Chapter 6 Solutions To Assigned Exercises

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CHAPTER 6
MASTER BUDGET AND RESPONSIBILITY ACCOUNTING
6-16

(15 min.) Sales budget, service setting.

In 2014, 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 leadfree 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 2015.
Required:
1. Prepare a 2015 sales budget for Rouse & Sons assuming that Rouse holds prices at 2014
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3. We already see one example of a decision that Roletter’s management took based on the budgeted expenses—installing labor-saving machines ahead of wage increases. Roletter’s management should also continue to work with employees to increase labor productivity.

6-32

(30–40 min.) Revenue and production budgets.

(CPA, adapted) The Sabat Corporation manufactures and sells two products: Thingone and
Thingtwo. In July 2013, Sabat’s budget department gathered the following data to prepare budgets for 2014:

The following direct materials are used in the two products:

Projected data for 2014 for direct materials are:

Projected direct manufacturing labor requirements and rates for 2014 are:

Manufacturing overhead is allocated at the rate of $19 per direct manufacturing labor-hour.
Based on the preceding projections and budget requirements for Thingone and Thingtwo, prepare the following budgets for 2014:
Required:
1. Revenues budget (in dollars)
2. What questions might the CEO ask the marketing manager when reviewing the revenues budget? Explain
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