Concept explainers
Objectives of the
Domino's Pizza LLC operates pizza delivery and carryout restaurants. The annual report describes its business as follows:
We offer a focused menu of high-quality, value priced pizza with three types of crust (Hand-Tossed, Thin Crust, and Deep Dish), along with buffalo wings, bread sticks, cheesy bread, CinnaStix*, and Coca Cola* products. Our hand-tossed pizza is made from fresh dough produced in our regional distribution centers. We prepare every pizza using real cheese, pizza sauce made from fresh tomatoes, and a choice of high-quality meat and vegetable toppings in generous portions. Our focused menu and use of premium ingredients enable us to consistently and efficiently produce the highest-quality pizza.
Over the 41 years since our founding, we have developed a simple, cost-efficient model. We offer a limited menu, our stores are designed for delivery and carry-out, and we do not generally offer dine-in service. As a result, our stores require relatively small, lower-rent locations and limited capital expenditures.
How would a master budget support planning, directing, and control for Domino's?
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- Resource Usage Model, Special Order Ehrling, Inc., manufactures metal racks for hanging clothing in retail stores. Ehrling was approached by the CEO of Carly’s Corner, a regional nonprofit food bank, with an offer to buy 350 heavy-duty metal racks for storing canned goods and dry food products. While racks normally sell for $245 each, Carly’s Corner offered $75 per rack. The CEO explained that the number of families they served had grown significantly over the past two years, and that the charity needed additional storage for the donated food items. Since Ehrling is operating at 80 percent of capacity, and Ehrling employees have “adopted” Carly’s Corner as their annual charity, the company wants to make the special order work. Ehrling’s controller looked into the cost of the storage racks using the following information from the activity-based accounting system: Activity Rate** Activity Driver UnusedCapacity QuantityDemanded* Fixed Variable Direct materials Number of racks 0…arrow_forwardSoutheast Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet to work part-time or have a second job, so employee turnover is high. Assistant manager/controller Terry Dunn asked the new bookkeeper to help prepare the hotel’s master budget. The master budget is prepared once a year and is submitted to the company headquarters for approval. Once approved, the master budget is used to evaluate the hotel’s performance. These performance evaluations affect hotel managers’ bonuses, and they also affect company decisions on which hotels deserve extra funds for capital improvements.< When the budget was almost complete, Dunn asked the bookkeeper to increase amounts budgeted for labor and supplies by 15%. When asked why Dunn responded that hotel manager Clay Murry told her to do this when she began working at the hotel. Murry explained that…arrow_forwardNozama.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.arrow_forward
- Activity Cost Drivers and Cost Estimation Market Street Soup Company produces ten varieties of soup in large vats, several thousand gallons at a time. The soup is distributed to several categories of customers. Some soup is packaged in large containers and sold to college and university food services. Some is packaged in half-gallon or small containers and sold through wholesale distributors to grocery stores. Finally, some is packaged in a variety of individual servings and sold directly to the public from trucks owned and operated by Market Street Soup Company. Management has always assumed that cost fluctuated with the volume of soup, and cost-estimating equations have been based on the following cost function: Estimated costs = Fixed costs + Variable costs per gallon x Production in gallons Lately, however, this equation has not been a very accurate predictor of total costs. At the same time, management has noticed that the volumes and varieties of soup sold through the three…arrow_forwardPerfect Parties, Inc. has several divisions, one of which provides birthday parties at their facility, and has provided the actual and planning budget results for the month of June. The Controller has asked you prepare the Birthday Party Division Budget Performance Report. Please provide me with the answers for the cells in yellow. greatly appreciate your help!arrow_forwardSoutheast Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet work part time or have a second job, so employee turnover is high. Assistant manager/controller Terry Dunn asked the new bookkeeper to help prepare the hotel’s master budget. The master budget is prepared once a year and is submitted to company headquarters for approval. Once approved, the master budget is used to evaluate the hotel’s performance. These performance evaluations affect hotel managers’ bonuses, and they also affect company decisions on which hotels deserve extra funds for capital improvements. When the budget was almost complete, Dunn asked the bookkeeper to increase amounts budgeted for labor and supplies by 15%. When asked why, Dunn responded that hotel manager Clay Murry told her to do this when she began working at the hotel. Murry explained that this…arrow_forward
- Use the following information for Problems 9-67 through 9-69: Ladan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food. BasicDiet is a standard mixture for healthy dogs. SpecialDiet is a reduced protein formulation for older dogs with health problems. The two dog foods use common raw materials in different proportions. The company expects to produce 80,000 bags of each product during the coming year. BasicDiet requires 0.20 direct labor hour per bag, and SpecialDiet requires 0.30 direct labor hour per bag. Ladan has developed the following fixed and variable costs for each of the four overhead items: Problem 9-68 Flexible Budget for Various Production Levels Refer to the information for Healthy Pet Company on the previous page. Required: 1. Calculate the direct labor hours required for production that is 10% higher than expected. Calculate the direct labor hours required for production that is 20% lower than expected. 2. Prepare an overhead budget that reflects production that is 10% higher than expected and for production that is 20% lower than expected. (Hint: Use total direct labor hours calculated in Requirement 1.)arrow_forwardUse the following information for Problems 9-67 through 9-69: Ladan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food. BasicDiet is a standard mixture for healthy dogs. SpecialDiet is a reduced protein formulation for older dogs with health problems. The two dog foods use common raw materials in different proportions. The company expects to produce 80,000 bags of each product during the coming year. BasicDiet requires 0.20 direct labor hour per bag, and SpecialDiet requires 0.30 direct labor hour per bag. Ladan has developed the following fixed and variable costs for each of the four overhead items: Problem 9-67 Overhead Budget for a Particular Level of Activity Refer to the information for Healthy Pet Company above. Required: 1. Calculate the total direct labor hours required for the production of 80,000 bags of BasicDiet and 80,000 bags of SpecialDiet. 2. Prepare an overhead budget for the expected activity level (calculated in Requirement 1) for the coming year.arrow_forwardUse the following information for Problems 9-67 through 9-69: Ladan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food. BasicDiet is a standard mixture for healthy dogs. SpecialDiet is a reduced protein formulation for older dogs with health problems. The two dog foods use common raw materials in different proportions. The company expects to produce 80,000 bags of each product during the coming year. BasicDiet requires 0.20 direct labor hour per bag, and SpecialDiet requires 0.30 direct labor hour per bag. Ladan has developed the following fixed and variable costs for each of the four overhead items: Problem 9-69 Performance Report Based on Actual Production Refer to the information for Healthy Pet Company on the previous page. Assume that Healthy Pet actually produced 100,000 bags of BasicDiet and 90,000 bags of SpecialDiet. The actual overhead costs incurred were as follows: Required: 1. Calculate the number of direct labor hours budgeted for actual production of the two products. 2. Prepare a performance report for the period based on actual production. 3. CONCEPTUAL CONNECTION Based on the report, would you judge any of the variances to be significant? Can you think of some possible reasons for the variances?arrow_forward
- Novo, Inc., wants to develop an activity flexible budget for the activity of moving materials. Novo uses eight forklifts to move materials from receiving to stores. The forklifts are also used to move materials from stores to the production area. The forklifts are obtained through an operating lease that costs 18,000 per year per forklift. Novo employs 25 forklift operators who receive an average salary of 50,000 per year, including benefits. Each move requires the use of a crate. The crates are used to store the parts and are emptied only when used in production. Crates are disposed of after one cycle (two moves), where a cycle is defined as a move from receiving to stores to production. Each crate costs 1.80. Fuel for a forklift costs 3.60 per gallon. A gallon of gas is used every 20 moves. Forklifts can make three moves per hour and are available for 280 days per year, 24 hours per day (the remaining time is downtime for various reasons). Each operator works 40 hours per week and 50 weeks per year. Required: 1. Prepare a flexible budget for the activity of moving materials, using the number of cycles as the activity driver. 2. Calculate the activity capacity for moving materials. Suppose Novo works at 80 percent of activity capacity and incurs the following costs: Prepare the budget for the 80 percent level and then prepare a performance report for the moving materials activity. 3. Calculate and interpret the volume variance for moving materials. 4. Suppose that a redesign of the plant layout reduces the demand for moving materials to one-third of the original capacity. What would be the budget formula for this new activity level? What is the budgeted cost for this new activity level? Has activity performance improved? How does this activity performance evaluation differ from that described in Requirement 2? Explain.arrow_forwardFriendly 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?arrow_forwardOptima Company is a high-technology organization that produces a mass-storage system. The design of Optimas system is unique and represents a breakthrough in the industry. The units Optima produces combine positive features of both compact and hard disks. The company is completing its fifth year of operations and is preparing to build its master budget for the coming year (20X1). The budget will detail each quarters activity and the activity for the year in total. The master budget will be based on the following information: a. Fourth-quarter sales for 20X0 are 55,000 units. b. Unit sales by quarter (for 20X1) are projected as follows: The selling price is 400 per unit. All sales are credit sales. Optima collects 85% of all sales within the quarter in which they are realized; the other 15% is collected in the following quarter. There are no bad debts. c. There is no beginning inventory of finished goods. Optima is planning the following ending finished goods inventories for each quarter: d. Each mass-storage unit uses 5 hours of direct labor and three units of direct materials. Laborers are paid 10 per hour, and one unit of direct materials costs 80. e. There are 65,700 units of direct materials in beginning inventory as of January 1, 20X1. At the end of each quarter, Optima plans to have 30% of the direct materials needed for next quarters unit sales. Optima will end the year with the same amount of direct materials found in this years beginning inventory. f. Optima buys direct materials on account. Half of the purchases are paid for in the quarter of acquisition, and the remaining half are paid for in the following quarter. Wages and salaries are paid on the 15th and 30th of each month. g. Fixed overhead totals 1 million each quarter. Of this total, 350,000 represents depreciation. All other fixed expenses are paid for in cash in the quarter incurred. The fixed overhead rate is computed by dividing the years total fixed overhead by the years budgeted production in units. h. Variable overhead is budgeted at 6 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred. i. Fixed selling and administrative expenses total 250,000 per quarter, including 50,000 depreciation. j. Variable selling and administrative expenses are budgeted at 10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred. k. The balance sheet as of December 31, 20X0, is as follows: l. Optima will pay quarterly dividends of 300,000. At the end of the fourth quarter, 2 million of equipment will be purchased. Required: Prepare a master budget for Optima Company for each quarter of 20X1 and for the year in total. The following component budgets must be included: 1. Sales budget 2. Production budget 3. Direct materials purchases budget 4. Direct labor budget 5. Overhead budget 6. Selling and administrative expenses budget 7. Ending finished goods inventory budget 8. Cost of goods sold budget (Note: Assume that there is no change in work-in-process inventories.) 9. Cash budget 10. Pro forma income statement (using absorption costing) (Note: Ignore income taxes.) 11. Pro forma balance sheet (Note: Ignore income taxes.)arrow_forward
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