Pirate Seafood Company purchases lobsters and processes them into tails and flakes. It sells the lobster tails for $21 per pound and the flakes for $14 per pound. On average, 100 pounds of lobster are processed into 52 pounds of tails and 22 pounds of flakes, with 26 pounds of waste. Assume that the company purchased 2,400 pounds of lobster for $4.50 per pound and processed the lobsters with an additional labor cost of $1,800. No materials or labor costs are assigned to the waste. If 1,096 pounds of tails and 324 pounds of flakes are sold, what is (1) the allocated cost of the sold items and (2) the allocated cost of the ending inventory? The company allocates joint costs on a value basis. (Round the dollar cost per pound to the nearest thousandth.)
> Identify the main purpose of a flexible budget for managers.
> What limits the usefulness to managers of fixed budget performance reports?
> Training employees to use standard amounts of materials in production is common. Typically large companies invest in this training but small organizations do not. One can observe these different practices in a trip to two different pizza businesses. Visi
> Folsom Custom Skis, as discussed in the chapter opener, uses a costing system with standard costs for direct materials, direct labor, and overhead costs. Two comments frequently are mentioned in relation to standard costing and variance analysis: “Varian
> Access iSixSigma’s Website (iSixSigma.com) to search for and read information about benchmarking to complete the following requirements. (Hint: Look in the “dictionary” link.) Required 1. Write a one-paragraph explanation (in layperson’s terms) of bench
> Billie Whitehorse, the plant manager of Travel Free’s Indiana plant, is responsible for all of that plant’s costs other than her own salary. The plant has two operating departments and one service department. The campe
> Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash disbursements (excluding cash disbursements for loan and interest payments) for the first three months of next year. According to a credit agreement w
> The reason we use the words favorable and unfavorable when evaluating variances is made clear when we look at the closing of accounts. To see this, consider that (1) all variance accounts are closed at the end of each period (temporary accounts), (2) a f
> Setting materials, labor, and overhead standards is challenging. If standards are set too low, companies might purchase inferior products and employees might not work to their full potential. If standards are set too high, companies could be unable to of
> The usefulness of budgets, variances, and related analyses often depends on the accuracy of management’s estimates of future sales activity. Required 1. Identify and record the prior three years’ sales (in dollars) for Polaris and for Arctic Cat using t
> Analysis of flexible budgets and standard costs emphasizes the importance of a similar unit of measure for meaningful comparisons and evaluations. When Polariscompiles its financial reports in compliance with GAAP, it applies the same unit of measurement
> Access the annual report of Piaggio (at www.piaggio.com) for the year ended December 31, 2011. The usefulness of its budgets, variances, and related analyses depends on the accuracy of management’s estimates of future sales activity. Required 1. Identif
> Many service industries link labor rate and time (quantity) standards with their processes. One example is the standard time to board an aircraft. The reason time plays such an important role in the service industry is that it is viewed as a competitive
> Adria Lopez expects second quarter 2014 sales of her new line of computer furniture to be thesame as the first quarter’s sales (reported below) without any changes in strategy. Monthly sales averaged 40 desk units (sales price of $1,250
> Refer to information in QS 7-23. In addition, sales are 40% cash and 60% on credit. All credit sales are collected in the month following the sale. The January 1 balance in accounts receivable is $15,000. Prepare a schedule of budgeted cash receipts for
> Zortek Corp. budgets production of 400 units in January and 200 units in February. Each finished unit requires five pounds of raw material Z, which costs $2 per pound. Each month’s ending inventory of raw materials should be 40% of the following month’s
> Williams Company began operations in January 2013 with two operating (selling) departments and one service (office) department. Its departmental income statements follow. Williams plans to open a third department in January 2014 that will sell painting
> Champ, Inc. predicts the following sales in units for the coming three months: Each month’s ending inventory of finished units should be 60% of the next month’s sales. The April 30 finished goods inventory is 50 unit
> Why is the sales budget so important to the budgeting process?
> Lexi Company forecasts unit sales of 1,040,000 in April, 1,220,000 in May, 980,000 in June, and 1,020,000 in July. Beginning inventory on April 1 is 280,000 units, and the company wants to have 30% of next month’s sales in inventory at the end of each mo
> Meyer Co. forecasts merchandise purchases of $15,800 in January, $18,600 in February, and $20,200 in March; 40% of purchases are paid in the month of purchase and 60% are paid in the following month. At December 31 of the prior year, the balance of Accou
> Refer to information from QS 7-10. Assume 60% of Grace’s sales are for cash. The remaining 40% are credit sales; these customers pay in the month following the sale. Compute the budgeted cash receipts for June. In QS 7-10 Grace sells miniature digital c
> Activity-based budgeting is a budget system based on expected activities. (1) Describe activity-based budgeting, and explain its preparation of budgets. (2) How does activity-based budgeting differ from traditional budgeting?
> Good management includes good budgeting. (1) Explain why the bottom-up approach to budgeting is considered a more successful management technique than a top-down approach. (2) Provide an example of implementation of the bottom-up approach to budgeting.
> Messers Company is preparing a cash budget for February. The company has $20,000 cash at the beginning of February and anticipates $75,000 in cash receipts and $100,250 in cash disbursements during February. What amount, if any, must the company borrow d
> Royal Phillips Electronics of the Netherlands reports sales of €25,400 million for a recent year. Assume that the company expects sales growth of 3 percent for the next year. Also assume that selling expenses are typically 20 percent of sales, while gene
> Refer to information in QS 7-23. In addition, sales commissions are 10% of sales and the company pays a sales manager a salary of $6,000 per month. Sales commissions and salaries are paid in the month incurred. Prepare a selling expense budget for Januar
> National Bank has several departments that occupy both floors of a two-story building. The depart mental accounting system has a single account, Building Occupancy Cost, in its ledger. The types and amounts of occupancy costs recorded in this account for
> Scora, Inc., is preparing its master budget for the quarter ending March 31. It sells a single product for $50 per unit. Budgeted sales for the next four months follow. Prepare a sales budget for the months of January, February, and March. January F
> Tora Co. plans to produce 1,020 units in July. Each unit requires two hours of direct labor. The direct labor rate is $20 per hour. Prepare a direct labor budget for July.
> How does budgeting help management coordinate and plan business activities?
> Raider-X Company forecasts sales of 18,000 units for April. Beginning inventory is 3,000 units. The desired ending inventory is 30% higher than the beginning inventory. How many units should Raider-X purchase in April?
> Gordands purchased $600,000 of merchandise in August and expects to purchase $720,000 in September. Merchandise purchases are paid as follows: 25% in the month of purchase and 75% in the following month. Compute cash disbursements for merchandise for Sep
> Wells Company reports the following sales forecast: September, $55,000; October, $66,000; and November, $80,000. All sales are on account. Collections of credit sales are received as follows: 20% in the month of sale, 70% in the first month after sale, a
> The Candle Shoppe reports the following sales forecast: August, $150,000; September, $170,000. Cash sales are normally 40% of total sales and all credit sales are expected to be collected in the month following the date of sale. Prepare a schedule of cas
> Following are selected accounts for a company. For each account, indicate whether it will appear on a budgeted income statement (BIS) or a budgeted balance sheet (BBS). If an item will not appear on either budgeted financial statement, label it NA. Sales
> Refer to information from QS 7-10. Grace pays a sales manager a monthly salary of $6,000 and a commission of 8% of camera sales (in dollars). Prepare a selling expense budget for the month of June. In QS 7-10 Grace sells miniature digital cameras for $2
> Grace sells miniature digital cameras for $250 each. 1,000 units were sold in May, and it forecasts 4% growth in unit sales each month. Determine (a) the number of camera sales and (b) the dollar amount of camera sales for the month of June.
> Oakwood Company produces maple bookcases to customer order. It received an order from a customer to produce 5,000 bookcases. The following information is available for the production of the bookcases. Process time . . . . . . . . . . 6.0 days Inspection
> Refer to information from QS 7-8. Forrest Company assigns variable overhead at the rate of $1.50 per unit of production. Fixed overhead equals $4,600,000 per month. Prepare a factory overhead budget for November. In QS 7-8 Forrest Company manufactures w
> Forrest Company manufactures watches and has a JIT policy that ending inventory must equal 10% of the next month’s sales. It estimates that October’s actual ending inventory will consist of 40,000 watches. November and December sales are estimated to be
> Use the following information to prepare a cash budget for the month ended on March 31 for Gado Merchandising Company. The budget should show expected cash receipts and cash disbursements for the month of March and the balance expected on March 31. a. Be
> Why should each department participate in preparing its own budget?
> Lighthouse Company anticipates total sales for June and July of $420,000 and $398,000, respectively. Cash sales are normally 60% of total sales. Of the credit sales, 20% are collected in the same month as the sale, 70% are collected during the first mont
> Montel Company’s July sales budget calls for sales of $600,000. The store expects to begin July with $50,000 of inventory and to end the month with $40,000 of inventory. Gross margin is typically 40% of sales. Determine the budgeted cost of merchandise p
> The motivation of employees is one goal of budgeting. Identify three guidelines that organizations should follow if budgeting is to serve effectively as a source of motivation for employees.
> Which one of the following sets of items are all necessary components of the master budget? 1. Operating budgets, historical income statement, and budgeted balance sheet. 2. Prior sales reports, capital expenditures budget, and financial budgets. 3. Sale
> Identify at least three roles that budgeting plays in helping managers control and monitor a business.
> Refer to Exercise 7-27. For April, May, and June, prepare (1) a direct labor budget and (2) a factory overhead budget. In Exercise 7-27 Rad Co. provides the following sales forecast and production budget for the next four months: The company plans for
> Rad Co. provides the following sales forecast and production budget for the next four months: The company plans for finished goods inventory of 120 units at the end of June. In addition, each finished unit requires five pounds of raw materials and the
> Refer to Exercise 7-25. For the second quarter, prepare (1) a direct labor budget and (2) a factory overhead budget. In Exercise 7-25 Rida, Inc., a manufacturer in a seasonal industry, is preparing its direct materials budget for the second quarter. It
> Rida, Inc., a manufacturer in a seasonal industry, is preparing its direct materials budget for the second quarter. It forecasts sales of 225,000 units in the second quarter and 262,500 units in the third quarter. It also plans production of 52,500 units
> Render Co. CPA is preparing activity-based budgets for 2013. The partners expect the firm to generate billable hours for the year as follows: Data entry . . . . . . . . . 2,200 hours Auditing . . . . . . . . . . . 4,800 hours Tax . . . . . . . . . . . .
> The management of Nabar Manufacturing prepared the following estimated balance sheet for June, 2013: To prepare a master budget for July, August, and September of 2013, management gathers the following information: a. Sales were 20,000 units in June. F
> Participatory budgeting can sometimes lead to negative consequences. Identify three potential negative outcomes that can arise from participatory budgeting.
> Match the definitions 1 through 9 with the term or phrase a through i. A. Budget B. Merchandise purchases budget C. Cash budget D. Safety stock E. Budgeted income statement F. General and administrative expense budget G. Sales budget H. Master budget I.
> Refer to the information in Exercise 7-20. In addition, assume each finished unit requires five pounds of raw materials and the company wants to end each month with raw materials inventory equal to 30% of next month’s production needs.
> Hospitable Co. provides the following sales forecast for the next four months: The company wants to end each month with ending finished goods inventory equal to 25% of next month’s sales. Finished goods inventory on April 1 is 190 uni
> The production budget for Manner Company shows units to be produced as follows: July, 620; August, 680; September, 540. Each unit produced requires two hours of direct labor. The direct labor rate is currently $20 per hour but is predicted to be $21 per
> Heart & Home Properties is developing a subdivision that includes 600 home lots. The 450 lots in the Canyon section are below a ridge and do not have views of the neighboring canyons and hills; the 150 lots in the Hilltop section offer unobstructed views
> What is the difference between direct and indirect expenses?
> Fortune, Inc., is preparing its master budget for the first quarter. The company sells a single product at a price of $25 per unit. Sales (in units) are forecasted at 45,000 for January, 55,000 for February, and 50,000 for March. Cost of goods sold is $1
> The following information is available for Zetrov Company: a. The cash budget for March shows an ending bank loan of $10,000 and an ending cash balance of $50,000. b. The sales budget for March indicates sales of $140,000. Accounts receivable are expecte
> Kelsey is preparing its master budget for the quarter ended September 30. Budgeted sales and cash payments for merchandise for the next three months follow: Sales are 20% cash and 80% on credit. All credit sales are collected in the month following the
> Castor, Inc. is preparing its master budget for the quarter ended June 30. Budgeted sales and cash payments for merchandise for the next three months follow: Sales are 50% cash and 50% on credit. All credit sales are collected in the month following th
> Assume that Polaris’s snowmobile division is charged with preparing a master budget. Identify the participants—for example, the sales manager for the sales budget—and describe the information each person provides in preparing the master budget.
> NSA Company produces baseball bats. Each bat requires 3 pounds of aluminum alloy. Management predicts that 8,000 bats and 15,000 pounds of aluminum alloy will be in inventory on March 31 of the current year and that 250,000 bats will be sold during this
> Does the manager of a Arctic Cat distribution center participate in long-term budgeting? Explain.
> Would a manager of an Apple retail store participate more in budgeting than a manager at the corporate offices? Explain.
> KTM regularly uses budgets. What is the difference between a production budget and a manufacturing budget?
> Piaggio prepares a cash budget. What is a cash budget? Why must operating budgets and the capital expenditures budget be prepared before the cash budget?
> The Trailer department of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $200 each. Each trailer incurs $80 of variable manufacturing costs. The Trailer department has capa
> Access KTM’s income statement (in Appendix A) for the business year 2011. Required 1. Is KTM’s infrastructure and administration expense budget likely to be an important budget in its master budgeting process? Explain. 2. Identify three types of expense
> To help understand the factors impacting a sales budget, you are to visit three businesses with the same ownership or franchise membership. Record the selling prices of two identical products at each location, such as regular and premium gas sold at Chev
> Freshiisells fresh foods with a focus on healthy fare. Company founder Matthew Corrin stresses the importance of planning and budgeting for business success. Required 1. How can budgeting help Matthew Corrin efficiently develop and operate his business?
> Your team is to prepare a budget report outlining the costs of attending college (full- time) for the next two semesters (30 hours) or three quarters (45 hours). This budget’s focus is solely on attending college; do not include personal items in the tea
> Access information on e-budgets through The Manage Mentor: http://www.themanagementor.com/kuniverse/kmailers_universe/finance_kmailers/cfa/budgeting2.htmRead the information provided. Required 1. Assume the role of a senior manager in a large, multidivi
> The sales budget is usually the first and most crucial of the component budgets in a master budget because all other budgets usually rely on it for planning purposes. Required Assume that your company’s sales staff provides information on expected sales
> Near the end of 2013, the management of Isle Corp., a merchandising company, prepared the following estimated balance sheet for December 31, 2013. To prepare a master budget for January, February, and March of 2014, management gathers the following inf
> Both the budget process and budgets themselves can impact management actions, both positively and negatively. For instance, a common practice among not-for-profit organizations and government agencies is for management to spend any amounts remaining in a
> One source of cash savings for a company is improved management of inventory. To illustrate, assume that Polaris and Arctic Catboth have $1,000,000 per month in sales of one model of snowmobiles in Canada, and both forecast this level of sales per month
> Financial statements often serve as a starting point in formulating budgets. Review Polaris’s financial statements to determine its cash paid for acquisitions of property and equipment in the current year and the budgeted cash needed for such acquisition
> Refer to information in Exercise 9-8. Compute profit margin and investment turnover for each department. Which department generates the most net income per dollar of sales? Which department is most efficient at generating sales from average invested asse
> Adria Lopez is considering the purchase of equipment for Success Systems that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year life and no salvage value. It wil
> If Quail Company invests $50,000 today, it can expect to receive $10,000 at the end of each year for the next seven years, plus an extra $6,000 at the end of the seventh year. What is the net present value of this investment assuming a required 10% retur
> Park Company is considering two alternative investments. The payback period is 3.5 years for investment A and 4 years for investment B. (1) If management relies on the payback period, which investment is preferred? (2) Why might Park’s analysis of thes
> Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the
> Siemens AG invests €80 million to build a manufacturing plant to build wind turbines. The company predicts net cash flows of €16 million per year for the next 8 years. Assume the company requires an 8% rate of return from its investments. (1) What is th
> Tinto Company is planning to invest in a project at a cost of $135,000. This project has the following expected cash flows over its three-year life: Year 1, $45,000; Year 2, $52,000; and Year 3, $78,000. Management requires a 10% rate of return on its in
> A company is considering investing in a new machine that requires a cash payment of $47,946 today. The machine will generate annual cash flows of $21,000 for the next three years. What is the internal rate of return if the company buys this machine?
> Comp-Media buys its product for $60 and sells it for $130 per unit. The sales staff receives a 10% commission on the sale of each unit. Its June income statement follows. COMP- MEDIA COMPANY Income Statement For Month Ended June 30, 2013 Sales . . . . .
> Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $400,000 and has a net present value of cash flows of $1,100,000. Project 2 requires an initial investment of $3,500,000 and has a net present value of cas
> Peng Company is considering an investment expected to generate an average net income after taxes of $1,950 for three years. The investment costs $45,000 and has an estimated $6,000 salvage value. Compute the accounting rate of return for this investment;
> Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). (1) Compute return on investment for each department. Using return on investment, which department is most effi
> Freeman Brothers Co. is considering an investment that requires immediate payment of $27,000 and provides expected cash inflows of $9,000 annually for four years. What is the investment’s payback period?
> Retsa Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $800,000 and will yield the following expected cash flows. Management requires investments to have a payback period of tw
> Aster Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $800,000 and yield the following expected cash flows. Management requires investments to have a payback period of two yea
> Archer Foods has a freezer that is in need of repair and is considering whether to replace the old freezer with a new freezer or have the old freezer extensively repaired. Information about the two alternatives follows. Management requires a 10% rate of
> Grossman Corporation is considering a new project requiring a $30,000 investment in an asset having no salvage value. The project would produce $12,000 of pretax income before depreciation at the end of each of the next six years. The companyâ€
> Aikman Company has an opportunity to invest in one of two projects. Project A requires a $240,000 investment for new machinery with a four-year life and no salvage value. Project B also requires a $240,000 investment for new machinery with a three-year l
