Chapter 6 Solutions To Assigned Exercises

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(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.
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.


(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:
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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