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Flexible Budgets and Budget Estimates

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Preparing a Flexible Budget


The flexible budget at the 70,000-unit and the 80,000-unit levels of activity is shown below.

(see attached file for data)

Complete the flexible budget at the 90,000-unit level of activity. Assume that the cost of goods sold and variable operating expenses vary directly with sales and that income taxes remain at 30 percent of operating income.


Budget Estimates

William George is the marketing manager at the Crunchy Cookie Company. Each quarter, he is responsible for submitting a sales forecast to be used in the formulation of the company's master budget.

George consistently understates the sales forecast because, as he puts it, "I am reprimanded if actual sales are less than I've projected, and I look like a hero if actual sales exceed my projections."

a. What would you do if you were the marketing manager at the Crunchy Cookie Company? Would you also understate sales projections? Defend your answer.

b. What measures might be taken by the company to discourage the manipulation of sales forecasts?

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This solution answers questions regarding flexible budgets and budget estimates.

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Payback, ROAI, NPV & Flexible Budget Variances

I.C. Icecream is considering 2 possible expansion plans. Proposal A involves opening 8 stores in northern Alaska at a total cost of $ 4,000,000/-Under another strategy,proposal B I.C. Icecream would focus on Southern Alaska and opening 5 stores at a total cost od $ 3,000,000/-. Selected data regarding the two proposals are as under

Proposal A Proposal B
Required Investment $4,000,000 $3,000,000
Estimated Life of store locations 8 years 8 years
Estimated Salvage Value - 200,000.00
Estimated annual net cash flows 800,000.00 700,000.00
Depreciation on equipment ( straight line method) 500,000.00 350,000.00
Estimated annual Income ? ?

Evaluate each proposal using
Pay back period
Return on average investment
NPV @ 12 %

State which proposal you would recommend and explain the reasoning behind your choice.

XL industries uses flexible budgets and performance reports in planning and controlling its manufacturing operations. The following annual performance report for the widget production department was presented to the president of the company:-

Costs "Budgeted Cost
for 4000 units" "Actual Cost
for 5000 units"
Per unit Total
Variable manufacturing costs
Direct Material $25 $100,000 $120,000
Direct Labour $50 $200,000 $210,000
Indirect Labour $12 $48,000 $50,000
Indirect material and supplies $10 $40,000 $43,000
Total variable manufacturing costs $97.00 $388,000.00 $423,000.00

Fixed manufacturing Costs $53.00 $212,000.00 $219,000

Prepare a flexible budget for the actual level of sales achieved, analyse the variance between budgeted and actual cost and give your comments

Read the attached file for complete details.

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