Management Accounting:
Concepts, Techniques & Controversial Issues

James R. Martin

Chapter 9 - Class Problem Solution

This problem extends Problem 9-6 to March. The Microtable Company produces and sells special wood tables that are used with microcomputers. The various parts of the table are cut and assembled by robots. There is no direct labor.

Budgeted or standard unit costs for each table are as follows: Total unit cost
Resource Standard Inputs Cost per Input Cost per Output
 Direct materials 20 board feet    $3.00   $60  
 Variable  overhead .1 Robot hour   100.00     10  
 Fixed overhead .1 Robot hour   400.00     40   
  Total unit cost     $110  

Overhead rates are based on a capacity level 500 robot hours per month and overhead is applied on the basis of robot hours. Desired ending inventories of materials are based on 10% of the next months materials needed for production. Desired ending finished goods are based on 15% of next periods budgeted unit sales.

Unit Sales are budgeted as follows for 2005:

January February March April May
4,500 5,000 5,200 5,500 6,500

The budgeted sales price is $250 per table. Sales are budgeted as 90% credit sales and 10% cash sales. Past experience indicates that 80% of credit sales are collected during the month of sale, 17% are collected in the following month, and 3% are uncollectible. A 1% cash discount is allowed to all customers (cash or credit) who pay within the month the sale takes place. Selling and administrative expenses are budgeted as follows: Variable expenses are $50 per unit, fixed expenses are $50,000.

Required: Circle the letter of your choice for each of the following.

1. The net sales dollars budgeted for March:
   a. 1,300,000
   b. 1,290,640          Sales (5,200)($250)                                        $1,300,000
> c. 1,289,340          Cash disc on credit sales (1,300,000)(.9)(.8)(.01) =  (9,360)
    d. 1,287,000          Cash disc on cash sales (1,300,000)(.1)(.01) =         (1,300)
   e. None of these                                                                          $1,289,340

 

2. The cash collections budgeted for March:
   a. 1,139,140
   b. 1,055,340                 From Cash sales (1,300,000)(.1)(.99) =         128,700
   c. 926,640                     From Credit sales (1,300,000)(.9)(.8)(.99) = 926,640
>d. 1,246,590                  From Feb (5,000)(250)(.9)(.17) =                 191,250
  e. None of these.                                                                         $1,246,590

3. Budgeted units (i.e., tables) to be produced for March:
    a. 5,200                   Budgeted unit sales adjusted for the desired inventory change.
    b. 5,250                  5,200 + .15(5,500 April unit sales) - .15(5,200)
    c. 5,155                   = 5,200 + 825 EFG - 780 BFG = 5,245
    d. 5,230
  >e. None of these.

4. For the remainder of this problem ignore your answer to question 3 and assume that the budgeted units to be produced for March are 5,245. The number of board feet of Direct Material to be purchased for March:
   a. 104,900
   b. 107,410            (5,245)(20 BF) = 104,900 Direct Material needed for March
  >c. 105,710           104,900 + .10(113,000*) - .10(104,900) = 105,710  To be purchased
    d. 104,090          *April units to be produced = 5,500 +.15(6,500 May) -.15(5,500) = 5,650
    e. Some other amount.    Material needed for April = (5,650)(20 BF) = 113,000
    (More explanation for these calculations).

5. The Budgeted cost of direct material used for March:
  >a. 314,700       (DM needed for production from the calculation in 4. above)(Cost per BF)
    b. 317,130             (104,900)($3) = $314,700
      c. 312,000
     d. 312,270
     e. None of these.

6. The budgeted total factory overhead costs for March:
   a. 262,250
  >b. 252,450      Fixed (5,000 units)($40) or (500 Denominator hours)($400) = $200,000
     c. 260,000      Variable (5,245 units to be produced given in 4.)($10) =             52,450
     d. 252,000                                                                                                $252,450
   e. Some other amount.   

       Or (5,245 units to be produced)(50) - (5,245 - 5,000)(40)
        = 262,250 standard overhead - 9,800 favorable PPVV = $252,450 budgeted overhead

7. The budgeted cost of goods sold for March:
   a. 572,000
   b. 581,800              DM 314,700 from 5. + 252,450 Overhead from 6. = $567,150
   c. 572,100              Add BFG (780 units from 3.)($110) =                         85,800
 >d. 562,200              Subtract EFG (825 units from 3.)($110)                     (90,750)
   e. None of these.                                                                                 $562,200

   Or (5,200 budgeted unit sales)($110 total unit cost) - $9,800 favorable PPVV = 562,200

8. The amount and status (i.e., favorable or unfavorable) of the planned production volume 
    variance for March:
    a. Zero
  >b. 9,800 favorable              (5,245 Budgeted production - 5,000 Denominator units)($40)
     c. 9,800 unfavorable                 = $9,800 favorable PPVV
    d. 1,800 unfavorable
   e. Some other amount.      See Figure 9-2 for a graphic view of PPVV concept.

9. The Budgeted selling and administrative expenses for March:
   a. 260,000
   b. 262,250                           $50,000 + $50(5,200 units sold) = $310,000
  >c. 310,000
    d. 312,250
   e. None of these.

10. During March no specific accounts receivable were determined to be uncollectible. The amount of bad debt expense that should appear on the Budgeted Income Statement for March:
   a. Zero
   b. 39,000                             ($1,300,000)(.9)(.03) = $35,100
   c. 28,080
 >d. 35,100
   e. Some other amount.

_________________________________________

See Problem Extension for income statement shortcut.