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Responsibility and controllability, sales budget,

6-16 Sales budget, service setting. In 2009, McGrath & Sons, a small environmental- testing firm, per-formed 11,000 radon tests for $ 250 each and 15,200 lead tests for $ 200 each. Because newer homes are being built with lead- free pipes, lead- testing volume is expected to decrease by 10% next year. However, awareness of radon- related health hazards is expected to result in a 5% increase in radon- test volume each year in the near future. Jim McGrath feels that if he lowers his price for lead testing to $ 190 per test, he will have to face only a 5% decline in lead- test sales in 2010.
Required
1. Prepare a 2010 sales budget for McGrath & Sons assuming that McGrath holds prices at 2009 levels.
2. Prepare a 2010 sales budget for McGrath & Sons assuming that McGrath lowers the price of a lead test to $ 190. Should McGrath lower the price of a lead test in 2010 if its goal is to maximize sales revenue?

6- 19 Budgeting material purchases. The Mahoney Company has prepared a sales budget of 45,000 fin-ished units for a three- month period. The company has an inventory of 16,000 units of finished goods on hand at December 31 and has a target finished goods inventory of 18,000 units at the end of the succeeding quarter.
It takes three gallons of direct materials to make one unit of finished product. The company has an inventory of 60,000 gallons of direct materials at December 31 and has a target ending inventory of 50,000 gallons at the end of the succeeding quarter. How many gallons of direct materials should be pur-chased during the three months ending March 31?

6- 26 Responsibility and controllability. Consider each of the following independent situations:
1. A very successful salesman at Amcorp Computers regularly ignores the published sales catalog and offers lowered prices to his customers in order to close sales. The VP of sales notices that revenues are substantially lower than budgeted.

2. Every " special deal" offered to a customer by any salesperson at Amcorp Computers has to be cleared by the VP of sales. Revenues for the second quarter have been lower than budgeted.

3. The shipping department of Amcorp has limited capacity, and sales orders are being cancelled by cus-tomers because of delays in delivery. Revenues for the past month have been lower than budgeted.

4. At Planetel Corp., a manufacturer of telecommunications equipment, the production supervisor notices that a significantly larger number of direct manufacturing labor- hours were used than had been bud-geted. Investigation revealed that it was due to a decline in educational standards required by the Human Resources department when it interviewed applicants for hourly production jobs six months earlier.

5. At Planetel Corp., a relatively new production supervisor finds that more direct manufacturing labor-hours were used than had been budgeted. Interviews revealed that workers were unhappy with the supervisor's management style and were intentionally working slowly and inefficiently.

6. At Planetel Corp., the production supervisor traces the excessive consumption of direct materials ( rela-tive to the budget) to (rela-tivetothebudget)to the fact that waste was high on machines that had not been properly maintained.

Required
For each situation described, determine where ( that is, with whom) ( a) responsibility and ( b) controllability lie. Suggest what might be done to solve the problem or to improve the situation.

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6-16 Sales budget, service setting. In 2009, McGrath & Sons, a small environmental- testing firm, per-formed 11,000 radon tests for $ 250 each and 15,200 lead tests for $ 200 each. Because newer homes are being built with lead- free pipes, lead- testing volume is expected to decrease by 10% next year. However, awareness of radon- related health hazards is expected to result in a 5% increase in radon- test volume each year in the near future. Jim McGrath feels that if he lowers his price for lead testing to $ 190 per test, he will have to face only a 5% decline in lead- test sales in 2010.
Required
1. Prepare a 2010 sales budget for McGrath & Sons assuming that McGrath holds prices at 2009 levels.
Radon test performed in year 2009 = 11000
Expected change in volume in year 2010 = +5%
Expected Radon test volume in year 2010 = 11000*(1+5%)=11,550

Lead test performed in year 2009 = 15200
Expected change in volume in year 2010 = -10%
Expected Lead test volume in year 2010 = 15200*(1-10%)=13680

McGrath & Sons Sales Budget
For the Year Ended December 31, 2010
Selling Price Units Sold Total Revenues
Radon Tests $250 11550 $2,887,500
Lead Tests $200 13680 $2,736,000
$5,623,500

2. Prepare a 2010 sales budget for McGrath & Sons assuming that McGrath lowers the price of a lead test to $ 190. Should McGrath lower the price of a lead test in 2010 if its goal is to maximize sales revenue?
Radon test performed in year 2009 = 11000
Expected change in volume in year 2010 = +5%
Expected Radon test volume in year 2010 = 11000*(1+5%)=11,550

Lead test performed in year 2009 = 15200
Expected change in volume in year 2010 = -5%
Expected Lead test volume in year 2010 = 15200*(1-5%)=14440

McGrath & Sons Sales Budget
For the Year Ended December 31, 2010
Selling Price Units Sold Total Revenues
Radon Tests $250 11550 $2,887,500
Lead ...

Solution Summary

Answer three problems on cost accounting:
6-16 Sales budget, service setting
6- 19 Budgeting material purchases
6- 26 Responsibility and controllability
Use it to practice cost accounting concept check.

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