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

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

True

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

False

3. Which of the following benefits could an organization reasonably expect from an effective budget program?
   
   Increased
   employee motivation Uncover
   potential bottlenecks
   (A) Yes Yes
   (B) Yes No
   (C) No Yes
   (D) No No

Option A

4. All the following are considered to be benefits of participative budgeting, except for:

when managers set their own targets for the budget, top management need not be concerned with the overall profitability of operations.

5. Ford Corporation is pulling together its direct labor budget for the next two months. Each unit of output requires 0.05 direct labor-hours. The direct labor rate is $9.90 per direct labor-hour. The production budget calls for producing 3,800 units in June and 4,300 units in July.
   
   Required:
   Prepare the direct labor budget for the next two months, assuming that the direct labor work force is fully adjusted to the total direct labor-hours needed each month. (Round your answers to 2 decimal places.)

Required production in units 3,800 4,300
Direct labor-hours per unit 0.05 0.05
Total direct labor-hours needed 190 215
Direct labor cost per hour $9.90 $9.90
Total direct labor cost $1,881.00 $2,128.50

6. The management of a company has compiled the following data to use in preparing its budgeted balance sheet for next year:
   
   
   Ending Balances
   Cash ?
   Accounts receivable $ 8,300
   Supplies inventory $ 3,200
   Equipment $ 35,000
   Accumulated depreciation $ 14,200
   Accounts payable $ 2,000
   Common stock $ 5,000
   Retained earnings ?
   
   
   
   The beginning balance of retained earnings was $30,000, net income is budgeted to be $13,900, and dividends are budgeted to be $3,100.
   
   Required:
   Prepare the company's budgeted balance sheet.

Budgeted Balance Sheet
Assets
Current assets:
Cash $15,500 (-----)
Accounts receivable 8,300 (-----)
Supplies inventory 3,200 (-----)
Total current assets (-----) $27,000
Plant and equipment:
Equipment 35,000 (-----)
Accumulated depreciation (14,200) (-----)
Plant and equipment, net (-----) 20,800
Total assets (-----) $47,800
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable (-----) $2,000
Stockholders' equity:
Common stock $5,000 (-----)
Retained earnings 40,800 (-----)
Total stockholders' equity (-----) 45,800
Total liabilities and stockholders' equity (-----) $47,800

Explanation:
Cash = Plug figure.

Retained earnings is computed as follows:

Retained earnings, beginning balance $30,000
Add net income 13,900
43,900
Deduct dividends 3,100
Retained earnings, ending balance $40,800

7. Direct labor-hours are used as the base to prepare the manufacturing overhead budget at Ford. The variable overhead rate is $1.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $107,380 per month, which includes depreciation of $19,900. All other fixed manufacturing overhead costs represent current cash flows. The October direct labor budget indicates that 9,100 direct labor-hours will be required in that month.
   
   Required:
   a. Determine the cash disbursements for manufacturing overhead for October.

Cash disbursements for manufacturing overhead $102,040

Explanation:

November
Budgeted direct labor-hours 9,100
Variable manufacturing overhead rate $ 1.60
Variable manufacturing overhead $ 14,560
Fixed manufacturing overhead 107,380
Total manufacturing overhead 121,940
Less depreciation 19,900
Cash disbursements for manufacturing overhead $ 102,040

8. Direct labor-hours are used as the base to prepare the manufacturing overhead budget at Ford. The variable overhead rate is $1.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $107,380 per month, which includes depreciation of $19,900. All other fixed manufacturing overhead costs represent current cash flows. The October direct labor budget indicates that 9,100 direct labor-hours will be required in that month
   
   b. Determine the predetermined overhead rate for October.

Predetermined overhead rate $13.40

Explanation:

Total manufacturing overhead (a) $ 121,940
Budgeted direct labor-hours (b) 9,100
Predetermined overhead rate for the month (a) ÷ (b) $ 13.40

9. Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company's planning budget for May appears below:
   
   
   Puget Sound Divers
   Planning Budget
   For the Month Ended May 31
   Budgeted diving-hours (q) 250
   Revenue ($410.00q) $ 102,500
   Expenses:
   Wages and salaries ($11,800 + $128.00q) 43,800
   Supplies ($5.00q) 1,250
   Equipment rental ($2,200 + $24.00q) 8,200
   Insurance ($3,900) 3,900
   Miscellaneous ($550 + $1.46q) 915
   Total expense 58,065
   Net operating income $ 44,435
   
   Required:
   During May, the company's activity was actually 240 diving-hours. Complete the following flexible budget for that level of activity. (Round your final answer to nearest dollar amount.)

Revenue $98,400
Expenses:
Wages and salaries 42,520
Supplies 1,200
Equipment rental 7,960
Insurance 3,900
Miscellaneous 900
Total expense 56,480
Net operating income $41,920

Explanation:

Revenue ($410.00 × 240) = $98,400
Wages and salaries ($11,800 + ($128.00 × 240)) = $42,520
Supplies ($5.00 × 240) = $1,200
Equipment rental ($2,200 + ($24.00 × 240)) = $7,960
Miscellaneous ($550 + ($1.46 × 240)) = $900

10. Flight Café is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport. The company's planning budget for July appears below:
    
    
    Flight Café
    Planning Budget
    For the Month Ended July 31
    Budgeted meals (q) 24,000
    Revenue ($4.20q) $ 100,800
    Expenses:
    Raw materials ($1.90q) 45,600
    Wages and salaries ($6,500 + $0.20q) 11,300
    Utilities ($2,000 + $0.05q) 3,200
    Facility rent ($3,300) 3,300
    Insurance ($2,700) 2,700
    Miscellaneous ($500 + $0.10q) 2,900
    Total expense 69,000
    Net operating income $ 31,800
    
    
    In July, 25,000 meals were actually served. The company's flexible budget for this level of activity appears below:
    
    
    Flight Café
    Flexible Budget
    For the Month Ended July 31
    Budgeted meals (q) 25,000
    Revenue ($4.20q) $ 105,000
    Expenses:
    Raw materials ($1.90q) 47,500
    Wages and salaries ($6,500 + $0.20q) 11,500
    Utilities ($2,000 + $0.05q) 3,250
    Facility rent ($3,300) 3,300
    Insurance ($2,700) 2,700
    Miscellaneous ($500 + $0.10q) 3,000
    Total expense 71,250
    Net operating income $ 33,750
    
    
    Required:
    1. Compute the company's activity variances for July.

Revenue $4,200 F
Expenses:
Raw materials 1,900 U
Wages and salaries 200 U
Utilities 50 U
Facility rent None
Insurance None
Miscellaneous 100 U
Total expense 2,250 U
Net operating income $1,950 F


Explanation:
Meals 25,000 24,000
Revenue ($4.20q) $ 105,000 $ 100,800 $ 4,200 F
Expenses:
Raw materials ($1.90q) 47,500 45,600 1,900 U
Wages and salaries ($6,500 + $0.20q) 11,500 11,300 200 U
Utilities ($2,000 + $0.05q) 3,250 3,200 50 U
Facility rent ($3,300) 3,300 3,300 0 None
Insurance ($2,700) 2,700 2,700 0 None
Miscellaneous ($500 + $0.10q) 3,000 2,900 100 U
Total expense 71,250 69,000 2,250 U
Net operating income $ 33,750 $ 31,800 $ 1,950 F