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189) Hammerly Corporation is preparing its master budget for the quarter ending
March 31. It sells a single product for $25 a unit. Budgeted sales are 40% cash and
60% on credit. All credit sales are collected in the month following the sales.
Budgeted unit sales for the next four months follow:

January February March April

Sales in units ………………. 1,200 1,000 1,600 1,400

At December 31, the balance in accounts receivable is $10,000, which represents the
uncollected portion of December sales. The company desires merchandise inventory
equal to 30% of the next month's sales in units. The December 31 balance of
merchandise inventory is 340 units, and inventory cost is $10 per unit. 40% of
purchases are paid in the month of purchase and 60% are paid in the following month.
At December 31, the balance of Accounts Payable is $8,000, which represents the
unpaid portion of December's purchases.

Operating expenses are paid in the month incurred and consist of:
· Sales commissions (10% of sales)
· Freight (2% of sales)
· Office salaries ($2,400 per month)
· Rent ($4,800 per month)
Depreciation expense is $4,000 per month. The income tax rate is 40%, and income
taxes will be paid on April 1. A minimum cash balance of $10,000 is required, and the
cash balance at December 31 is $10,200. Loans are obtained at the end of a month in
which a cash shortage occurs. Interest is 1% per month, based on the beginning of the
month loan balance, and must be paid each month (The interest payment is rounded to
the nearest whole dollar). If the ending cash balance exceeds the minimum, the excess
will be applied to repaying any outstanding loan balance. At December 31, the loan
balance is $0.
Prepare a master budget (round all dollar amounts to the nearest whole dollar) for
each of the months of January, February, and March that includes the:
· Sales budget
· Schedule of cash receipts
· Merchandise purchases budget
· Schedule of cash payments for merchandise purchases
· Schedule of cash payments for selling and administrative expenses (combined)
· Cash budget, including information on the loan balance
· Budgeted income statement for the quarter
202) Addams, Inc., is preparing its master budget for the second quarter. The
following sales and production data have been forecasted:

April May June July August

Unit sales …… 400 500 520 480 540

Finished goods inventory on March 31: 120 units

Raw materials inventory on March 31: 450 pounds

Desired ending inventory each month:

Finished goods: 30% of next month's sales
Raw materials: 25% of next month's production needs
Number of pounds of raw material required per finished unit: 4 lbs.

How many pounds of raw materials should be purchased in April?

171) Presented below are terms or phrases preceded by letters (a) through (j) and
followed by a list of definitions 1 through 10. Match the correct definitions with the
terms or phrases by placing the letter of the term or phrase in the answer space
provided at the beginning of the definition.

(a) Budget
(b) Capital expenditures budget
(c) Activity-based budgeting
(d) Sales budget
(e) Production budget
(f) Cash budget
(g) Budgeted balance sheet
(h) Continuous budgeting
(i) Selling expense budget
(j) Rolling budgets

_____ (1) A plan that lists the types and amounts of selling expenses expected during
the budget period.
_____ (2) A plan that shows expected activities and their levels for the budget period
used to estimate resources required to perform the activities.
_____ (3) A managerial accounting report that presents predicted amounts of the
company's assets, liabilities, and equity as of the end of the budget period.
_____ (4) A formal statement of future plans, usually expressed in monetary terms.
_____ (5) A plan showing the expected sales units and dollars from the sales; the
starting point in the budgeting process.
_____ (6) A plan that lists dollar amounts estimated to be received from disposing of
plant assets and spent on purchasing additional plant assets to carry out the budgeted
business activities.
______(7) The practice of revising budgets as time passes.
______(8) A plan showing the number of units to be produced each period, based on
the units projected in the sales budget, along with inventory considerations.
______ 9) A plan that shows the expected cash inflows and outflows during the
budget period, including receipts from loans needed to maintain a minimum cash
balance and repayments of such loans.
______(10) Additional monthly or quarterly budgets to replace the ones that have
lapsed as each budget period goes by.
C23
151) Presented below are terms preceded by letters a through h and followed by a list
of definitions 1 through 8. Enter the letter of the term with the definition, using the
space preceding the definition.

(a) Unfavorable variance

(b) Fixed budget performance report
(c) Overhead cost variance
(d) Efficiency variance
(e) Spending variance
(f) Flexible budget performance report
(g) Quantity variance
(h) Favorable variance

________(1) Results from a comparison of actual cost or revenue to budget that

contributes to a lower income.
________(2) A report that compares actual results with the results expected under a
fixed budget.
________(3) When management pays an amount different from the standard price to
acquire an item.
________(4) Results from a comparison of actual cost or revenue to budget that
contributes to higher income.
________(5) Difference in variable overhead when the standard allocation base
expected for actual production differs from the actual allocation base.
________(6) Difference between actual quantity of an input and the standard quantity
of the input.
________(7) Difference between the total overhead cost applied to products and the
total overhead cost actually incurred.
________(8) A report that compares actual performance and budgeted performance
based on actual sales volume or other activity level.
190) Tiger, Inc. budgeted the following overhead costs for the current year assuming
operations at 80% of capacity, or 40,000 units:

Total variable overhead ……………. $240,000

Total fixed overhead ………………. 560,000
Total overhead ……………………. $800,000

The standard cost per unit when operating at this same 80% capacity level is:
Direct materials (5 lbs. @ $4/1b.) ………… $20.00
Direct labor (2 hrs. @ $8.75 hr.) …………. 17.50
Variable overhead (2 hrs. @ $3/hr.) ………… 6.00
Fixed overhead (2 hrs. @ $7/hr.) …………. 14.00
Total cost per unit …………………………. $57.50

The actual production achieved in the current year was 60% of capacity, or 30,000
units. The actual costs were:
Direct materials (150,350 lbs.) …………. $616,435
Direct labor (59,800 hrs.) ………………. 520,260
Variable overhead ………….…………… 192,000
Fixed overhead ………….………….…... 552,000

Calculate the following variances and indicate whether each is favorable or

unfavorable.

Direct materials:
Price variance
Quantity variance
Direct labor:
Rate variance
Efficiency variance
Variable overhead:
Spending variance
Efficiency variance
Fixed overhead:
Spending variance
Volume variance
175) Engineworks Co. provides the following fixed budget data for the year:

Sales (20,000 units) ……………………………. $600,000

Cost of sales:
Direct materials …………………………….. $200,000
Direct labor ………………………………… 160,000
Variable overhead ………………………….. 60,000
Fixed overhead …………………………….. 80,000 500,000
Gross profit ……………………………………. $100,000
Operating expenses:
Fixed ……………………………………….. $12,000
Variable ……………………………………. 40,000 52,000
Income from operations ……………………….. $ 48,000

The company's actual activity for the year follows:

Sales (21,000 units) ……………………………. $651,000
Cost of goods sold:
Direct materials …………………………….. $231,000
Direct labor ………………………………… 168,000
Variable overhead ………………………….. 73,500
Fixed overhead …………………………….. 77,500 550,000
Gross profit ……………………………………. $101,000
Operating expenses:
Fixed ………………………………………. 12,000
Variable ……………………………………. 39,500 51,500
Income from operations ………………………. $ 49,500

Required:
Prepare a flexible budget performance report for the year using the contribution
margin format.
C24
164) Match the appropriate definition a through h with the following terms:
(a) A department whose manager is judged on the ability to generate revenues in
excess of the department's costs.
(b) A department or unit that generates revenues and incurs costs, in which the
manager is also responsible for investments made in operating assets.
(c) Set up to control costs and evaluate managers' performances by assigning costs to
the managers responsible for controlling them.
(d) Compares actual and budgeted costs and expenses under the control of a manager.
(e) A department whose manager is judged on the ability to control costs by keeping
them within a satisfactory range.
(f) A measure of departmental sales less direct expenses.

________ (1) Investment center

________ (2) Performance report
________ (3) Cost center
________ (4) Departmental contribution to overhead
________ (5) Profit center
________ (6) Responsibility accounting system

182) A company produces two products, XX and YY, from a single raw material
called Zub. Zub is purchased in 55-gallon drums, and the contents of one drum are
sufficient to produce 30 gallons of XX and 15 gallons of YY. XX sells for $10.00 per
gallon and YY sells for $30.00 per gallon. During the current period, the company
used 400 drums of Zub to produce XX and YY. The cost of Zub was $90 per drum.

Required:
(1) If the cost of Zub is allocated to the XX and YY products on the basis of the
number of gallons produced, how much of the total cost of the 400 drums should be
charged to each product?
(2) If the cost of Zub is allocated to the XX and YY products in proportion to their
market values, how much of the total cost of the 400 drums should be charged to each
product?
(3) Which basis of allocating the cost is most likely to be used by the company?
196) Boiano Corp. operates a retail store and has two service departments and two
operating departments, Hardware and Automotive. During the current year, the
departments had the following direct expenses and occupied the following amount of
floor space.

Department Direct Expenses Square Feet

Advertising $50,000 750
Administrative 100,000 1,500
Hardware 150,000 3,000
Automotive 200,000 9,750

The advertising department developed and aired 150 spots. Of these spots, 60 spots
were for Hardware and 90 spots were for Automotive. The store sold $1,500,000 of
merchandise during the year; $675,000 in Hardware and $825,000 in Automotive.
Indirect expenses include rent, utilities, and insurance expense. Total indirect
expenses of $220,000 are allocated to all departments. Prepare a departmental
expense allocation spreadsheet for Boiano. The spreadsheet should assign (1) direct
expenses to each of the four departments, (2) allocate the indirect expenses to each
department on the basis of floor space occupied, (3) the advertising department's
expenses to the two operating departments on the basis of ad spots placed promoting
each department's products, (4) the administrative department's expenses based on the
amount of sales. Complete the departmental expense allocation spreadsheet below.
Provide supporting computations for the expense allocations below the spreadsheet.

Boiano Corp.
Departmental Expense Allocations
For Year Ended December 31

Advertising Administrative Hardware Automotive

Direct Expenses
Direct expenses
Indirect expenses
Indirect expenses
182) A company produces two products, XX and YY, from a single raw material
called Zub. Zub is purchased in 55-gallon drums, and the contents of one drum are
sufficient to produce 30 gallons of XX and 15 gallons of YY. XX sells for $10.00 per
gallon and YY sells for $30.00 per gallon. During the current period, the company
used 400 drums of Zub to produce XX and YY. The cost of Zub was $90 per drum.

Required:
(1) If the cost of Zub is allocated to the XX and YY products on the basis of the
number of gallons produced, how much of the total cost of the 400 drums should be
charged to each product?
(2) If the cost of Zub is allocated to the XX and YY products in proportion to their
market values, how much of the total cost of the 400 drums should be charged to each
product?
(3) Which basis of allocating the cost is most likely to be used by the company?
C25
132) A company produces three different products that all require processing on the
same machines. The company has only 27,000 machine hours available in each year.
Production information for each product is:
A B C
Sales price per unit $20.00 $38.00 $35.00
Variable costs per unit $12.00 $26.00 $17.00
Machine hours necessary to produce one unit 2.5 4.0 4.50

Required:
(1) Determine the preferred sales mix if there are no market constraints on any of the
products.
(2) Determine the preferred sales mix if the demand is limited to 5,000 units for each
product.
(3) Determine the preferred sales mix if the demand is limited to 3,000 units for each
product.
137) Generalware, Inc. sells a single product and reports the following results from
sales of 100,000 units:

Sales ($45 unit) …………..…………….… $4,500,000

Less costs and expenses:
Direct materials ($16/unit)………….… $1,600,000
Direct labor ($9/unit)…………….….… 900,000
Variable overhead ($3/unit)…….…….. 300,000
Fixed overhead ($8.10/unit)…….......... 810,000
Variable administrative ($4.50/unit)…. 450,000
Fixed administrative ($4/unit)………... 400,000
Total costs and expenses……………... $(4,460,000)
Operating income………………………… $ 40,000

A foreign buyer wants to purchase 15,000 units. However, they are willing to pay
only $36 per unit for this one-time order. They also agree to pay all freight costs. To
fill the order, Generalware will incur normal production costs. Total fixed overhead
will have to be increased by $60,000 to pay for equipment rentals and insurance. No
additional administrative costs (variable or fixed) will be incurred in association with
this special order.
Required:
(1) Should Generalware accept the order if it does not affect regular sales? Explain.
(2) Assume that Generalware can accept the special order only by giving up 5,000
units of its normal sales. Should the company accept the special order under these
circumstances?