. per delivery 1. P*/&%-(,/. B%&'"( 7,. U.,(#8 6/* (5" Y" * E.&,.' D"-"2$"* 31) 2011 P*/&%-( C/2$# B*%#5"# 'udgeted unit sales /-,... /2,... )dd target ending finished goods inventory /,-.. /,2.. Total re,uired units /1,-.. /3,2.. ?educt beginning finished goods inventory 0.. /,-.. @nits of finished goods to be produced /-,0.. /2,-..

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2a. C/2$# Machine setup overhead @nits to be produced @nits per batch 7umber of setups Eours to setup per batch Total setup hours /-,0.. U-.. 01 A/N1 -/ B*%#5"# /2,-.. U/.. /2A/ /2T/( !

/01

Total budgeted setup costs B 'udgeted variable setup costs : 'udgeted fixed setup costs B 90,51. : 9//,/.. B 9/4,61. Machine setup allocation rate B 9/4,61. N /01 setup hours B 9//. per setup hour b. *ombs: 'rushes: Total /-,0.. units A ..-3 ME per unit /2,-.. units A ../ ME per unit 1/3 ME /,2-. ME /,413 ME

Total budgeted processing costs B 'udgeted variable processing costs : 'udgeted fixed processing costs B 94,40. : 9-.,... B 9-4,40. Processing allocation rate B 9-4,40. N /,413 ME B 9/0 per ME c. Total budgeted inspection costs B 'udgeted variable inspection costs : 'udgeted fixed inspection costs B 94,... : 9/,.2. B 95,.2. Inspection allocation rate B 95,.2. N -0,5.. units B 9..1. per unit 3. D,*"-( M ("*, ! U# '" B%&'"( ,. ;% .(,(< .& D/!! *# 6/* (5" Y" * E.&,.' D"-"2$"* 31) 2011 M ("*, ! P! #(,B*,#(!"# P5<#,- ! U.,(# B%&'"( ?irect materials re,uired for *ombs !/-,0.. units A 3 o$ and . bunches" 'rushes !/2,-.. units A 5 o$ and /0 bunches" Total ,uantity of direct materials to be used 01,... o$. //1,0.. o$. --4,-.. bunches /40,0.. o$. --4,-.. bunches

T/( !

0&10

C/#( B%&'"( )vailable from beginning direct materials inventory !under a 8I8I cost&flow assumption" To be purchased this period Plastic: !/40,0.. o$. V /,0.. o$" A 9..-. per o$. 'ristles: !--4,-.. bunches V /,5-." A 9..3 per bunch ?irect materials to be used this period

9 1.2 13,... DDDDDD 913,1.2

620

//-,06. 9 //1,010

9/25,62.

D,*"-( M ("*, !# P%*-5 #"# B%&'"( 6/* (5" Y" * E.&,.' D"-"2$"* 31) 2011 P! #(,P5<#,- ! U.,(# B%&'"( To be used in production !re,uirement 3" )dd: Target ending direct material inventory Total re,uirements ?educt: 'eginning direct material inventory Purchases to be made C/#( B%&'"( Plastic: /40,400 o$. 9..-. per o$ 'ristles : --4,03- bunches 9..3 per bunch Purchases Total budgeted materials handling costs B 'udgeted variable Materials handling costs : 'udgeted fixed materials handling costs B 9//,26. : 9/3,... B 9-0,26. Materials handling allocation rate B 9-0,26. N /40,0.. o$ B 9../3 per o$. of plastic 4. D,*"-( M .%: -(%*,.' L $/* C/#(# B%&'"( 6/* (5" Y" * E.&,.' D"-"2$"* 31) 2011 O%(4%( U.,(# P*/&%-"& /-,0.. /2,-.. D,*"-( M .%: -(%*,.' L $/*-H/%*# 4"* U.,( ...3 ..T/( ! H/%*!< = '" H/%*# R (" 01. 9/-,52. /T/( ! 9 4,30. 12,.5. 92/,02. M ("*, ! B*,#(!"# --4,-.. bunches -,-4--6,24- bunches /,5-. bunches --4,03- bunches T/( !

/40,0.. o$. /,400 /45,100 o$. /,0.. o$. /40,400 o$. 9 13,131 DDDDDDD 9 13,131

9 //1,5-0 9 //1,5-0

9/26,/46

*ombs 'rushes Total

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5. M .%: -(%*,.' O+"*5" & C/#( B%&'"( 6/* (5" Y" * E.&,.' D"-"2$"* 31) 2011 Materials handling Machine setup Processing Inspection TIT)<# 1 *, $!" 9 //,26. 0,51. 4,40. 4,... 9 11,.5. 6,3"& 9 /3,... //,/.. -.,... /,.2. 9 24,/2. T/( ! 9 -0,26. /4,61. -4,40. 5,.2. 9 5.,--.

0&15

6.
U.,( C/#(# /: E.&,.' 6,.,#5"& G//&# I.+".(/*< 6/* (5" Y" * E.&,.' D"-"2$"* 31) 2011 C/#( 4"* U.,( /: I.4%( 9..-. ..3. /../3 //. /0 ..1. C/2$# I.4%( 4"* U.,( /: O%(4%( 3 o$. V ..3 hrs. 3 o$. ..../04 hrs./ ..-3 ME / unit B*%#5"# I.4%( 4"* U.,( /: O%(4%( 5 o$ /0 bunches ..- hour 5 o$ .../ setup&hr/ ../ ME / unit

Plastic 'ristles ?irect manufacturing labor Materials handling Machine setup Processing Inspection Totals
/

T/( ! 9/... V ..0. ..43 ../5 ..2. ..1. 91.-1

T/( ! 9 /.0. 5... -.2. /.-. /./. /.0. ..1. 9/0.-.

-/ setup&hours U /-,0.. units B ..../04 hours per unitG /2- setup hours U /2,-.. units B .../ hours per unit

E.&,.' I.+".(/*,"# B%&'"( D"-"2$"* 31) 2011 ;% .(,(< ?irect Materials Plastic 'ristles 8inished goods *ombs 'rushes Total ending inventory /.. C/#( /: G//&# S/!& B%&'"( 6/* (5" Y" * E.&,.' D"-"2$"* 31) 2011 'eginning finished goods inventory, >an. / !9/,5.. : 9/5,/-." ?irect materials used !re,uirement 3" 9/25,62. ?irect manufacturing labor !re,uirement 4" 2/,02. Manufacturing overhead !re,uirement 5" 5.,--. *ost of goods manufactured *ost of goods available for sale ?educt: =nding finished goods inventory, ?ecember 1/ !re,mt. 6" *ost of goods sold 9 /6,6-. /,400 o$ -,-4- bunches /,-.. /,2.. C/#( 4"* %.,( 9..-. ..3. 91.-1 /0.-. T/( ! 9131.-. /,/10... 91,540... --,05.... -0,330.. . 9-5,.23.. 9/,256.-.

-4.,5.. -6.,4-. -0,330 9-02,/02

0&16

//. N/.2 .%: -(%*,.' C/#(# B%&'"( 6/* (5" Y" * E.&,.' D"-"2$"* 31) 2011 Marketing ?istribution Total 1 *, $!" 9/2,/.. . 9/2,/.. 6,3"& 90.,... 45. 90.,45. T/( ! 942,/.. 45. 942,55.

/-. B%&'"("& I.-/2" S( ("2".( 6/* (5" Y" * E.&,.' D"-"2$"* 31) 2011 +evenue 913-,... *ost of goods sold -02,/02 Fross margin 54,510 Iperating !nonmanufacturing" costs 42,55. Iperating income 9/-,630

0&2.

6-39 !/3 min." B%&'"(,.' .& "(5,-#. /. The standards proposed by (ert are not challenging. In fact, he set the target at the level his department currently achieves. ?M 1.63 lbs. /.. units B 163 lbs. ?< /2.3 min. /.. units B /,23. min U 0. B -2 hrs. approx MT //.5 min. /.. units B /,/5. min. U 0. B -. hrs. approx -. (ert probably chose these standards so that his department would be able to make the goal and receive any resulting reward. (ith a little effort, his department can likely beat these goals. 1. )s discussed in the chapter, benchmarking might be used to highlight the easy targets set by (ert. Perhaps the organi$ation has multiple plant locations that could be used as comparisons. )lternatively, management could use industry averages. )lso, management should work with (ert to better understand his department and encourage him to set more realistic targets. 8inally, the reward structure should be designed to encourage increasing productivity, not beating the budget. 6-40 !23 min." H%2 . A#4"-(# /: B%&'"(,.' ,. /. S"*+,-" 6,*2

The manager of Eair #uite III has the best style, because this manager is involving the workers in a decision that directly affects their work.

-. The workers will most likely be upset or even angry with the manager of Eair #uite I. The manager is not a stylist, and yet is changing the schedule for the stylists, assuming they can work faster and need less rest between customers, without discussing this change with them or asking for input or suggestions. To indicate displeasure, the stylists at Eair #uite I could ,uit, or they could perform a work slowdown. This means that the manager will schedule a customer for a 2. minute appointment, but the stylist will spend more than 2. minutes with each customer anyway. The result is that the appointments will get backed up, some customers may not get served, and overall the customers will be unhappy. Most of the workers in Eair #uite II are not likely to volunteer to work an extra hour a day. )lthough it would mean additional revenue for each stylist, it will make each work day longer and the idea was not presented to the workers in a way that appears beneficial to the workers. To indicate displeasure with this plan, the stylist will simply not volunteer to work an extra hour a day. 1. If course the manager of Eair #uite III could implement one of the plans of the other salons. That is, workers could shorten their appointment times per customer, or lengthen their work days, or a combination of both. )lternately, workers could work six days per week rather than five. Eowever, in the case of salon III, the manager has invited the stylists to help solve the problem rather than the manager telling them what changes to 0&2/

make, so they will be more likely to agree to make changes since they are involved in the decision. Ither things they may do: The manager may let individual stylists set their own schedules. It is possible that not all customers need an hour each, and the stylists can individually book customers in a way that works in an extra customer per day. They could agree to shorter lunch breaks They could implement a monthly contest to see who can service the most customers !but still have satisfied customers" and earn rewards, including o ) name on a pla,ue for employee of the month !virtually no cost to the salon" o Fift certificates to local businesses !low cost to the salon" o +eduction in one month s rental revenue !some cost to the salon, depending on the amount of the reduction" o If the salon is in an area where parking is hard to find or costly, a month of free parking or an assigned parking space 2. ) stretch target is supposed to be challenging but achievable. The manager of Eair #uite I is asking the stylists to reduce per customer service time by -. minutes, or a -.N0. B 11; reduction in service time. =ven if this reduction is achievable, the other part of the issue is whether the customers will believe they are still getting the same ,uality service. In a hair salon this is particularly important because the customers expect to look good when they come out, and they will not if the stylist has to rush or cut corners to meet the 2. minute deadline. )lso, as mentioned before, the stretch target should motivate employees but if the manager simply imposes the time constraint on the stylists without their input, this will have the opposite effect.

0&2-

6-41 !0. min." C/24*"5".#,+" $%&'"(,.' 4*/$!"2F -(,+,(<-$ #"& -/#(,.') /4"* (,.' .& :,. .-, ! $%&'"(#. /a. R"+".%"# B%&'"( 6/* (5" M/.(5 /: ?%.") 2012 U.,(# S"!!,.' P*,-" T/( ! R"+".%"# -,... 95. 9/0.,... 1,... /1. 16.,... 933.,... P*/&%-(,/. B%&'"( 6/* (5" M/.(5 /: ?%.") 2012 P*/&%-( R"'%! * D"!%3" -,... 1,... 2.. 0.. -,2.. 1,0.. -3. 03. -,/3. -,63.

+egular ?eluxe Total b.

'udgeted unit sales )dd: target ending finished goods inventory Total re,uired units ?educt: beginning finished goods inventory @nits of finished goods to be produced

c. D,*"-( M ("*, ! U# '" B%&'"( ,. ;% .(,(< .& D/!! *# 6/* (5" M/.(5 /: ?%.") 2012 M ("*, ! C!/(5 =//& P5<#,- ! U.,(# B%&'"( ?irect materials re,uired for +egular !-,/3. units A /.1 yd.G . bd&ft" ?eluxe !-,63. units A /.3 yds.G - bd&ft" Total ,uantity of direct materials to be used C/#( B%&'"( )vailable from beginning direct materials inventory !under a 8I8I cost&flow assumption" To be purchased this period *loth: !44-. yd. C 0/. yd." A 91.3. per yd. 0&21 9 -,/20 -2,553 9 2,.2. -,463 yds. 2,2-3 yds. 4,4-. yds. . 3,6.. 3,6.. T/( !

(ood: !3,6.. C 5.." A 93 per bd&ft ?irect materials to be used this period

D DDD 9-4,.1 /

-3,3.. 9-6,32. 930,34/

D,*"-( M ("*, !# P%*-5 #"# B%&'"( 6/* (5" M/.(5 /: ?%.") 2012 M ("*, ! C!/(5 =//& P5<#,- ! U.,(# B%&'"( To be used in production )dd: Target ending direct material inventory Total re,uirements ?educt: beginning direct material inventory Purchases to be made C/#( B%&'"( *loth: !4,260 yds. A 91.3. per yd." (ood: !3,163 ft A 93 per bd&ft" Total d. D,*"-( M .%: -(%*,.' L $/* C/#(# B%&'"( 6/* (5" M/.(5 /: ?%.") 2012 O%(4%( U.,(# P*/&%-"& -,/3. -,63. D,*"-( M .%: -(%*,.' L $/*-H/%*# 4"* U.,( 3 4 T/( ! H/%*!< = '" H/%*# R (" /.,43. 9/. -.,03. /. 1/,2.. T/( ! 9/.4,3.. -.0,3.. 91/2,... 4,4-. yds. 150 yds. 5,/.0 yds. 0/. yds. 4,260 yds. 9-0,-10 DDD D 9-0,-10 3,6.. ft -63 ft 0,/63 ft 5.. ft 3,163 ft T/( !

9-0,643 9-0,643

931,-//

+egular ?eluxe Total e.

M .%: -(%*,.' O+"*5" & C/#(# B%&'"( 6/* (5" M/.(5 /: ?%." 2012 T/( ! Machine setup !+egular 21 batches/ - hrs.Nbatch : ?eluxe 36 batches- 1 hrs.Nbatch" 9/-Nhour Processing !1/,2.. ?M<E 9/.-." Inspection !3/.. pairs x 9..6. per pair" Total
/

9 1,/30 14,05. 2,36. 923,2-0

+egular: -,/3. pairs U 3. pairs per batch B 21G -Fiant: -,63. pairs U 3. pairs per batch B 36

0&22

f.
U.,( C/#(# /: E.&,.' 6,.,#5"& G//&# I.+".(/*< 6/* (5" M/.(5 /: ?%.") 2012 R"'%! * D"!%3" C/#( 4"* I.4%( 4"* T I.4%( 4"* U.,( /: I.4%( U.,( /: O%(4%( /( ! U.,( /: O%(4%( 9 1.3. /.1 yd 9 2.33 /.3 yd 3... . . - bd&ft /.... 3 hr. 3.... 4 hrs /-... ...2 hr. / ..25 ...0 hr/ /.-. 3 hrs 0... 4 hrs ..6. / pair ..6. / pair 90/.61

*loth (ood ?irect manufacturing labor Machine setup Processing Inspection Total
/

T/( ! 9 3.-3 /.... 4.... ..45.2. ..6. 963.-4

- hours per setup U 3. pairs per batch B ...2 hr. per unitG 1 hours per setup U 3. pairs per batch B ...0 hr. per unit.

E.&,.' I.+".(/*,"# B%&'"( ?%.") 2012 ;% .(,(< ?irect Materials *loth (ood 8inished goods +egular ?eluxe Total ending inventory g. C/#( /: G//&# S/!& B%&'"( 6/* (5" M/.(5 /: ?%.") 2012 'eginning finished goods inventory, >une / !9/3,3.. : 90/,43." ?irect materials used !re,uirement c" ?irect manufacturing labor !re,uirement d" Manufacturing overhead !re,uirement e" *ost of goods manufactured *ost of goods available for sale ?educt ending finished goods inventory, >une 1. !re,uirement f" *ost of goods sold 9 44,-3. 930,34 / 1/2,... 23,2-0 2/3,664 261,-24 5/,612 92//,1/1 150 yards -63 bd&ft 2.. 0.. C/#( 4"* %.,( 91.3. 3... 90/.61 63.-4 9/,13/ /,243 9-2,4434,/0T/( ! 9 -,5-0

5/,612 952,40.

0&23

h. N/.2 .%: -(%*,.' C/#(# B%&'"( 6/* (5" M/.(5 /: ?%.") 2012 T/( ! Marketing and general administration 5; 33.,... 922,... #hipping !3,... pairs N 2. pairs per shipmt" x 9/. /,-3. Total 923,-3. -. C #5 B%&'"( ?%." 30) 2012 *ash balance, >une / !from 'alance #heet" )dd receipts *ollections from May accounts receivable *ollections from >une accounts receivable !933.,... 0.;" Total collection from customers Total cash available for needs !x" ?educt cash disbursements ?irect material purchases in May ?irect material purchases in >une ! 931,-// 5.;" ?irect manufacturing labor Manufacturing overhead ! 923,2-0 4.; because 1.; is depreciation" 7onmanufacturing costs ! 923,-3. 6.; because /.; is depreciation" Taxes ?ividends Total disbursements !y" 8inancing Interest at 0; !9/..,... 0; / U /-" !z" =nding cash balance, >une 1. !x" V !y" V !z" 9 0,-6. -.3,-.. 11.,... 313,-.. 932/,26. 9 /.,2.. 2-,306 1/2,... 1/,465 2.,4-3 4,-.. /.,... 9230,069 9 3.. 52,-65

0&20

1. B%&'"("& I.-/2" S( ("2".( 6/* (5" M/.(5 /: ?%.") 2012 +evenues *ost of goods sold Fross margin Iperating !nonmanufacturing" costs 'ad debt expense !933.,... -;" Interest expense !for >une" 7et income 933.,... 2//,1/1 9/15,054 923,-3. //,... 3.. 30,43. 9 5/,614

B%&'"("& B ! .-" S5""( ?%." 30) 2012 A##"(# *ash )ccounts receivable !933.,... 2.;" <ess: allowance for doubtful accounts Inventories ?irect materials 8inished goods 8ixed assets <ess: accumulated depreciation !96.,56. : 23,2-0 1.; : 23,-3. /.;"" Total assets L, $,!,(,"# .& EE%,(< )ccounts payable !931,-// -.;" Interest payable <ong&term debt *ommon stock +etained earnings !203,610 : 5/,614&/.,..."" Total liabilities and e,uity 9 9--.,... //,... 9 -,5-0 5/,612 935.,... /.6,.21 24.,634 9526,./3 9 /.,023.. /..,... -..,... 314,541 9526,./3 52,-65 -.6,... 52,40.

0&24