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# Management Accounting: Concepts, Techniques & Controversial Issues Chapter 9 Class Problem

James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

This problem extends Problem 9-6 to March. The Microtable Company produces and sells special wood tables that are used with microcomputers. The various parts of the table are cut and assembled by robots. There is no direct labor.

Budgeted or standard unit costs for each table are as follows:

 Resource Standard Inputs Cost per Input Cost per Unit Direct materials 20 board feet \$3.00 \$60 Variable overhead .1 Robot hour 100.00 10 Fixed overhead .1 Robot hour 400.00 40 Total unit cost \$110

Overhead rates are based on a capacity level 500 robot hours per month and overhead is applied on the basis of robot hours. Desired ending inventories of materials are based on 10% of the next months materials needed for production. Desired ending finished goods are based on 15% of next periods budgeted unit sales.

Unit Sales are budgeted as follows for 2005:

 January February March April May 4,500 5,000 5,200 5,500 6,500

The budgeted sales price is \$250 per table. Sales are budgeted as 90% credit sales and 10% cash sales. Past experience indicates that 80% of credit sales are collected during the month of sale, 17% are collected in the following month, and 3% are uncollectible. A 1% cash discount is allowed to all customers (cash or credit) who pay within the month the sale takes place. Selling and administrative expenses are budgeted as follows: Variable expenses are \$50 per unit, fixed expenses are \$50,000.

Required: Circle the letter of your choice for each of the following.

1. The net sales dollars budgeted for March:

a. 1,300,000
b. 1,290,640
c. 1,289,340
d. 1,287,000
e. None of these

2. The cash collections budgeted for March:

a. 1,139,140
b. 1,055,340
c. 926,640
d. 1,246,590
e. None of the above.

3. Budgeted units (i.e., tables) to be produced for March:

a. 5,200
b. 5,250
c. 5,155
d. 5,230
e. None of these.

4. For the remainder of this problem ignore your answer to question 3 and assume that the budgeted units to be produced for March are 5,245. The number of board feet of Direct Material to be purchased for March:

a. 104,900
b. 107,410
c. 105,710
d. 104,090
e. Some other amount.

5. The Budgeted cost of direct material used for March:

a. 314,700
b. 317,130
c. 312,000
d. 312,270
e. None of these.

6. The budgeted total factory overhead costs for March:

a. 262,250
b. 252,450
c. 260,000
d. 252,000
e. Some other amount.

7. The budgeted cost of goods sold for March:

a. 572,000
b. 581,800
c. 572,100
d. 562,200
e. None of these.

8. The amount and status (i.e., favorable or unfavorable) of the planned production volume variance for March:

a. Zero
b. 9,800 favorable
c. 9,800 unfavorable
d. 1,800 unfavorable
e. Some other amount.

9. The Budgeted selling and administrative expenses for March:

a. 260,000
b. 262,250
c. 310,000
d. 312,250
e. None of these.

10. During March no specific accounts receivable were determined to be uncollectible. The amount of bad debt expense that should appear on the Budgeted Income Statement for March:

a. Zero
b. 39,000
c. 28,080
d. 35,100
e. Some other amount.

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Solution

1. The net sales dollars budgeted for March:

c. 1,289,340

Sales (5,200)(\$250) less Cash disc on credit sales (1,300,000)(.9)(.8)(.01) less Cash disc on cash sales (1,300,000)(.1)(.01) = \$1,289,340

2. The cash collections budgeted for March:

d. 1,246,590

From Cash sales (1,300,000)(.1)(.99) + From Credit sales (1,300,000)(.9)(.8)(.99) + From Feb (5,000)(250)(.9)(.17) = \$1,246,590

3. Budgeted units (i.e., tables) to be produced for March:

e. None of these.

Budgeted unit sales adjusted for the desired inventory change. 5,200 + .15(5,500 April unit sales) - .15(5,200) = 5,200 + 825 EFG - 780 BFG = 5,245

4. For the remainder of this problem ignore your answer to question 3 and assume that the budgeted units to be produced for March are 5,245.
The number of board feet of Direct Material to be purchased for March:

c. 105,710

(5,245)(20 BF) = 104,900 Direct Material needed for March
104,900 + .10(113,000*) - .10(104,900) = 105,710 To be purchased
*April units to be produced = 5,500 +.15(6,500 May) -.15(5,500) = 5,650
Material needed for April = (5,650)(20 BF) = 113,000
(More explanation for these calculations).

5. The Budgeted cost of direct material used for March:

a. 314,700

(DM needed for production from the calculation in 4. above)(Cost per BF)
(104,900)(\$3) = \$314,700

6. The budgeted total factory overhead costs for March:

b. 252,450

Fixed (5,000 units)(\$40) or (500 Denominator hours)(\$400) + Variable (5,245 units to be produced given in 4.)(\$10) = \$252,450

Or (5,245 units to be produced)(50) - (5,245 - 5,000)(40)
= 262,250 standard overhead - 9,800 favorable PPVV = \$252,450 budgeted overhead

7. The budgeted cost of goods sold for March:

d. 562,200

DM 314,700 from 5. + 252,450 Overhead from 6. + BFG (780 units from 3.)(\$110) - EFG (825 units from 3.)(\$110) = \$562,200

Or (5,200 budgeted unit sales)(\$110 total unit cost) - \$9,800 favorable PPVV = 562,200

8. The amount and status (i.e., favorable or unfavorable) of the planned production volume variance for March:

b. 9,800 favorable

(5,245 Budgeted production - 5,000 Denominator units)(\$40) = \$9,800 favorable PPVV
See Figure 9-2 for a graphic view of PPVV concept.

9. The Budgeted selling and administrative expenses for March:

c. 310,000

\$50,000 + \$50(5,200 units sold) = \$310,000

10. During March no specific accounts receivable were determined to be uncollectible. The amount of bad debt expense that should appear on the Budgeted Income Statement for March:

d. 35,100

(\$1,300,000)(.9)(.03) = \$35,100

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See Problem Extension for income statement shortcut.