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Managerial Accounting

Preparing a Flexible Budget (LOI)

An incomplete flexible budget for overhead is given below for AutoPutz, Gmbh, a German company that owns and operates a large automatic carwash facility near Koln. The German currency is the euro, which is denoted by E.

See attached file for full problem description.

AUTOPUTZ, GMBH
Flexible budget
Cost
Formula __________Activity (Cars)_______
Overhead Costs (per car) 7,000 8,000 9,000

Variable overhead costs:
Cleaning supplies................ ? ?  6,000 ?
Electricity ? ? 4,800 ?
Maintenance ? ? 1,200 ?
_____
Total variable overhead costs .... ? ? ? ?

Fixed overhead costs:
Operator Wages ................ ? 10,000 ?
Depreciation .................... ? 20,000 ?
Rent .............................. ? 8,000 ?
______
Total fixed overhead cost ......... ? ? ?
Total overhead costs ............... ?

Required:
Fill in the missing data in the flexible budget.

Brief exercise 9-2 Using a Flexible Budget (LOI)
Refer to the data in Brief Exercise 9-1, AutoPutz, Gmbh's owner-manager would like to prepare a budget for August assuming an activity level of 8,200 cars.

Page 2

Brief Exercise 10-2 Effects of Changes in Sales, Expenses, and Assets on ROI (LOI)
Bus.Serve.com Corporation provides business -to-business services on the Internet. Data concerning the most recent year appear below.

Sales ......................................... $8,000,000
Net operating income..................... $ 800,000
Average operating assets................. $3,200,000

Required:
Consider each question below independently. Carry out all computations to two decimal places.

1. Compute the company's return on investment (ROI)
2. The entrepreneur who founded the company is convinced that sales will increase next year by 150% and that net operating income would increase as a result by 400%, with no increase in average operating assets. What would be the company's ROI.
3. The Chief financial Officer of the company believes a more realistic scenario would be a $2 million increase in sales. Requiring an $800,000 increase in average operating assets, with a resulting $250,000 increase in net operating income. What would be the company's ROI in this scenario?

Brief Exercise 11 - 2 Dropping or Retaining a Segment (LO2)
Boyle's Home Center has two departments, Bath and Kitchen. The most recent income statement for the company follows:
Department
______________________________
Total Bath Kitchen
Sales.............................. $5,000,000 $1,000,000 $4,000,000
Less variable expenses......... 1,900,000 300,000 1,600,000
Contribution margin............ 3,100,000 700,000 2,400,000
Less fixed expenses............ 2,700,000 900,000 1,800,000
Net operating income (loss)... $ 400,000 $ (200,000) $ 600,000
_________________________________
A study indicates that $370,000 of the fixed expenses being charged to the Bath Department are sunk cost or allocated costs that will continue even if the Bath Department is dropped. In addition, the elimination of the Bath Department would result in a 10% decrease in the sales of the Kitchen Department. If the Bath Department is dropped, what will be the effect on the net operating income of the company as a whole?

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Brief Exercise 9 -1 Page 1
Preparing a Flexible Budget (LOI)

An incomplete flexible budget for overhead is given below for AutoPutz, Gmbh, a German company that owns and operates a large automatic carwash facility near Koln. The German currency is the euro, which is denoted by E.

AUTOPUTZ, GMBH
Flexible budget
Cost
Formula __________Activity (Cars)_______
Overhead Costs (per car) 7,000 8,000 9,000

Variable overhead costs:
Cleaning supplies................ ? ?  6,000 ?
Electricity ? ? 4,800 ?
Maintenance ? ? 1,200 ?
_____
Total variable overhead costs .... ? ? ? ?

Fixed overhead costs:
Operator Wages ................ ? 10,000 ?
Depreciation .................... ? 20,000 ?
Rent .............................. ? 8,000 ?
______
Total fixed overhead cost ......... ? ? ...

Solution Summary

The solution has problems relating to flexible budget preparation and dropping or retaining a segment.

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