Budgets in managerial accounting

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Reference no: EM131526

Problem 1

Budgets in Managerial Accounting

Santiago's Salsa is in the process of preparing a production cost budget for May.  Actual costs in April were:

Santiago's Salsa

Production Costs

April 2011

 

                                Production                                                           25,000 Jars of Salsa

                                Ingredient cost(variable)                                     $20,000

                                Labor cost(variable)                                             12,000

                                Rent(fixed)                                                           5,000

                                Depreciation(fixed)                                               6,000

                                Other(fixed)                                                          1,000

                                Total                                                                      $44,000

Required

  1. Using the information, prepare a budget for May.  Consider that production wil increase to 30,000 jars of salsa, reflecting an anticipated sales increase related to a new marketing campaign.
  2. Does the budget suggest that additional workers are needed?  Consider the wage rate is $20 per hour. How many additional labor hours are needed in May?  What could happen if management did not anticipate the need for additional labor in May?
  3. Determine the actual cost per unit in April and the budgeted cost per unit in May. Describe why the cost per unit is expected to decrease.

Problem 2 Budgets in Managerial Accounting  

Matthew Gabon, the sales manager of Office Furniture Solutions, prepared the following budget for 2011.

Sales Department

Budgeted Costs2011

(Assuming Sales of $10,000,000)

                     Salaries(fixed)                                                                                      $400,000

                     Commissions(variable)                                                                         150,000

                     Advertising(fixed)                                                                                  75,000

                     Charge for office space(fixed)                                                               3,000

                     Office Supplies & forms(variable)                                                          2,000

                     Total                                                                                                     $630,000

After he submitted his budget, the president of Office Furniture Solutions reviewed it and recommended that advertising be increased to $100,000. Further , she wanted Matthew to assume a sales level of $11,000,000.  This level of sales is to be achieved without adding to the sales force.

Matthew's sales group occupies approximately 250 square feet of office space put of total administrative office space of 20,000 square feet.  The $3,000 space charge in Matthew's budget is his share (allocated based on relative square feet) of the company's total cost of rent, utilities, and janitorial cost for the administrative office building.

Show a revised budget consistent with the president's recommendation.

Problem 3:  Performance Reports  At the end of 2011, Cyril Fedako Products, received a report comparing budgeted and actual production costs for the company's plant in Forest Lake, Minnesota.

Manufacturing Costs

Forest Lake Plant

Budget versus Actual 2011

                                                       Budget                                 Actual                   Difference(Actual Minus Budget)

Materials                                         $3,200,000                     $3,500,000                          $300,000

Direct Labor                                    2,300,000                       2,500,000                             200,000

Supervisory salaries                        475,000                         500,000                                 25,000

Utilities                                            125,000                         135,000                                 10,000

Machine maintence                         350,000                          380,000                                 30,000

Depreciation of building                  90,000                            90,000                                      -0-         

Depreciation of equipment              250,000                         255,000                                   5,000

Janitorial                                          220,000                         235,000                                  15,000

Total                                                $7,010,000                    $7,595,00                                $585,000

His first thought was that costs must be out of control since actual costs exceed the budget by $585,000.  However, he quickly recalled that the budget was set assuming a production level of 60,000 units. The Forest Lake plant actually produced 65,000 units in 2011.

  1. Give that production was greater than planned, could Cyril expect that all actual costs will be greater than budgeted?  Which costs should you expect to increase, and which costs should you expect to remain relatively constant?
  2. Cyril is extremely busy - the company has six other plants.  Thus, he cannot spend time investigating every departure from the budget. With this in mind, which cost(s) could Cyril concentrate on in his investigation of budget differences?

Reference no: EM131526

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