The Ferico store is a neighborhood convenience store. The accountant is preparing its activity-based budget for January 2023. The Ferico has three product categories: child clothes (35% of cost of goods sold) women's clothes (25% of cost of goods sold) and men's clothes (40% of cost of goods sold). The following table shows the four activities that consume indirect resources at the Ferico store, the cost drivers and their rates, and the cost-driver amount budgeted to be consumed by each activity in January 2025. Activity Ordering Delivery Shelf stocking Customer support Average contribution margin Cost driver Number of purchase orders Number of deliveries Hours of stocking time Number of items sold Budgeted cost driver rate $50 $40 $12 $1 Children clothes 15 10 20 5000 $30 Women's clothes 180 35,000 $50 Men's clothes 15 20 100 Required: a. Calculate the total budgeted indirect cost at the Ferico store in January 2023 b. Calculate the budgeted operating income of the company based on the information provides

The Ferico store is a neighborhood convenience store. The accountant is preparing its activity-based budget for January 2023. The Ferico has three product categories: child clothes (35% of cost of goods sold) women's clothes (25% of cost of goods sold) and men's clothes (40% of cost of goods sold). The following table shows the four activities that consume indirect resources at the Ferico store, the cost drivers and their rates, and the cost-driver amount budgeted to be consumed by each activity in January 2025. Activity Ordering Delivery Shelf stocking Customer support Average contribution margin Cost driver Number of purchase orders Number of deliveries Hours of stocking time Number of items sold Budgeted cost driver rate $50 $40 $12 $1 Children clothes 15 10 20 5000 $30 Women's clothes 180 35,000 $50 Men's clothes 15 20 100 Required: a. Calculate the total budgeted indirect cost at the Ferico store in January 2023 b. Calculate the budgeted operating income of the company based on the information provides

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter9: Profit Planning And Flexible Budgets

Section: Chapter Questions

Problem 50E: Use the following information for Exercises 9-50 and 9-51: Assume that Stillwater Designs produces...

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Nozama.com Inc. sells consumer electronics over the Internet. For the next period, the budgeted cost of the sales order processing activity is 250,000 and 50,000 sales orders are estimated to be processed. a. Determine the activity rate of the sales order processing activity. b. Determine the amount of sales order processing cost associated with 30,000 sales orders.
Norton Company, a manufacturer of infant furniture and carriages, is in the initial stages of preparing the annual budget for the coming year. Scott Ford has recently joined Nortons accounting staff and is interested in learning as much as possible about the companys budgeting process. During a recent lunch with Marge Atkins, sales manager, and Pete Granger, production manager, Ford initiated the following conversation. FORD: Since Im new around here and am going to be involved with the preparation of the annual budget, Id be interested in learning how the two of you estimate sales and production numbers. ATKINS: We start out very methodically by looking at recent history, discussing what we know about current accounts, potential customers, and the general state of consumer spending. Then, we add that usual dose of intuition to come up with the best forecast we can. GRANGER: I usually take the sales projections as the basis for my projections. Of course, we have to make an estimate of what this years closing inventories will be, which is sometimes difficult. FORD: Why does that present a problem? There must have been an estimate of closing inventories in the budget for the current year. GRANGER: Those numbers arent always reliable since Marge makes some adjustments to the sales numbers before passing them on to me. FORD: What kind of adjustments? ATKINS: Well, we dont want to fall short of the sales projections so we generally give ourselves a little breathing room by lowering the initial sales projection anywhere from 5 to 10 percent. GRANGER: So, you can see why this years budget is not a very reliable starting point. We always have to adjust the projected production rates as the year progresses, and of course, this changes the ending inventory estimates. By the way, we make similar adjustments to expenses by adding at least 10 percent to the estimates; I think everyone around here does the same thing. Required: 1. Marge Atkins and Pete Granger have described the use of budgetary slack. a. Explain why Atkins and Granger behave in this manner, and describe the benefits they expect to realize from the use of budgetary slack. b. Explain how the use of budgetary slack can adversely affect Atkins and Granger. 2. As a management accountant, Scott Ford believes that the behavior described by Marge Atkins and Pete Granger may be unethical and that he may have an obligation not to support this behavior. By citing the specific standards of competence, confidentiality, integrity, and/or credibility from the Statement of Ethical Professional Practice (in Chapter 1), explain why the use of budgetary slack may be unethical. (CMA adapted)
The Sea Wharf Restaurant would like to determine the best way to allocate a monthly advertising budget of 1,000 between newspaper advertising and radio advertising. Management decided that at least 25% of the budget must be spent on each type of media and that the amount of money spent on local newspaper advertising must be at least twice the amount spent on radio advertising. A marketing consultant developed an index that measures audience exposure per dollar of advertising on a scale from 0 to 100, with higher values implying greater audience exposure. If the value of the index for local newspaper advertising is 50 and the value of the index for spot radio advertising is 80, how should the restaurant allocate its advertising budget to maximize the value of total audience exposure? a. Formulate a linear programming model that can be used to determine how the restaurant should allocate its advertising budget in order to maximize the value of total audience exposure. b. Develop a spreadsheet model and solve the problem using Excel Solver.
Cloud Shoes manufactures recovery sandals and is planning on producing 12.000 units in March and 11,500 in April. Each sandal requires 1.2 yards if material, which costs $3.00 per yard. The companys policy is to have enough material on hand to equal 15% of next months production needs and to maintain a finished goods inventory equal to 20% of the next months production needs. What is the budgeted cost of purchases for March?
TIB makes custom guitars and prepared the following sales budget for the second quarter It also has this additional information related to its expenses: Direct material per unit $55, Direct labor per hour 20, Variable manufacturing overhead per hour 3.50, Fixed manufacturing overhead per month 3,000, Sales commissions per unit 20, Sales salaries per month 5,000, Delivery expense per unit 0.50, Utilities per month 4,000. Administrative salaries per month 20,000, Marketing expenses per month 8,000, Insurance expense per month 11,000, Depreciation expense per month 9,000. Prepare a sales and administrative expense budget for each month in the quarter ended June 30. 2018.
Shalimar Company manufactures and sells industrial products. For next year, Shalimar has budgeted the follow sales: In Shalimars experience, 10 percent of sales are paid in cash. Of the sales on account, 65 percent are collected in the quarter of sale, 25 percent are collected in the quarter following the sale, and 7 percent are collected in the second quarter after the sale. The remaining 3 percent are never collected. Total sales for the third quarter of the current year are 4,900,000 and for the fourth quarter of the current year are 6,850,000. Required: 1. Calculate cash sales and credit sales expected in the last two quarters of the current year, and in each quarter of next year. 2. Construct a cash receipts budget for Shalimar Company for each quarter of the next year, showing the cash sales and the cash collections from credit sales. 3. What if the recession led Shalimars top management to assume that in the next year 10 percent of credit sales would never be collected? The expected payment percentages in the quarter of sale and the quarter after sale are assumed to be the same. How would that affect cash received in each quarter? Construct a revised cash budget using the new assumption.
Friendly Bank is attempting to determine the cost behavior of its small business lending operations. One of the major activities is the application activity. Two possible activity drivers have been mentioned: application hours (number of hours to complete the application) and number of applications. The bank controller has accumulated the following data for the setup activity: Required: 1. Estimate a regression equation with application hours as the activity driver and the only independent variable. If the bank forecasts 2,600 application hours for the next month, what will be the budgeted application cost? 2. Estimate a regression equation with number of applications as the activity driver and the only independent variable. If the bank forecasts 80 applications for the next month, what will be the budgeted application cost? 3. Which of the two regression equations do you think does a better job of predicting application costs? Explain. 4. Run a multiple regression to determine the cost equation using both activity drivers. What are the budgeted application costs for 2,600 application hours and 80 applications?
Adam Corporation manufactures computer tables and has the following budgeted indirect manufacturing cost information for the next year: If Adam uses the step-down (sequential) method, beginning with the Maintenance Department, to allocate support department costs to production departments, the total overhead (rounded to the nearest dollar) for the Machining Department to allocate to its products would be: a. 407,500. b. 422,750. c. 442,053. d. 445,000.
Sunrise Poles manufactures hiking poles and is planning on producing 4,000 units in March and 3,700 in April. Each pole requires a half pound of material, which costs $1.20 per pound. The companys policy is to have enough material on hand to equal 10% of the next months production needs and to maintain a finished goods inventory equal to 25% of the next months production needs. What is the budgeted cost of purchases for March?
Lovely Wedding printing is budgeting sales of 32,000 units and already has 4,000 in beginning inventory. How many units must be produced to also meet the 6,000 units required in ending inventory?
Lens Junction sells lenses for $45 each and is estimating sales of 15,000 units in January and 18,000 in February. Each lens consists of 2 pounds of silicon costing $2.50 per pound, 3 oz of solution costing $3 per ounce, and 30 minutes of direct labor at a labor rate of $18 per hour. Desired inventory levels are: Â Prepare a sales budget, production budget. direct materials budget for silicon and solution, and a direct labor budget.
Cold X, Inc. uses this information when preparing their flexible budget: direct materials of $2 per unit, direct labor of $3 per unit, and manufacturing overhead of $1 per unit. Fixed costs are $35,000. What would be the budgeted amounts for 20,000 and 25,000 units?