Solution Manual of Chapter 8 - Managerial Accounting 15th
Edition
Master Budgeting
Solutions to Questions
8-1 A budget is a detailed quantitative plan for future, and outlines the way in which these plans
the acquisition and use of financial and other are to be accomplished. The master budget is
resources over a given time period. Budgetary composed of a number of smaller, specific budgets
control involves using budgets to increase the encompassing sales, production, raw materials,
likelihood that all parts of an organization are direct labor, manufacturing overhead, selling and
working together to achieve the goals set down in the administrative expenses, and inventories. The master
planning stage. budget usually also contains a budgeted income
statement, budgeted balance sheet, and cash budget.
8-2
1. Budgets communicate management’s 8-5 The level of sales impacts virtually every
plans throughout the organization. other aspect of the firm’s activities. It determines the
2. Budgets force managers to think about and production budget, cash collections, cash
plan for the future. In the absence of the necessity disbursements, and selling and administrative budget
to prepare a budget, many managers would spend that in turn determine the cash budget and budgeted
all of their time dealing with day- to-day income statement and balance sheet.
emergencies.
3. The budgeting process provides a means of 8-6 No. Planning and control are different,
allocating resources to those parts of the although related, concepts. Planning involves
organization where they can be used most developing goals and developing budgets to
effectively. achieve those goals. Control, by contrast, involves
4. The budgeting process can uncover the means by which management attempts to
potential bottlenecks before they occur. ensure that the goals set down at the planning
5. Budgets coordinate the activities of the entire stage are attained.
organization by integrating the plans of its various
parts. Budgeting helps to ensure that everyone in the 8-7 Creating a ―budgeting assumptions‖ tab
organization is pulling in the same direction. simplifies the process of determining how changes to
6. Budgets define goals and objectives that can a master budget’s underlying assumptions impact all
serve as benchmarks for evaluating subsequent supporting schedules and the projected financial
performance. statements.
8-3 Responsibility accounting is a system in 8-8 A self-imposed budget is one in which
which a manager is held responsible for those items persons with responsibility over cost control prepare
of revenues and costs—and only those items—that their own budgets. This is in contrast to a budget
the manager can control to a significant extent. Each that is imposed from above. The major advantages of
line item in the budget is made the responsibility of a a self-imposed budget are: (1) Individuals at all
manager who is then held responsible for levels of the organization are recognized as members
differences between budgeted and actual results. of the team whose views and judgments are valued.
(2) Budget estimates prepared by front-line managers
8-4 A master budget represents a summary are
of all of management’s plans and goals for the
, 8-9 The direct labor budget and other
budgets can be used to forecast workforce
1 staffing needs. Careful planning can help a
often more accurate and reliable than estimates prepared by top company avoid erratic hiring and laying off of
managers who have less intimate knowledge of markets and day- employees.
to-day operations. (3) Motivation is generally higher when
individuals participate in setting their own goals than when the 8-10 The principal purpose of the cash budget is
goals are imposed from above. Self-imposed budgets create NOT to see how much cash the company will have
commitment. (4) A manager who is not able to meet a budget in the bank at the end of the year. Although this is
that has been imposed from above can always say that the budget one of the purposes of the cash budget, the principal
was unrealistic and impossible to meet. With a self- imposed purpose is to provide information on probable cash
budget, this excuse is not available. needs during the budget period, so that bank loans
Self-imposed budgets do carry with and other sources of financing can be anticipated
them the risk of budgetary slack. The budgets and arranged well in advance.
prepared by lower-level managers should be
carefully reviewed to prevent too much slack.
,The Foundational 15
1. The budgeted sales for July are computed as follows: Unit
sales (a) ............................. 10,000
Selling price per unit (b) ............. $70
Total sales (a) × (b) ............................. $700,000
2. The expected cash collections for July are computed as follows:
July
June sales:
$588,000 × 60% ............................... $352,800
July sales:
$700,000 × 40% ................... 280,000
Total cash collections .......................... $632,800
3. The accounts receivable balance at the end of July is:
July sales (a) ............................. $700,000
Percent uncollected (b) ............... 60%
Accounts receivable (a) × (b)...... $420,000
4. The required production for July is computed as follows:
July
Budgeted sales in units .................. 10,000
Add desired ending inventory* ....... 2,400
Total needs ................................... 12,400
Less beginning inventory**............ 2,000
Required production ...................... 10,400
*August sales of 12,000 units × 20% = 2,400 units.
**July sales of 10,000 units × 20% = 2,000 units.
, The Foundational 15 (continued)
5. The raw material purchases for July are computed as follows:
July
Required production in units of finished goods ............................... 10,400
Units of raw materials needed per unit of finished goods .............. 5
Units of raw materials needed to meet production ......................... 52,000
Add desired units of ending raw materials inventory* ................... 6,100
Total units of raw materials needed................................................. 58,100
Less units of beginning raw materials inventory** ........................ 5,200
Units of raw materials to be purchased ........................................... 52,900
*61,000 pounds × 10% = 6,100 pounds.
**52,000 pounds × 10% = 5,200 pounds.
6. The cost of raw material purchases for July is computed as follows:
Units of raw materials to be purchased (a)......... 52,900
Unit cost of raw materials (b)............................ $2.00
Cost of raw materials to be purchased (a) × (b). $105,800
7. The estimated cash disbursements for materials purchases in July is
computed as follows:
July
June purchases:
$88,880 × 70% ...................... $62,216
July purchases:
$105,800 × 30% .................... 31,740
Total cash disbursements ........... $93,956
8. The accounts payable balance at the end of July is:
July purchases (a) ...................... $105,800
Percent unpaid (b) ..................... 70%
Accounts payable (a) × (b) ......... $74,060
Edition
Master Budgeting
Solutions to Questions
8-1 A budget is a detailed quantitative plan for future, and outlines the way in which these plans
the acquisition and use of financial and other are to be accomplished. The master budget is
resources over a given time period. Budgetary composed of a number of smaller, specific budgets
control involves using budgets to increase the encompassing sales, production, raw materials,
likelihood that all parts of an organization are direct labor, manufacturing overhead, selling and
working together to achieve the goals set down in the administrative expenses, and inventories. The master
planning stage. budget usually also contains a budgeted income
statement, budgeted balance sheet, and cash budget.
8-2
1. Budgets communicate management’s 8-5 The level of sales impacts virtually every
plans throughout the organization. other aspect of the firm’s activities. It determines the
2. Budgets force managers to think about and production budget, cash collections, cash
plan for the future. In the absence of the necessity disbursements, and selling and administrative budget
to prepare a budget, many managers would spend that in turn determine the cash budget and budgeted
all of their time dealing with day- to-day income statement and balance sheet.
emergencies.
3. The budgeting process provides a means of 8-6 No. Planning and control are different,
allocating resources to those parts of the although related, concepts. Planning involves
organization where they can be used most developing goals and developing budgets to
effectively. achieve those goals. Control, by contrast, involves
4. The budgeting process can uncover the means by which management attempts to
potential bottlenecks before they occur. ensure that the goals set down at the planning
5. Budgets coordinate the activities of the entire stage are attained.
organization by integrating the plans of its various
parts. Budgeting helps to ensure that everyone in the 8-7 Creating a ―budgeting assumptions‖ tab
organization is pulling in the same direction. simplifies the process of determining how changes to
6. Budgets define goals and objectives that can a master budget’s underlying assumptions impact all
serve as benchmarks for evaluating subsequent supporting schedules and the projected financial
performance. statements.
8-3 Responsibility accounting is a system in 8-8 A self-imposed budget is one in which
which a manager is held responsible for those items persons with responsibility over cost control prepare
of revenues and costs—and only those items—that their own budgets. This is in contrast to a budget
the manager can control to a significant extent. Each that is imposed from above. The major advantages of
line item in the budget is made the responsibility of a a self-imposed budget are: (1) Individuals at all
manager who is then held responsible for levels of the organization are recognized as members
differences between budgeted and actual results. of the team whose views and judgments are valued.
(2) Budget estimates prepared by front-line managers
8-4 A master budget represents a summary are
of all of management’s plans and goals for the
, 8-9 The direct labor budget and other
budgets can be used to forecast workforce
1 staffing needs. Careful planning can help a
often more accurate and reliable than estimates prepared by top company avoid erratic hiring and laying off of
managers who have less intimate knowledge of markets and day- employees.
to-day operations. (3) Motivation is generally higher when
individuals participate in setting their own goals than when the 8-10 The principal purpose of the cash budget is
goals are imposed from above. Self-imposed budgets create NOT to see how much cash the company will have
commitment. (4) A manager who is not able to meet a budget in the bank at the end of the year. Although this is
that has been imposed from above can always say that the budget one of the purposes of the cash budget, the principal
was unrealistic and impossible to meet. With a self- imposed purpose is to provide information on probable cash
budget, this excuse is not available. needs during the budget period, so that bank loans
Self-imposed budgets do carry with and other sources of financing can be anticipated
them the risk of budgetary slack. The budgets and arranged well in advance.
prepared by lower-level managers should be
carefully reviewed to prevent too much slack.
,The Foundational 15
1. The budgeted sales for July are computed as follows: Unit
sales (a) ............................. 10,000
Selling price per unit (b) ............. $70
Total sales (a) × (b) ............................. $700,000
2. The expected cash collections for July are computed as follows:
July
June sales:
$588,000 × 60% ............................... $352,800
July sales:
$700,000 × 40% ................... 280,000
Total cash collections .......................... $632,800
3. The accounts receivable balance at the end of July is:
July sales (a) ............................. $700,000
Percent uncollected (b) ............... 60%
Accounts receivable (a) × (b)...... $420,000
4. The required production for July is computed as follows:
July
Budgeted sales in units .................. 10,000
Add desired ending inventory* ....... 2,400
Total needs ................................... 12,400
Less beginning inventory**............ 2,000
Required production ...................... 10,400
*August sales of 12,000 units × 20% = 2,400 units.
**July sales of 10,000 units × 20% = 2,000 units.
, The Foundational 15 (continued)
5. The raw material purchases for July are computed as follows:
July
Required production in units of finished goods ............................... 10,400
Units of raw materials needed per unit of finished goods .............. 5
Units of raw materials needed to meet production ......................... 52,000
Add desired units of ending raw materials inventory* ................... 6,100
Total units of raw materials needed................................................. 58,100
Less units of beginning raw materials inventory** ........................ 5,200
Units of raw materials to be purchased ........................................... 52,900
*61,000 pounds × 10% = 6,100 pounds.
**52,000 pounds × 10% = 5,200 pounds.
6. The cost of raw material purchases for July is computed as follows:
Units of raw materials to be purchased (a)......... 52,900
Unit cost of raw materials (b)............................ $2.00
Cost of raw materials to be purchased (a) × (b). $105,800
7. The estimated cash disbursements for materials purchases in July is
computed as follows:
July
June purchases:
$88,880 × 70% ...................... $62,216
July purchases:
$105,800 × 30% .................... 31,740
Total cash disbursements ........... $93,956
8. The accounts payable balance at the end of July is:
July purchases (a) ...................... $105,800
Percent unpaid (b) ..................... 70%
Accounts payable (a) × (b) ......... $74,060
