Question: Williams Company began operations in January 2013
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 paintings. Management predicts that the new department will generate $50,000 in sales with a 55% gross profit margin and will require the following direct expenses: sales salaries, $8,000; advertising, $800; store supplies, $500; and equipment depreciation, $200. It will fit the new department into the current rented space by taking some square footage from the other two departments. When opened the new painting department will fill one-fifth of the space presently used by the clock department and one-fourth used by the mirror department. Management does not predict any increase in utilities costs, which are allocated to the departments in proportion to occupied space(or rent expense). The company allocates office department expenses to the operating departments in proportion to their sales. It expects the painting department to increase total office department expenses by $7,000. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 8%. No changes for those departments’ gross profit percents or their direct expenses are expected except for store supplies used, which will increase in proportion to sales.
RequiredPrepare departmental income statements that show the company’s predicted results of operations for calendar year 2014 for the three operating (selling) departments and their combined totals. (Round percents to the nearest one-tenth and dollar amounts to the nearest whole dollar.)
Transcribed Image Text:
WILLIAMS COMPANY Departmental Income Statements For Year Ended December 31,2013 Clock Mirror Combined Sales ... $130,000 $5,000 $I85,000 63,700 34,100 97,800 Cost of goods sold Gross profit . Direct expenses 66,300 20,900 87,200 Sales salaries 20,000 7,000 27,000 Advertising Store supplies used 1,200 500 1,700 900 400 1,300 1,500 1,800 Depreciation-Equipment Total direct expenses. 300 23,600 8,200 31,800 Allocated expenses Rent expense.. 7,020 3,780 10,800 Utilities expense Share of office department expenses 2,600 1,400 4,000 10500 4,500 15,000 Total allocated expenses 20,120 9,680 29,800 Total expenses. 43,720 17,880 61,600 Net income $ 22,580 $ 3,020 $ 25,600
> Suggest a reasonable basis for allocating each of the following indirect expenses to departments: (a) salary of a supervisor who manages several departments, (b) rent, (c) heat, (d) electricity for lighting, (e) janitorial services, (f) advertising, (g)
> 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
> Why are many companies divided into departments?
> Refer to Exercise 8-8. Hart Company records standard costs in its accounts and its material variances in separate accounts when it assigns materials costs to the Goods in Process Inventory account. (1) Show the journal entry that both charges the direct
> Hart Company made 3,000 bookshelves using 22,000 board feet of wood costing $266,200. The company’s direct materials standards for one bookshelf are 8 board feet of wood at $12 per board foot. (1) Compute the direct materials variances incurred in manufa
> 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 the information from Exercise 8-6. Compute and interpret the following. 1. Variable overhead spending and efficiency variances. 2. Fixed overhead spending and volume variances. 3. Controllable variance. In Exercise 8-6 Sedona Company set the fo
> Sedona Company set the following standard costs for one unit of its product for 2013. Direct material (20 Ibs. @ $2.50 per Ib.) . . . . . . . . . . . . . . . . . . $ 50.00 Direct labor (10 hrs. @ $8.00 per hr.) . . . . . . . . . . . . . . . . . . . . .
> After evaluating Null Company’s manufacturing process, management decides to establish standards of 3 hours of direct labor per unit of product and $15 per hour for the labor rate. During October, the company uses 16,250 hours of direct labor at a $247,0
> Bay City Company’s fixed budget performance report for July follows. The $647,500 budgeted expenses include $487,500 variable expenses and $160,000 fixed expenses. Actual expenses include $158,000 fixed expenses. Prepare a flexible budg
> Solitaire Company’s fixed budget performance report for June follows. The $315,000 budgeted expenses include $294,000 variable expenses and $21,000 fixed expenses. Actual expenses include $27,000 fixed expenses. Prepare a flexible budge
> Tempo Company’s fixed budget for the first quarter of calendar year 2013 reveals the following. Prepare flexible budgets following the format of Exhibit 8.3 that show variable costs per unit, fixed costs, and three different flexible bu
> JPAK Company manufactures and sells mountain bikes. It normally operates eight hours a day, five days a week. Using this information, classify each of the following costs as fixed or variable. If additional information would affect your decision, describ
> The following information describes production activities of Mercer Manufacturing for the year: Actual raw materials used . . . . . . . . . 16,000 lbs. at $4.05 per lb. Actual factory payroll . . . . . . . . . . . . . 5,545 hours for a total of $105,355
> Refer to information from Exercise 7-8. Each transmission requires 4 direct labor hours, at a cost of $12 per hour. Prepare a direct labor budget for the second quarter. In Exercise 7-8 Electro Company manufactures an innovative automobile transmission
> Presented below are terms preceded by letters a through j and a list of definitions 1 through 10. Enter the letter of the term with the definition, using the space preceding the definition. a. Fixed budget b. Standard costs c. Price variance d. Quantity
> Jasper Company has sales on account and sales for cash. Specifically, 70% of its sales are on account and 30% are for cash. Credit sales are collected in full in the month following the sale. The company forecasts sales of $525,000 for April, $535,000 fo
> How can the manager of snowmobile sales at Arctic Cat use flexible budgets to enhance performance?
> What are the relations among standard costs, flexible budgets, variance analysis, and management by exception?
> Polaris monitors its overhead. In an analysis of overhead cost variances, what is the controllable variance and what causes it?
> What is the predetermined standard overhead rate? How is it computed?
> KTM monitors its fixed overhead. In an analysis of fixed overhead cost variances, what is the volume variance?
> What is a price variance? What is a quantity variance?
> What department is usually responsible for a direct labor rate variance? What department is usually responsible for a direct labor efficiency variance? Explain.
> Prepare a flexible budget performance report title (in proper form) for Spalding Company for the calendar year 2013. Why is a proper title important for this or any report?
> Assume that Piaggio is budgeted to operate at 80% of capacity but actually operates at 75% of capacity. What effect will the 5% deviation have on its controllable variance? Its volume variance?
> Budgeting promotes good decision making by requiring managers to conduct ______ and by focusing their attention on the ______.
> Georgia Orchards produced a good crop of peaches this year. After preparing the following income statement, the company believes it should have given its No. 3 peaches to charity and saved its efforts. In preparing this statement, the company allocated
> Is it possible for a retail store such asApple to use variances in analyzing its operating performance? Explain.
> In general, variance analysis is said to provide information about _________ and _________ variances.
> What is the purpose of using standard costs?
> In what sense can a variable cost be considered constant?
> What type of analysis does a flexible budget performance report help management perform?
> 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
> 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
> 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 fl
> 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
