Accounting 221 Homework 2-8

wk_6_hw_problems.xls

Problem 1

Each of the following ten statements includes a pair of words within parenthesis. Indicate which of the words should be chosen to make the statement true. The first statement is done as an example.
1.	A ( loan application / budget ) is a detailed financial plan that quantifies future expectations and actions relative to acquiring and using resources.
2.	Budgets ( should / should not ) be used to provide managers with "preapproval" for execution of spending plans.
3.	The ( master budget / sales budget ) is a comprehensive document specifying sales targets, production activities, and financing actions.
4.	"Responsibility accounting" is a concept under which managers are held accountable for transactions and events ( beyond / under ) their direct influence and control.
5.	Some entities will follow a top-down ( mandated / participative ) approach to budgeting.
6.	A deliberate effort to create "breathing room" within a budget is known as ("padding the budget" / "aerating" ).
7.	With ( incremental budgeting / zero-based budgeting ), each expenditure item must be justified for the new budget period.
8.	The starting point for the master budget is an assessment of anticipated ( sales / production ).
9.	This comes before the other: ( production budget / materials purchases budget ).
10.	A ( static budget / flexible budget ) is not designed to change with changes in activity level.

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B-21.01

Each of the following statements includes a pair of words within parenthesis. Indicate which of the words should be chosen to make the statement true. The first statement is done as an example.
	1.	A ( loan application / budget ) is a detailed financial plan that quantifies future expectations and actions relative to acquiring and using resources.
	2.	Budgets ( should / should not ) be used to provide managers with "preapproval" for execution of spending plans.
	3.	The ( master budget / sales budget ) is a comprehensive document specifying sales targets, production activities, and financing actions.
	4.	"Responsibility accounting" is a concept under which managers are held accountable for transactions and events ( beyond / under ) their direct influence and control.
	5.	Some entities will follow a top-down ( mandated / participative ) approach to budgeting.
	6.	A deliberate effort to create "breathing room" within a budget is known as ("padding the budget" / "aerating" ).
	7.	With ( incremental budgeting / zero-based budgeting ), each expenditure item must be justified for the new budget period.
	8.	The starting point for the master budget is an assessment of anticipated ( sales / production ).
	9.	This comes before the other: ( production budget / materials purchases budget ).
	10.	A ( static budget / flexible budget ) is not designed to change with changes in activity level.

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B-21.01

Logan Township acquired its water system from a private company on June 1. No receivables were acquired with the purchase. Therefore, total accounts receivable on June 1 had a zero balance. Logan plans to bill customers in the month following the month of sale, and 70% of the resulting billings will be collected during the billing month. In the next following month, 90% of the remaining balance should be collectable. The remaining uncollectible amounts will relate to citizens who have moved away. Such amounts are never expected to be collected and will be written off. Water sales during June are estimated at $3,000,000, and expected to increase 30% in July. August sales will be 10% less than July sales.
(a)	For each dollar of sales, how much is expected to be collected?
(b)	Estimate the monthly cash collections for June, July, August, and September.

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B-21.02

(a)
(b)	June		July		August		September

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B-21.02

Blueline Printing's board of directors was presented with the following information about operations for an upcoming three-month period. The board desires to declare a dividend at the end of June, but still maintain cash on hand of $250,000. Blueline began April with $75,000 of cash on hand. Prepare a cash budget, and determine how much cash will be available for the dividend. Is there any apparent risk associated with the dividend plan?
		April	May	June
	Customer receipts	$ 700,000	$ 750,000	$ 800,000
	Cash paid for direct materials	200,000	222,000	265,000
	Cash paid for direct labor	245,000	265,000	300,000
	Factory overhead*	140,000	145,000	154,000
	SG&A**	86,000	89,000	83,000
	Taxes	15,000	18,000	16,000
	Equipment purchase***			500,000
*	Includes monthly depreciation of $100,000
**	Includes monthly depreciation of $25,000
***	Equipment purchase to be paid for in July

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B-21.09

&L&"Myriad Web Pro,Bold"&12Name: Date: Section: &R&"Myriad Web Pro,Bold"&20B-21.09

B-21.09

University Inn's most recent monthly expense analysis report revealed significant cost overruns. The manager was asked to explain the deviations. Below is the "budget v. actual" expense report for the month in question.
	University Inn Budget v. Actual Expense Report For the Month Ending October 31, 20X7
		Actual	Budget	Variance
	Utilities	$ 52,000	$ 45,000	$ (7,000)
	Laundry	20,000	18,000	(2,000)
	Food service	41,000	35,000	(6,000)
	Rent/taxes	60,000	60,000	-
	Staff wages	57,000	55,000	(2,000)
	Management salaries	43,500	45,000	1,500
	Water	13,000	10,000	(3,000)
	Maintenance	15,200	15,000	(200)
		$ 301,700	$ 283,000	$ (18,700)
The Inn has observed that utilities, water, food service, staff wages, and laundry costs all vary with activity. The other costs are fixed. The preceding budget was based upon an assumed 80% occupancy rate. The university's football team was on a winning streak and numerous alumni were returning to campus in October, resulting in a 96% occupancy rate during the month.
Prepare a "flexible budget" based upon a 96% occupancy rate, and identify whether the Inn is being efficiently or inefficiently run. Comment on specific costs, and note why a flexible budget can improve performance evaluations.

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B-22.04

University Inn Flexible Budget v. Actual Expense Report For the Month Ending October 31, 20X7
	Actual	Budget	Variance
Utilities	$ 52,000	$ -	$ -
Laundry	20,000	-	-
Food service	41,000	-	-
Rent/taxes	60,000	-	-
Staff wages	57,000	-	-
Management salaries	43,500	-	-
Water	13,000	-	-
Maintenance	15,200	-	-
	$ 301,700	$ -	$ -

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B-22.04