Management And Accounting Web

Chapter 9 Class Problem Extension

From Management Accounting:
Concepts, Techniques & Controversial Issues


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

Chapter 9 Class Problem | Chapter 9 Main Page

Suppose the requirements for this problem were simply to prepare a budgeted income statement for March. You can do this with the answers to 1., 3., 7., 9. and 10 as follows:

Budgeted Income Statement
1. Sales (5,200)($250)   $1,300,000
Less Cash discounts: (1,300,000)(.9)(.8)(.01) 9,360  
(1,300,000)(.1)(.01) 1,300 10,660
Net Sales   1,289,340
     
7. Cost of Goods Sold:    
At standard (5,200)($110) $572,000  
PPVV** (5,000 - 5,245*)($40) -9,800 562,200
Gross Profit   $727,140
     
9. Less Selling & Adm. Exp. 50,000 + 50(5,200)   310,000
     
10. Less Bad Debts Expense (1,300,000)(.9)(.03)   35,100
     
Net Income before taxes   $382,040
* 5,200 + .15(5,500) - .15(5,200) = 5,245 budgeted units to be produced.

** PPVV = planned production volume variance. The overhead rate is based on 500 robot hours, or 5,000 units per month. Since the company plans to produce 5,245 units, there is a favorable planned production volume variance of $9,800 i.e., (5,000 - 5,245)($40).

See Figure 9-2 for a graphic view of PPVV concept.