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Cost Accounting A Managerial Emphasis Horngren 14th Edition- Chapter 6 Questions and Solutions. $16.49
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Cost Accounting A Managerial Emphasis Horngren 14th Edition- Chapter 6 Questions and Solutions.
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Cost Accounting
A Managerial Emphasis
14thEdition
Questions & Solutions
Charles T. Horngren
Srikant M. Datar
Madhav V . RajanMaster Budget and Responsibility AccountingChapter - 6 Questions
6-1 What are the four elements of the budgeting cycle?
6-2 Define master budget.
6-3 “Strategy
, plans, and budgets are unrelated to one another.” Do you agree? Explain.
6-4 “Budgeted performance is a better criterion than past performance for judging managers.” Do
you agree? Explain.
6-5 “Production managers and marketing managers are like oil and water
. They just don’t mix.” How
can a budget assist in reducing battles between these two areas?
6-6 “Budgets meet the cost-benefit test. They force managers to act differently
.” Do you agree? Explain.
6-7 Define rolling budget. Give an example.
6-8 Outline the steps in preparing an operating budget.
6-9 “The sales forecast is the cornerstone for budgeting.” Why?
6-1
0How can sensitivity analysis be used to increase the benefits of budgeting?
6-1
1Define kaizen budgeting.
6-1
2Describe how nonoutput-based cost drivers can be incorporated into budgeting.
6-1
3Explain how the choice of the type of responsibility center (cost, revenue, profit, or investment)affects behavior
.
6-1
4What are some additional considerations that arise when budgeting in multinational companies?
6-1
5“Cash budgets must be prepared before the operating income budget.” Do you agree? Explain.
Exercises
6-1
6Sales budget, service setting. In 2011, Rouse & Sons, a small environmental-testing firm, performed
12,200 radon tests for $290 each and 16,400 lead tests for $240 each. Because newer homes are being built
with lead-free pipes, lead-testing volume is expected to decrease by 10% next year
. However, awareness of
radon-related health hazards is expected to result in a 6% increase in radon-test volume each year in the
near future. Jim Rouse feels that if he lowers his price for lead testing to $230 per test, he will have to face
only a 7% decline in lead-test sales in 2012.Assignment Material
Required 1.Prepare a 2012 sales budget for Rouse & Sons assuming that Rouse holds prices at 2011 levels.
2.Prepare a 2012 sales budget for Rouse & Sons assuming that Rouse lowers the price of a lead test to
$230. Should Rouse lower the price of a lead test in 2012 if its goal is to maximize sales revenue? 212/H17033CHAPTER 6
MASTER BUDGET AND RESPONSIBILITY ACCOUNTING
6-1
7Sales and production budget. The Mendez Company expects sales in 2012 of 200,000 units of serv-
ing trays. Mendez’
s beginning inventory for 2012 is 15,000 trays and its target ending inventory is
25,000 trays. Compute the number of trays budgeted for production in 2012.
6-1
8Direct material budget. Inglenook Co. produces wine. The company expects to produce
2,500,000
two-liter bottles of Chablis in 2012. Inglenook purchases empty glass bottles from an outside ven-
dor. Its target ending inventory of such bottles is 80,000; its beginning inventory is 50,000. For simplicity,
ignore breakage. Compute the number of bottles to be purchased in 2012.
6-1
9Budgeting material purchases. The Mahoney Company has prepared a sales budget of 45,000 finished
units for a three-month period. The company has an inventory of 16,000 units of finished goods on hand atDecember 31 and has a target finished goods inventory of 18,000 units at the end of the succeeding quarter
.
It takes three gallons of direct materials to make one unit of finished product. The company has an
inventory of 60,000 gallons of direct materials at December 31 and has a target ending inventory of 50,000 gal-lons at the end of the succeeding quarter. How many gallons of direct materials should be purchased duringthe three months ending March 31?
6-20 Revenues and production budget. Purity
, Inc., bottles and distributes mineral water from the com-
pany’s natural springs in northern Oregon. Purity markets two products: twelve-ounce disposable plasticbottles and four-gallon reusable plastic containers.
Required 1.For 2012, Purity marketing managers project monthly sales of 400,000 twelve-ounce bottles and 100,000
four-
gallon containers. Average selling prices are estimated at $0.25 per twelve-ounce bottle and $1.50 per four-gallon container. Prepare a revenues budget for Purity, Inc., for the year ending December 31, 2012.
2.Purity begins 2012 with 900,000 twelve-ounce bottles in inventory. The vice president of operationsrequests that twelve-ounce bottles ending inventory on December 31, 2012, be no less than
600,000 bottles. Based on sales projections as budgeted previously, what is the minimum number of
twelve-ounce bottles Purity must produce during 2012?
3.The VP of operations requests that ending inventory of four-gallon containers on December 31, 2012,be 200,000 units. If the production budget calls for Purity to produce 1,300,000 four-gallon containersduring 2012, what is the beginning inventory of four-gallon containers on January 1, 2012?
6-21 Budgeting; direct material usage, manufacturing cost and gross margin. Xerxes Manufacturing
Company manufactures blue rugs, using wool and dye as direct materials. One rug is budgeted to use36
skeins of wool at a cost of $2 per skein and 0.8 gallons of dye at a cost of $6 per gallon. All other materi-
als are indirect. At the beginning of the year Xerxes has an inventory of 458,000 skeins of wool at a cost of$961,800 and 4,000 gallons of dye at a cost of $23,680. Target ending inventory of wool and dye is zero. Xerxes
uses the FIFO inventory cost flow method.
Xerxes blue rugs are very popular and demand is high, but because of capacity constraints the firm will
produce only 200,000 blue rugs per year. The budgeted selling price is $2,000 each. There are no rugs in
beginning inventory. Target ending inventory of rugs is also zero.
Xerxes makes rugs by hand, but uses a machine to dye the wool. Thus, overhead costs are accumu-
lated in two cost pools—one for weaving and the other for dyeing. Weaving overhead is allocated to prod-ucts based on direct manufacturing labor-hours (DMLH). Dyeing overhead is allocated to products based onmachine-hours (MH).
There is no direct manufacturing labor cost for dyeing. Xerxes budgets 62 direct manufacturing labor-
hours to weave a rug at a budgeted rate of $13 per hour. It budgets 0.2 machine-hours to dye each skein in
the dyeing process.
The following table presents the budgeted overhead costs for the dyeing and weaving cost pools:
Dyeing
(based on 1,440,000 MH)W
eaving (based on 12,400,000 DMLH)
V
ariable costs
Indirect materials $0 $15,400,000
Maintenance 6,560,000 5,540,000
Utilities 7,550,000 2,890,000
Fixed costs
Indirect labor 347,000 1,700,000
Depreciation 2,100,000 274,000
Other ƒƒƒƒ
723,000 ƒƒ5,816,000
T
otal budgeted costs $17,280,000 $31,620,000
Required 1.Prepare a direct material usage budget in both units and dollars.

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