Managerial accounting:contribution margin,residual income

BE20- 1 Russo Manufacturing Company uses the following budgets: Balance Sheet, Cap-ital Expenditure, Cash, Direct Labor, Direct Materials, Income Statement, Manufactur-ing Overhead, Production, Sales, and Selling and Administrative. Prepare a diagram of the interrelationships of the budgets in the master budget. Indicate whether each budget is an operating or a financial budget.

BE20- 2 Maltz Company estimates that unit sales will be 10,000 in quarter 1; 12,000 in quarter 2; 14,000 in quarter 3; and 18,000 in quarter 4. Using a sales price of $ 70 per unit, prepare the sales budget by quarters for the year ending December 31, 2007.

BE20- 3 Sales budget data for Maltz Company are given in BE20- 2. Management de-sires to have an ending finished goods inventory equal to 25% of the next quarter's expected unit sales. Prepare a production budget by quarters for the first 6 months of 2007.

BE20- 4 Gomez Company has 1,600 pounds of raw materials in its December 31, 2007, ending inventory. Required production for January and February of 2008 are 4,000 and 5,500 units, respectively. Two pounds of raw materials are needed for each unit, and the estimated cost per pound is $ 6. Management desires an ending inventory equal to 20% of next month's materials requirements. Prepare the direct materials budget for January.

BE20- 5 For Tracey Company, units to be produced are 5,000 in quarter 1 and 6,000 in quar-ter 2. It takes 1.8 hours to make a finished unit, and the expected hourly wage rate is $ 14 per hour. Prepare a direct labor budget by quarters for the 6 months ending June 30, 2007.

BE20- 6 For Savage Inc. variable manufacturing overhead costs are expected to be $ 20,000 in the first quarter of 2007 with $ 2,000 increments in each of the remaining three quarters. Fixed overhead costs are estimated to be $ 35,000 in each quarter. Prepare the manufacturing overhead budget by quarters and in total for the year.

BE20- 7 Rado Company classifies its selling and administrative expense budget into vari-able and fixed components. Variable expenses are expected to be $ 25,000 in the first quar-ter, and $ 3,000 increments are expected in the remaining quarters of 2007. Fixed expenses are expected to be $ 40,000 in each quarter. Prepare the selling and administrative expense budget by quarters and in total for 2007.

BE20- 8 Stoker Company has completed all of its operating budgets. The sales budget for the year shows 50,000 units and total sales of $ 2,000,000. The total unit cost of making one unit of sales is $ 24. Selling and administrative expenses are expected to be $ 300,000. Income taxes are estimated to be $ 150,000. Prepare a budgeted income statement for the year ending December 31, 2007.

P20- 5A The budget committee of Ridder Company collects the following data for its Westwood Store in preparing budgeted income statements for July and August 2007.

1. Expected sales: July $ 400,000, August $ 450,000, September $ 500,000.
2. Cost of goods sold is expected to be 60% of sales.
3. Company policy is to maintain ending merchandise inventory at 25% of the following month's cost of goods sold.
4. Operating expenses are estimated to be:
Sales salaries $ 30,000 per month
Advertising 4% of monthly sales
Delivery expense 2% of monthly sales
Sales commissions 3% of monthly sales
Rent expense $ 3,000 per month
Depreciation $ 700 per month
Utilities $ 500 per month Insurance $ 300 per month
5. Income taxes are estimated to be 30% of income from operations.

Instructions
( a) Prepare the merchandise purchases budget for each month in columnar form.
( b) Prepare budgeted income statements for each month in columnar form. Show the details of cost of goods sold in the statements.

BE21- 1 For the quarter ended March 31, 2007, Westphal Company accumulates the fol-lowing sales data for its product, Garden- Tools: $ 315,000 budget; $ 304,000 actual. Pre-pare a static budget report for the quarter.

BE21- 2 Data for Westphal Company are given in BE21- 1. In the second quarter, bud-geted sales were $ 380,000, and actual sales were $ 386,000. Prepare a static budget report for the second quarter and for the year to date.

BE21- 3 In Hinsdale Company, direct labor is $ 20 per hour. The company expects to op-erate at 10,000 direct labor hours each month. In January 2007, direct labor totaling $ 205,000 is incurred in working 10,400 hours. Prepare ( a) a static budget report and ( b) a flexible budget report. Evaluate the usefulness of each report.

BE21- 4 Dukane Company expects to produce 1,200,000 units of Product XX in 2007. Monthly production is expected to range from 80,000 to 120,000 units. Budgeted vari-able manufacturing costs per unit are: direct materials $ 4, direct labor $ 6, and overhead $ 9. Budgeted fixed manufacturing costs per unit for depreciation are $ 2 and for super-vision are $ 1. Prepare a flexible manufacturing budget for the relevant range value using 20,000 unit increments.

BE21- 5 Data for Dukane Company are given in BE21- 4. In March 2007, the company incurs the following costs in producing 100,000 units: direct materials $ 425,000, direct labor $ 590,000, and variable overhead $ 915,000. Prepare a flexible budget report for March. Were costs controlled?

BE21- 6 In the Assembly Department of Emil Company, budgeted and actual manufacturing overhead costs for the month of April 2007 were as follows.

Budget Actual
Indirect materials $ 15,000 $ 14,300
Indirect labor 20,000 20,800
Utilities 10,000 10,750
Supervision 5,000 5,000

All costs are controllable by the department manager. Prepare a responsibility report for April for the cost center.

BE21- 7 Advent Manufacturing Company accumulates the following summary data for the year ending December 31, 2007, for its Water Division which it operates as a profit center: sales-$ 2,000,000 budget, $ 2,080,000 actual; variable costs-$ 1,000,000 budget, $ 1,030,000 actual; and controllable fixed costs-$ 300,000 budget, $ 310,000 actual. Pre-pare a responsibility report for the Water Division.

BE21- 8 For the year ending December 31, 2007, Nathan Company accumulates the following data for the Plastics Division which it operates as an investment center: contribution margin-$ 700,000 budget, $ 715,000 actual; controllable fixed costs- $ 300,000 budget, $ 305,000 actual. Average operating assets for the year were $ 2,000,000. Prepare a responsibility report for the Plastics Division beginning with contribution margin.

BE21- 10 Data for the investment centers for Stahl Company are given in BE21- 9. The centers expect the following changes in the next year: ( I) increase sales 15%; ( II) decrease costs $ 200,000; ( III) decrease average operating assets $ 400,000. Compute the expected return on investment ( ROI) for each center. Assume center I has a contribution margin percentage of 80%.

BE21- 11 Wasson, Inc. reports the following financial information. Average operating assets $ 3,000,000 Controllable margin $ 600,000 Minimum rate of return 9% Compute the return on investment and the residual income.

BE21- 12 Presented below is information related to the Santa Clara Division of Cut Wood, Inc. Contribution margin $ 1,200,000 Controllable margin $ 800,000 Average operating assets $ 3,200,000 Minimum rate of return 16% Compute the Santa Clara's return on investment and residual income.

P21- 4A Korene Manufacturing Inc. operates the Home Appliance Division as a profit center. Operating data for this division for the year ended December 31, 2007, are shown below.

Difference
Budget from Budget
Sales $ 2,400,000 $ 80,000 U
Cost of goods sold Variable 1,200,000 47,000 U
Controllable fixed 200,000 10,000 F
Selling and administrative Variable 240,000 8,000 F
Controllable fixed 60,000 6,000 U
Noncontrollable fixed costs 50,000 2,000 U

In addition, Korene Manufacturing incurs $ 150,000 of indirect fixed costs that were bud-geted at $ 155,000. Twenty percent (20%) of these costs are allocated to the Home Appliance Division. None of these costs are controllable by the division manager.

Instructions
( a) Prepare a responsibility report for the Home Appliance Division ( a profit center) for the year.
( b) Comment on the manager's performance in controlling revenues and costs.
( c) Identify any costs excluded from the responsibility report and explain why they were excluded