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STUDENT SOLUTIONS MANUAL
CHAPTER 8: STRATEGY AND THE MASTER BUDGET
EXERCISES
8-32 Behavioral Co !i"era#io ! (15 Minutes)
There are at least two issues here. One is the failure to take advantage of all thecash discount included in the sales term. (In this regard, see E ercise !"#$.) Theother is the constant occurrence of rush orders, last"minute changes, and other o%erating emergencies that re&uire the %urchasing de%artment to do last minute%urchases.
'anet needs to ensure that the ccounting e%artment records all %urchasesat the net %rice whenever a %urchase is made with cash discounts included in thesales terms. n* additional amount that the firm has to %a* +ecause of the failureto make the %a*ment within the %a*ment terms should +e charged to the financede%artment as a loss and not treated as an ad ustment to the cost of %urchase.
The firm needs to +e ver* clear in its o%erating %rocedures a+out the minimumamount of time re&uired for %urchases. n* additional ac&uisition cost +ecause of rush orders, last"minute changes, or o%erating emergencies should +e +orne +*the de%artment making the re&uest.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-1 ©The McGraw-Hill Companies, 2008
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STUDENT SOLUTIONS MANUAL
8-3$ B%"&e#e" Ca!h Di!'%r!e(e #! (-5 minutes)
1. udgeted cash %a*ments for merchandise %urchases/
a. 0e+ruar*/-5 2133,333 4 2-5,333$5 21-3,333 4 2 3,333 )**+,
+. March/-5 21-3,333 4 2#3,333$5 2113,333 4 2!-,533 )**2,+
-. udgeted cash %a*ments for merchandise %urchases/
a. 0e+ruar*/-5 2133,333 3. ! 4 2-6,533$5 21-3,333 3. ! 4 2!!,-33 )**2,.
+. March/-5 21-3,333 3. ! 4 2- ,633$5 2113,333 3. ! 4 2!3,!53 )** ,2+
#. The financial cost of not taking advantage of the earl*"%a*ment discount can +ea%%ro imated +* the following formula/
O%%ortunit* cost ( ) 4 7discount 8(1 " discount )9 7#:58no. of e tra da*s allowed if discount is not taken9
4 73.3-8(1 " 3.3-)9 7#:58-39 4 3.3-363! 1!.-5 4 3./2+0asicall*, if *ou choose not to take the earl*"%a*ment discount, *ou are giving u%
a - discount (on the net amount) in return for an e tra -3 da*s in which to %a*.There are 1!.-5 (#:58-3) -3"da* %eriods in a *ear. ;ote that in the first term of this formula we divide the - discount rate +* ! (1 " - ) +ecause, in effect,*ou are %a*ing - to dela* for -3 da*s %a*ing ! of the total +ill. <o, the%ercentage rate *ou are %a*ing in this case is reall* -.363! of the net bill (the+ill without financing cost). =egardless of the technicalities here, students shouldunderstand that the o%%ortunit* cost of not taking advantage of the earl*"%a*ment (cash) discount can +e ver* significant, as is the case here. 0or thisreason, firms record %urchases at net cost and an* discounts lost as intereste %ense.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-2 ©The McGraw-Hill Companies, 2008
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STUDENT SOLUTIONS MANUAL
8-31 Pro"% #io a " (a#erial! %r ha!e! '%"&e#! (-3 minutes)
>roduction udget/-nd ?uarter #rd ?uarter
udgeted sales #!,333 #6,333esired ending inventor* (13 ) @ #,633 @ 6,!33
Total units needed 61,633 #!,!33eginning inventor* A #,!33 A #,633
Total units to %roduce 3.,1 #5,633
udgeted >urchases of irect Materials for the <econd &uarter/
-nd ?uarter #rd ?uarter udgeted %roduction #$,:33 #5,633irect materials %er unit # #irect materials needed in %roduction 11-,!33 13:,-33esired ending inventor* of direct materials
(-3 of 13:,-33) @ -1,-63Total direct materials needed 1#6,363
eginning inventor* of M (-3 of 11-,!33) A --,5:3udgeted %urchases of direct materials (l+s.) ***,$8
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8- ©The McGraw-Hill Companies 2008
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STUDENT SOLUTIONS MANUAL
8-38 Pro"% #io a " (a#erial! '%"&e#!-- ro e!! o!#i & (-3 minutes)
1. udgeted >roduction (B>C#3)/ Dnits
udgeted sales 6!3,333udgeted finished goods ending inventor* ('une #3, -33!) @ 53,333
Total num+er of units needed 5#3,333Cess/ udgeted finished goods +eginning inventor* A !3,333
udgeted %roduction (units) $+ ,
-. Dnits of B>C#3 to <tart into >roduction/
udgeted %roduction (from (1) a+ove) 653,333udgeted I> ending inventor* ('une #3, -33!) @ -3,333
Total num+er of units needed 6$3,333Cess/ udgeted I> +eginning inventor* ('ul* 1, -33$) A 13,333Total units of B>C#3 to start into %roduction $1 ,
#. =aw Materials >urchases udget/
Dnits of B>C#3 to start into %roduction (from (-) a+ove) 6:3,333Dnits of raw materials needed %er unit of B>C#3 -Total raw materials needed for %roduction -3,333
udgeted raw materials ending inventor* ('une #3, -33!) @ 53,333Total num+er of units of raw materials needed $3,333
udgeted raw materials +eginning inventor* ('ul* 1, -33$) A 63,333Total units of raw materials that must +e %urchased 43 ,
6. hile the timing of the addition of materials would affect the calculation for num+er of e&uivalent units %roduced, num+er of e&uivalent units in the ending I>inventor*, and the raw materials cost %er e&uivalent unit, it will have no im%act onthe +udgeted %urchases of materials for the %eriod.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-! ©The McGraw-Hill Companies, 2008
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STUDENT SOLUTIONS MANUAL
8-$ Ca!h '%"&e# (13"15 minutes)
Fash vaila+leFash +alance, +eginning 2 13,333Fash collections from customers @ 153,333Total cash availa+le 21:3,333
Fash is+ursementsirect materials %urchases 2 -5,333
O%erating e %enses 253,333Cess/ e%reciation e %enses " -3,333 #3,333>a*roll $5,333Income ta es :,333Machiner* %urchase @ #3,333Total cash dis+ursements %rior to financing 21::,333
0inancing/Fash e cess (shortage) +efore financing (2 :,333)Minimum cash +alance desired " -3,3330inancing need )21,
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-" ©The McGraw-Hill Companies 2008
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STUDENT SOLUTIONS MANUAL
8-$2 Ca!h B%"&e#i &: No#-5or-Pro5i# Co #e6# (#3 minutes)
1. GEndowment fund/H a gift (contri+ution) whose %rinci%al must +e maintained +ut whoseincome ma* +e e %ended. ( ou might use the e am%le of an Gendowed %rofessorshi%Has an e am%le.)
-.Fash udget for Tri"Fount* <ocial <ervice genc*
-33$(in thousands)
?uarters I II III IJ ear
Fash alance, +eginning 211 $8 $8 $8 211=ecei%ts/ Krants 2!3 2$3 $75 $75 2#33 Fontracts $20 $20 $20 $20 2!3
Mental Lealth Income 2-3 $25 $30 $30 2135 Fharita+le donations 2-53 $350 2-33 2633 $1,200 Total Fash vaila+le $381 26$# 2### $533 $1,696 Cess/ is+ursements/ <alaries and enefits $335 2#6- $342 $346 21,#:5 Office e %enses 2$3 $65 2$1 253 2-5: E&ui%ment %urchases maintenance 2- 26 2: $5 21$ <%ecific assistance 2-3 215 21! $20 2$# Total dis+ursements $427 $426 $437 $421 $1,711E cess (deficienc*) of cash availa+le
over dis+ursements (26: ) $47 ($104) 211- ($15 )0inancing/
orrow from endowment fund $54 $0 211- $0 $166 =e%a*ments $0 (2# ) $0 ($104 ) ($143 ) Total financing effects $54 ($39 ) $112 ($104 ) $23Fash alance, ending $8 $8 $8 $8 $8
#. 2-#,333.
6. It is %ro+a+le that +oth donations and re&uests for services are unevenl* distri+utedover the *ear. The agenc* ma* want to increase re&uests for donations and seekadditional grants.
5. ;o. ssuming there is careful fiscal management, +orrowing onl* occurs whennecessar*.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-# ©The McGraw-Hill Companies, 2008
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STUDENT SOLUTIONS MANUAL
8-$$ A o% #! Re eiva'le Colle #io ! a " Se !i#ivi#7 A al7!i! (65 minutes)
Original ssum%tions8 ata/ ctual credit sales for March 21-3,333 ctual credit sales for %ril 2153,333Estimated credit sales for Ma* 2-33,333Estimated collections in month of sale -5Estimated collections in first month following month of sale :3Estimated collections in the second month after month of sale 13Estimated %rovision for +ad de+ts in month of sale 5
1. Estimated cash recei%ts from collections in Ma*/ Follection from sales in March (3.13 21-3,333) 21-,333
Follection from sales in %ril (3.:3 2153,333) 2 3,333Follection from sales in Ma* (3.-5 2-33,333) 253,333
Total estimated cash collections in Ma* )*+2,
-. Gross accounts receiva+le, Ma* #1 st/ 0rom credit sales made in %ril (3.15 2153,333) 2--,533
0rom credit sales made in Ma* (3.$5 2-33,333) 2153,333Estimated gross accounts receiva+le, Ma* #1 st )*.2,+
#. ;et accounts receiva+le, Ma* #1 st/ Kross accounts receiva+le, Ma* #1 st 21$-,533
Cess/ llowance for uncollecti+le accounts/0rom credit sales made in %ril 2$,5330rom credit sales made in Ma* 213,333
;et accounts receiva+le, Ma* #1 st )*++,
6. =evised data8assum%tions/ ctual credit sales for March 21-3,333 ctual credit sales for %ril 2153,333Estimated credit sales for Ma* 2-33,333Estimated collections in month of sale :3Estimated collections in first month following month of sale -5Estimated collections in the second month after month of sale 13Estimated %rovision for +ad de+ts in month of sale 5
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-$ ©The McGraw-Hill Companies 2008
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STUDENT SOLUTIONS MANUAL
8-$$ (Fontinued)
a. Estimated cash recei%ts from collections in Ma*/Follection from sales in March (3.13 21-3,333) 21-,333Follection from sales in %ril (3.-5 2153,333) 2#$,533Follection from sales in Ma* (3.:3 2-33,333) 21-3,333Total cash collections in Ma* )*14,+
+. Gross accounts receiva+le, Ma* #1st/0rom credit sales made in %ril (3.15 2153,333) 2--,5330rom credit sales made in Ma* (3.63 2-33,333) 2!3,333Kross accounts receiva+le, Ma* #1st )* 2,+
Note to Student / n E cel s%readsheet solution file is em+edded in this document.ou can o%en the s%readsheet Go+ ectH that follows +* doing the following/
1. =ight click an*where in the worksheet area +elow.-. <elect Gworksheet o+ ectH and then select GO%en.H#. To return to the ord document, select G0ileH and then GFlose and return
to...H while *ou are in the s%readsheet mode. The screen should thenreturn *ou to the ord document.
5. The %rinci%al +enefit is the accelerated recei%t of cash, which the com%an* can%otentiall* em%lo* to %a* down de+t, reduce +orrowing, invest, etc. >rinci%alcosts would relate to whatever %rograms are needed to secure the acceleratedcollection of cash. These costs could include %ersonal, travel, mailings,tele%hone, incentive %rograms, and costs related to customer relations.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-8 ©The McGraw-Hill Companies, 2008
I 3%# Da#a
ctual credit sales for March 21-3,333 ctual credit sales for %ril 2153,333Estimated credit sales for Ma* 2-33,333
Estimated collections in month of sale -5Estimated collections in first month following month o :3Estimated collections in the second month after mont 13
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STUDENT SOLUTIONS MANUAL
8-$1 B%"&e#i & Ca!h Re ei #!: Ca!h Di! o% #! Allo e" o Re eiva'le! (#3Minutes)
*/ reakdown of Fash8<ales ata mount ank Fredit"Fard <ales'une 2:3,333 Fash sales 63'ul* 2!3,333 Fredit cards :3
ugust 2 3,333<e%tem+er 2 :,333 ank charges #Octo+er 2!!,333Fredit sales/ Follection of Fredit <ales
Furrent month -3<ales reakdown and Terms 1st month 53Fash and +ank credit card sales -5 -nd month 15Fredit sales $5 #rd month 1-Terms 18eom, n865 Cate charge8mo. -
<ales FashSe #e('er Total >aid Follected =ecei%tsFash sales 2 :,333 -5 63 2 ,:33
ank credit card sales 2 :,333 -5 :3 $ 21#, :!Follections of 8=/ <e%tem+er credit sales 2 :,333 $5 -3 216,-5:
ugust credit sales 2 3,333 $5 53 2##,$53'ul* credit sales 2!3,333 $5 15 2 ,333'une credit sales 2:3,333 $5 1- 13- 2 5,53!
Total Fash =ecei%ts, <e%tem+er )81, 82
-. %%ro%riate accounting treatment for/
a) Bank service (collection) fees / these can +e considered an offset to gross salesand thus can +e reflected as a deduction in determining Gnet salesH (see te tE hi+it !.15). lternativel*, these amounts can +e considered Gselling e %ensesHand, as such, +e treated as an Go%erating e %ense,H (i.e., an element of G<ellingand dministrative E %ensesH on the Income <tatement).
+) Cash discounts allowed on collection of receivables / these can +e considered aGselling e %enseH and, as such, would +e included within the G<elling and
dministrativeH e %ense categor* on the Income <tatement.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-% ©The McGraw-Hill Companies 2008
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STUDENT SOLUTIONS MANUAL
8-$8 A #ivi#7-Ba!e" B%"&e#i & 9ABB (-3 Minutes)
1. udgeted Fost ctivit* Jolume river =ate Total Fost<torage 633,333 23.6 -5 2 1 $,333
=e&uisition Landling #3,333 21-.53 2 #$5,333>ick >acking !33,333 2 1.53 21,-33,333
ata Entr* !33,333 2 3.!3 2 :63,333
#3,333 2 1.-3 2 #:,333
eskto% eliver* 1-,333 2#3.33 2 #:3,333
Total udgeted Fost for the ivision )2,8 8,
-. verage num+er of cartons8deliver*
4 1,1$3,333 cartons ÷ 11,$33 deliveries 4 133 cartons8deliver*
Total num+er of cartons +udgeted for deliver* in 'anuar* -33$/
1-,333 deliveries 133 cartons8deliver* 4 1,-33,333 cartons
Fost %er carton delivered 4 2-,!3!,333 ÷ 1,-33,333 4 )2/3$
Therefore, the total +udgeted cost for the division remains the same at
)2,8 8, .
#. E %ected saving in costsN'anuar* -33$/
=e&uisition Landling 2 #$5,333
ata Entr*/ num+er of lines :63,333ata Entr*/ num+er of re&uisitions #:,333
E %ected Fost <avings, 'anuar* -33$ 4 )*, +*,
If the firm uses a single cost"rate s*stem +ased on the num+er of cartonsdelivered, the firm will not +e a+le to estimate the savings without s%ecialefforts to gather additional information.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-10 ©The McGraw-Hill Companies, 2008
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STUDENT SOLUTIONS MANUAL
8-+ Ca!h '%"&e# (#3 minutes)
1. Total credit sales in ;ovem+er 2-63,333>ercentage collecti+le 5Total amount collecti+le from credit sales in ;ovem+er 2--!,333>ercentage collected in the month following month of sales 63
udgeted collections in ecem+er from ;ov. credit sales ) 4*,2
-. Fash sales in 'anuar* 2 :3,333Follections from credit sales in 'anuar*/
Total collecti+le from credit sales21!3,333 5 4 21$1,333
>ercentage to +e collected in 'anuar* :3 213-,:33Follections from credit sales in ecem+er/
Total collecti+le from credit sales2#:3,333 5 4 2#6-,333
>ercentage to +e collected in 'anuar* 63 1#:,!33udgeted total cash recei%ts in 'anuar* )244,$
#. Total inventor* %urchases in ;ovem+er/0or ;ovem+er sales/ 2#-3,333 3.# B 3.: 4 2 5$,:330or ecem+er sales/ 26:3,333 3.$ B 3.: 4 1 #,-33 2-53,!33
>ercentage of ;ov. %urchases to +e %aid in ecem+er $5>a*ment in ecem+er for %urchases in ;ovem+er 21!!,133
udgeted %urchases in ecem+er/0or ecem+er sales/ 26:3,333 3.# B 3.: 4 2 !-,!330or 'anuar* sales/ 2-63,333 3.$ B 3.: 4 133,!33 21!#,:33
>ercentage of ec. %urchases to +e %aid in ecem+er -5>a*ment in ecem+er for %urchases in ecem+er 265, 33udgeted %a*ment in ecem+er for inventor* %urchases )23$,
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-11 ©The McGraw-Hill Companies 2008
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STUDENT SOLUTIONS MANUAL
8-+2 B%"&e#ar7 Pre!!%re a " E#hi ! 92 -2+ (i %#e!
1. The use of alternative accounting methods to mani%ulate re%orted earnings is
%rofessionall* unethical +ecause it violates the <tandards contained in the IM PsStatement of Ethical rofessional ractice (see/ www.imanet.org). TheCo( e#e e !#a "ar" is violated +ecause of failure to %erform duties inaccordance with relevant accounting (technical) standards. It can %ro+a+l* +eargued that the com%etence standard is also violated +ecause the accountant isnot %roviding information that is accurate. The I #e&ri#7 !#a "ar" is violated+ecause the underl*ing activit* would discredit the %rofession. The Cre"i'ili#7!#a "ar" is violated +ecause of failure to communicate information fairl* ando+ ectivel*.
-. es, costs related to revenue should +e e %ensed in the %eriod in which therevenue is recogniQed (Gmatching %rinci%leH). >erisha+le su%%lies are %urchasedfor use in the current %eriod, will not %rovide +enefits in future %eriods, andshould therefore +e matched against revenue recogniQed in the current %eriod. Inshort, the accounting treatment for su%%lies was not in accordance with generall*acce%ted accounting %rinci%les (K >). ;ote that similar issues, +ut on ane tremel* large +asis, occurred at orldFom and at Klo+al Frossing. In the caseof the latter, the com%an* was engaging simultaneousl* in contracts to +u* and tosell +andwidth, treating the former as ca%italiQed e %enses and the latter asrevenue for the current accounting %eriod.
#. The actions of Kar* oods were a%%ro%riate. D%on discovering how su%%lieswere +eing accounted for, ood +rought the matter to the attention of his
immediate su%erior, KonQales. D%on learning of the arrangement with > =,ood told KonQales that the action was im%ro%erR he then re&uested that theaccounts +e corrected and the arrangement discontinued. ood clarified thesituation with a &ualified and o+ ective %eer (advisor) +efore disclosingKonQalesPs arrangement with > = to elcoPs division manager, Tom CinNKonQalesPs immediate su%erior. Fontact with levels a+ove the immediate su%erior should +e initiated onl* with the su%eriorPs knowledge, assuming the su%erior isnot involved. In this case, however, the su%erior is involved. ccording to theIM Ps statement regarding !esolution of Ethical Conduct , ood acteda%%ro%riatel* +* a%%roaching Cin without KonQalesPs knowledge and +* having aconfidential discussion with an im%artial advisor.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-12 ©The McGraw-Hill Companies, 2008
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STUDENT SOLUTIONS MANUAL
PR;B<EMS
8-+$ E#hi ! i B%"&e#i &=B%"&e#ar7 Sla > (63 minutes)1& a. The reasons that Marge tkins and >ete Kranger use bud"etar# slack include
the following/
These em%lo*ees are hedging against the une %ected (i.e., the* use slack todeal with or reduce uncertaint* and risk).Bud"etar# slack allows em%lo*ees to Glook good,H (i.e., to e ceede %ectations and8or show consistent %erformance). This is %articularl*im%ortant when %erformance is evaluated on the +asis of actual versus+udgeted results.Em%lo*ees who are a+le to +lend %ersonal and organiQational goals through+udgetar* slack and show good %erformance generall* are rewarded withhigher salaries, %romotions, and +onuses.
* G%adding the +udget,H the manager is more likel* to get what he8sheactuall* needs in terms of resources for the u%coming %eriod.
+. The use of bud"etar# slack can adversel* affect tkins and Kranger +*/
limiting the usefulness of the +udget to motivate their em%lo*ees to to%%erformanceaffecting their a+ilit* to identif* trou+le s%ots and take a%%ro%riate correctiveaction
reducing their credi+ilit* in the e*es of managementreducing the a+ilit* of to% management to effectivel* allocate resources toorganiQational su+units on the +asis of actual economic %erformance. 0or e am%le, the use of bud"etar# slack ma* affect management decision"making, as the +udgets will show lower contri+ution margins (lower sales,higher e %enses). ecisions regarding the %rofita+ilit* of %roduct lines,staffing levels, incentives, etc. could have an adverse effect on tkinsSs andKrangerSs de%artments.
-. The use of bud"etar# slack , %articularl* if it has a detrimental effect on the com%an*,ma* +e unethical. In assessing the situation, the IM Ps Statement of Ethical
rofessional ractice can +e consulted (www.imanet.org). This statement notes thatGa commitment to ethical %rofessional %racticeH includes/ overarching %rinci%les(e %ressions of core values) and a set of standards intended to guide actualconduct and %ractice.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-1 ©The McGraw-Hill Companies 2008
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STUDENT SOLUTIONS MANUAL
8-+$ (Fontinued)
The IM Ps overarching >=I;FI>CE< include/ Lonest*, 0airness, O+ ectivit*, and=es%onsi+ilit*. The list of <T ; = < includes the following/ Fom%etence,Fonfidentialit*, Integrit*, and Fredi+ilit*. The following <tandards could +ereferenced in con unction with the use of +udgetar* slack, as descri+ed a+ove/
Fom%etence/ >rovide decision su%%ort information and recommendations thatare accurate, clear, concise, and timel*.Integrit*/ =efrain from engaging in an* conduct that would %re udice carr*ing outduties ethicall*.Fredi+ilit*/ Fommunicate information fairl* and o+ ectivel*R disclose all relevantinformation that could reasona+l* +e e %ected to influence an intended userPsunderstanding of the re%orts, anal*ses, or recommendations.
Though not asked for in the original FM e am %ro+lem, *ou might want to discusswith students how, in %ractice, the* would deal with ethical dilemmas. In its!esolution of Ethical Conflict statement the IM %rovides the following guidance/
1& iscuss the issue with #our immediate su%ervisor e&ce%t when it a%%ears that the su%ervisor is involved' In that case, %resent the issue to the ne t level. If *ou cannot achieve a satisfactor* resolution, su+mit the issue to the ne tmanagement level. If *our immediate su%erior is the chief e ecutive officer or e&uivalent, the acce%ta+le reviewing authorit* ma* +e a grou% such as theaudit committee, e ecutive committee, +oard of directors, +oard of trustees, or owners. Fontact with levels a+ove the immediate su%erior should +e initiatedonl* with *our su%eriorPs knowledge, assuming he or she is not involved.Fommunication of such %ro+lems to authorities or individuals not em%lo*ed or engaged +* the organiQation is not considered a%%ro%riate, unless *ou+elieve there is a clear violation of the law.
2&Clarif# relevant ethical issues b# initiatin" a confidential discussion with an *Ethics Counselor or other im%artial advisor to obtain a better understandin" of
%ossible courses of action .
&Consult #our own attorne# as to le"al obli"ations and ri"hts concernin" theethical conflict .
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-1! ©The McGraw-Hill Companies, 2008
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STUDENT SOLUTIONS MANUAL
8-+1 Co( rehe !ive Pro5i# Pla ( 3 minutes)
1. <ales udget
<%ring Manufacturing Fom%an*<ales udget
-33$
F1- 5$ Total<ales (in units) 1-,333 ,333 -1,333
<elling >rice >er Dnit 2153 2--3Total <ales =evenue )*,8 , )*,48 , )3,.8 ,
-. >roduction udget
<%ring Manufacturing Fom%an*>roduction udget
-33$ F1- 5$
udgeted <ales (in units) 1-,333 ,333 @ esired finished goods ending inventor* #33 -33 Total units needed 1-,#33 ,-33 A eginning finished goods inventor* 633 153 udgeted >roduction (in units) **,4 4, +
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-1" ©The McGraw-Hill Companies 2008
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STUDENT SOLUTIONS MANUAL
8-+1 (Fontinued"1)
#. irect Materials >urchases udget
<%ring Manufacturing Fom%an*irect Materials >urchases udget (units and dollars)
-33$
F1- 5$ Total =aw Material (=M) 1/
udgeted >roduction 11, 33 ,353>ounds %er Dnit 13 !=M 1 needed for %roduction 11 ,333 $-,633 1 1,633>lus/ esired Ending Inventor* (l+s.) 6,333
Total =M 1 needed (l+s.) 1 5,633Cess/ eginning inventor* (l+s.) #,333=e&uired %urchases of =M 1 (l+s.) *42,$Fost %er %ound 2-.33
udgeted %urchases, =M 1 )38$,8
=aw Material (=M) -/udgeted >roduction 11, 33 ,353
>ounds %er Dnit 3 6=M - needed for %roduction 3 #:,-33 #:,-33>lus/ esired Ending Inventor* (l+s.) 1,333Total =M - needed (l+s.) #$,-33Cess/ eginning inventor* (l+s.) 1,533=e&uired %urchases of =M - (l+s.) 3+,.Fost %er %ound 2-.53
udgeted %urchases, =M - )84,2+
=aw Material #/udgeted >roduction 11, 33 ,353
>ounds %er Dnit - 1=M # needed for %roduction -#,!33 ,353 #-,!53>lus/ esired Ending Inventor* (l+s.) 1,533Total =M # needed (l+s.) #6,#53Cess/ eginning inventor* (l+s.) 1,333=e&uired %urchases of =M # (l+s.) 33,3+Fost %er %ound 23.53
udgeted %urchases, =M # )*1,1.+
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-1# ©The McGraw-Hill Companies, 2008
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STUDENT SOLUTIONS MANUAL
8-+1 (Fontinued"-)
6. irect Manufacturing Ca+or udget
<%ring Manufacturing Fom%an*irect Ca+or udget
-33$
F1- 5$ Totaludgeted %roduction 11, 33 ,353irect la+or hours %er unit - #
Total direct la+or hours needed -#,!33 -$,153 53, 53Lourl* wage rate 2-5.33
udgeted direct la+or costs )*,2.3,.+
5. 0actor* Overhead udget
<%ring Manufacturing Fom%an*0actor* Overhead udget
-33$
Jaria+le 0actor* Overhead/Indirect materials 213,333Miscellaneous su%%lies and tools 5,333Indirect la+or 63,333>a*roll ta es and fringe +enefits -53,333Maintenance costs 13,3!3Leat, light, and %ower 11,333 2#-:,3!3
0i ed 0actor* Overhead/
<u%ervision 21-3,333Maintenance costs -3,333Leat, light, and %ower 6#,6-3Total Fash 0i ed 0actor* Overhead 21!#,6-3
e%reciation $1,##3 2-56,$53
Total udgeted 0actor* Overhead )+8 ,83
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-1$ ©The McGraw-Hill Companies 2008
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STUDENT SOLUTIONS MANUAL
8-+1 (Fontinued"#)
:. udgeted Fost of Koods <old
<%ring Manufacturing Fom%an*Ending 0inished Koods Inventor* and udgeted FK<
-33$
F1- 5$ Total<ales volume 1-,333 ,333 -1,333Fost %er unit (<chedule 1 and -) 2 #.!3 21#5.$3Fost of goods sold 21,1-5,:33 21,--1,#33 )2,3$1,4
0inished goods ending inventor* #33 -33Fost %er unit (<chedule 1 and -) 2 #.!3 21#5.$3udgeted ending inventories 2-!,163 2-$,163 )++,28
<chedule 1/ Fost %er Dnit"">roduct F1-/ In%uts Fost
Fost Element Dnit In%ut Fost ?uantit* >er Dnit=M"1 2-.33 13 2-3.33=M"# 23.53 - 21.33
irect la+or 2-5.33 - 253.33Jaria+le factor* OL (2#-:,3!3853, 53) 2:.63 - 21-.!30i ed factor* OL (2-56,$53853, 53) 25.33 - 213.33
Manufacturing cost %er unit )43/8
<chedule -/ Fost %er Dnit"">roduct 5$/ In%uts Fost
Fost Element Dnit In%ut Fost ?uantit* >er Dnit=M"1 2-.33 ! 21:.33=M"- 2-.53 6 213.33=M"# 23.53 1 23.53
irect la+or 2-5.33 # 2$5.33Jaria+le factor* OL (2#-:,3!3853, 53) 2:.63 # 21 .-30i ed factor* OL (2-56,$53853, 53) 25.33 # 215.33
Manufacturing cost %er unit )*3+/.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-18 ©The McGraw-Hill Companies, 2008
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STUDENT SOLUTIONS MANUAL
8-+1 (Fontinued"6)
$. udgeted selling and administrative e %enses/
<%ring Manufacturing Fom%an*<elling and dministrative E %ense udget
-33$
<elling E %enses/ dvertising 2:3,333<ales salaries -33,333Travel and entertainment :3,333
e%reciation 5,333 2#-5,333 dministrative e %enses/
Offices salaries 2:3,333E ecutive salaries -53,333<u%%lies 6,333
e%reciation :,333 2#-3,333Total selling and administrative e %enses )1$+,
!. udgeted Income <tatement/
<%ring Manufacturing Fom%an*udget Income <tatement
0or the ear -33$
F1- 5$ Total<ales (%art 1) 21,!33,333 21, !3,333 2#,$!3,333Fost of goods sold (%art :) 1,1-5,:33 1,--1,#33 -,#6:, 33Kross %rofit 2:$6,633 2$5!,$33 21,6##,133<elling and administrative e %enses (%art $) 2:65,333>re"ta o%erating income 2$!!,133Income ta es ( 63 ) 2#15,-63
fter"ta o%erating income )$.2,81
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-1% ©The McGraw-Hill Companies 2008
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STUDENT SOLUTIONS MANUAL
8-+1 (Fontinued"5)
Note to Student / n E cel s%readsheet solution file is em+edded in this document.ou can o%en the s%readsheet Go+ ectH that follows +* doing the following/
1. =ight click an*where in the worksheet area +elow.-. <elect G orksheet O+ ect,H then GO%en.H #. To return to the ord document, select G0ileH and then GFlose and return to...H
while *ou are in the s%readsheet mode.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-20 ©The McGraw-Hill Companies, 2008
!"5: <%ring Manufacturing Fom%an*
1. <ales udget
<%ring Manufacturing Fom%an* <ales udget
F1- 5$ Total
-33$
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STUDENT SOLUTIONS MANUAL
8-+8 Co( rehe !ive Pro5i# Pla i#h Kaizen ( 3 minutes, +ut much less if assignedin con unction with !"5: and com%leted with an E cel s%readsheet)
1. <ales udget
<%ring Manufacturing Fom%an*<ales udget
-33$
F1- 5$ Total<ales (in units) 1-,333 ,333 -1,333 <elling >rice >er Dnit 2153 2--3
Total revenue )*,8 , )*,48 , )3,.8 ,
-. >roduction udget
<%ring Manufacturing Fom%an*>roduction udget
-33$
F1- 5$udgeted <ales (in units) 1-,333 ,333
>lus/ esired finished goods ending inventor* #33 -33Total units needed
1-,#33,-33
Cess/ eginning finished goods inventor* 633 153udgeted >roduction (in units) **,4 4, +
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-21 ©The McGraw-Hill Companies 2008
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STUDENT SOLUTIONS MANUAL
8-+8 (Fontinued"-)
6. irect Manufacturing Ca+or udget
<%ring Manufacturing Fom%an*irect Ca+or udget
-33$
F1- 5$ Totaludgeted %roduction 11, 33 ,353irect la+or hours %er unit 1.5 -
Total direct la+or hours needed 1$,!53 1!,133 #5, 53Lourl* wage rate 2#3.33
udgeted direct la+or costs )*, .8,+
5. 0actor* Overhead udget
<%ring Manufacturing Fom%an*0actor* Overhead udget
-33$
Original Jaria+le OL udget/Indirect materials 213,333Miscellaneous su%%lies and tools 5,333Indirect la+or 63,333>a*roll ta es and fringe +enefits -53,333Maintenance costs 13,3!3Leat, light, and %ower 11,333Total Jaria+le 0actor* Overhead 2#-:,3!3
=eduction =ate for Jaria+le OL Fosts 13.33
Original 0i ed OL, E cluding e%reciation/<u%ervision 21-3,333Maintenance costs -3,333Leat, light, and %ower 6#,6-3
Total Fash 0i ed 0actor* Overhead 21!#,6-3e%reciation $1,##3Total Original 0i ed OL 2-56,$53
=eduction =ate for Cash 0i ed OL Fosts 4 5.33
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STUDENT SOLUTIONS MANUAL
8-+8 (Fontinued"#)
udgeted Jaria+le OL/ (2#-:,3!3 (1 " 3.13)) 4 )243,$.2udgeted 0i ed OL/
Fash Fharges 4 (21!#,6-3 (1 " 3.35)) 4 21$6,-6 e%reciation (same as last *ear) 4 2$1,##3
Total udgeted 0i ed OL 4 )2$+,+.4
:. udgeted FK< and Ending 0inished Koods Inventor* udget
<%ring Manufacturing Fom%an*Ending 0inished Koods Inventor* and udgeted FK<
-33$
F1- 5$ Total<ales volume 1-,333 ,333 -1,333Fost %er unit (<chedule 1 and -) 2!:.# 1$3 211#.#!! #Fost of goods sold 21,3#:,$33 21,3-3,533 )2, +.,2
0inished goods ending inventor* #33 -33Fost %er unit (<chedule 1 and -) 2!:.# 1$3 211#.#!! #
udgeted ending inventories 2-5, 1! 2--,:$! )$8,+41
<chedule 1/ Fost %er DnitN>roduct F1-/ In%uts Fost
Fost Element Dnit In%ut Fost ?uantit* >er Dnit=M"1 2-.33 21!.33=M"# 23.53 1.! 23. 3
irect la+or 2#3.33 1.5 265.33Jaria+le factor* OL (2- #,6$-8#5, 53) 2!.1:##6 1.5 21-.-65310i ed factor* OL (2-65,5$ 8#5, 53) 2:.!#11# 1.5 213.-6::
Manufacturing cost %er unit )81/34*.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-2! ©The McGraw-Hill Companies, 2008
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STUDENT SOLUTIONS MANUAL
8-+8 (Fontinued"6)
<chedule -/ Fost %er DnitN>roduct 5$/ In%uts Fost
Fost Element Dnit In%ut Fost ?uantit* >er Dnit=M"1 2-.33 $ 216.33=M"- 2-.53 #.: 2 .33=M"# 23.53 3.! 23.63
irect la+or 2#3.33 - 2:3.33Jaria+le factor* OL (2- #,6$-8#5, 53) 2!.1:##6 - 21:.#-::!0i ed factor* OL (2-65,5$ 8#5, 53) 2:.!#11# - 21#.::--5
Manufacturing cost %er unit )**3/38843
$. <elling and dministrative E %ense udget
<%ring Manufacturing Fom%an*<elling and dministrative E %ense udget
-33 .<elling E %enses/ dvertising 2:3,333<ales salaries -33,333Travel and entertainment :3,333
e%reciation 5,333 2#-5,333 dministrative e %enses/
Offices salaries 2:3,333E ecutive salaries -53,333<u%%lies 6,333
e%reciation :,333 2#-3,333
Total selling and administrative e %enses )1$+,
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-2" ©The McGraw-Hill Companies 2008
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STUDENT SOLUTIONS MANUAL
8-+8 (Fontinued"5)
!. udgeted Income <tatement
<%ring Manufacturing Fom%an*udget Income <tatement
0or the ear -33$
F1- 5$ Total<ales (%art 1) 21,!33,333 21, !3,333 2#,$!3,333Fost of goods sold (%art :) 1,3#:,$33 1,3-3,533 -,35$,-33Kross %rofit 2$:#,#33 2 5 ,533 21,$--,!33<elling and administrative e %enses (%art $) 2:65,333>re"ta o%erating income 21,3$$,!33Income ta es ( 63 ) 26#1,1-3
fter"ta o%erating income )1$1,18
A ! er!:
1. The +udgeted after"ta o%erating income with UaiQen is )1$1,18 .
-. The immediate +enefit is an increase of 21$#,!-3 in o%erating income, or #$ from26$-,!:3.
The firm is also likel* +enefit in the long"run from the reductions in materials, la+or hours, and factor* overhead re&uired in %roduction. ecreases in consum%tion of manufacturing elements reduce wear and tear of e&ui%ment and other facilities andlessens the need for additional ca%ital investments8re%lacements.
Note to Student / n E cel s%readsheet solution file is em+edded in this document.ou can o%en this s%readsheet Go+ ectH that follows +* doing the following/
1. =ight click an*where in the worksheet area +elow.-. <elect G orksheet O+ ect,H then GO%en.H#. To return to the ord document, select G0ileH and then GFlose and return to...H
while *ou are in the s%readsheet mode.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-2# ©The McGraw-Hill Companies, 2008
!"5! <%ring Manufacturing Fom%an*
1. udgeted <ales (units)/
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STUDENT SOLUTIONS MANUAL
8-1 Sale! '%"&e# a " ro-5or(a 5i a ial !#a#e(e #! ($5 minutes)
1.Original udget ata
<ales (units)/
eginning inventor* of finished goods ( 818-33$) ,#33
Estimated %roduction for the -33$"! fiscal *ear 1:-,333
Dnits availa+le for sale 1$1,#33
>lanned ending finished goods inventor* (!8#18-33!) #,#33
>ro ected unit sales, -33$"! fiscal *ear 1:!,333
<elling %rice8unit/
a. +. =evised sales volume""units and dollars/
<ales in units in the original +udget (see a+ove) 1:!,333
Increase in units of %roduction (1$3,333 " 1:-,333)V @ !,333=evised total salesNunits *.1,
<elling %rice %er unit (see a+ove) 2 1!:
=evised %ro ected dollar"volume of net sales )32,.31,
V ith no change in the ending finished goods inventor* (#,#33 units) the increase in%roduction is a result of the e %ected increase in sales.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-2$ ©The McGraw-Hill Companies 2008
21!:41:!,333
32#1,-6!,33 4
<alesDnit>ro ected
<alesof )ollars>ro ected 4>rice8Dnit<elling
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STUDENT SOLUTIONS MANUAL
8-1 (Fontinued"1)
-. Molid Fom%an*>ro"0orma <tatement of Fost of Koods <old (=evised)
0or the ear Ending ugust #1, -33!
irect materials/
Materials inventor*, 8183$ 2 1,#:3,333
Materials %urchases 1 15,5$:,333
Materials availa+le for use 21:, #:,333
Materials inventor*, !8#183! - 1,$3 ,633
irect Materials used 215,--:,:33
irect la+or # 1,-15,-33
0actor* overhead/
Indirect material 6 2 1,5--,::3
Keneral factor* overhead 5 #,#-3,333 6,!6-,::3
Fost of goods manufactured 2-1,-!6,6:3
>lus/ 0inished goods inventor*, 8183$ (given) 1,1: ,333
Fost of goods availa+le for sale 2--,65#,6:3Cess/ 0inished goods inventor*, !8#183! : 61#,1:
Fost of goods sold ) 22, $ ,24*
1<u%%orting Falculations (units re%resent Ge&uivalent units of out%utH)/
#$,533 units 2!!.33V 4 2 #,#33,333
65,333 unitsVV 2!!.33 4 #, :3,333
3,333 units 2 -.63VVV4 !,#1:,333
215,5$:,333
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-28 ©The McGraw-Hill Companies, 2008
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STUDENT SOLUTIONS MANUAL
8-1 (Fontinued"-)
V2#,#33,3338#$,533 units 4 2!!.33
VV esired ending inventor* of materials 1!,533Materials needed for %roduction this *ear @ 1$3,333Total materials needed 1!!,533
eginning inventor* A 1:,333Total materials %urchases for the *ear 1$-,533Cess/ Materials %urchased in the 1 st &uarter A #$,533Materials *et to +e %urchased during the *ear 1#5,333;um+er of remaining &uarters W #Materials to +e %urchased in each remaining &uarter 65,333
VVV2!!.33 1.35 4 2 -.63-
1!,533 units 2 -.63 4 21,$3 ,633# irect la+or cost
6 Indirect material/215,--:,:33 3.13 4 21,5--,::3
5 Keneral factor* overhead/Jaria+le/ 21,:-3,333 (1$3,333units81:-,333units) 4 21,$33,3330i ed 2#,-63,333 18- 4 1,:-3,333
Total 2#,#-3,333: verage manufacturing cost8unit, -33$"!/
2-1,-!6,6:3 81$3,333 units 4 21-5.-3-$ Ending finished goods inventor* (units) #,#33 Fost of ending finished goods inventor* (0I0O +asis) 2 61#,1:
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-2% ©The McGraw-Hill Companies 2008
21,-15,-33
-5,-33 4.3!units1$3,333
units65,333 21,1 3,333
21,1 3,333 4units1:-,333units1$3,333 21,1#6,333
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STUDENT SOLUTIONS MANUAL
8-1 (Fontinued"#)
#.a. <avings in working ca%ital from eliminating ending inventor*/
0inished goods 2 61#,1:irect materials 2 -.63 (1!,533 A 133) 4 1,$33,1:3
Total savings 2-,11#,#-
The firm can reduce the need for working ca%ital +* 2-,11#,#- . The final netsavings de%ends on the cost of ca%ital of the firm. t 13 , the com%an* savesfinancing costs of over 2-33,333 %er *ear. The firm can save more than 2-11,###%er *ear if the cost of ca%ital e ceeds 13 . ;ote that this estimate refers tofinancing (cost"of"ca%ital"related) costs, not o%erating costs.
+. es. Dnder the assum%tion that the com%an*Ps cost of ca%ital is 13 , the economicsavings would re%resent a+out 6 of its current %re"ta o%erating income figure, asshown +elow. ;ote that these savings %ut the com%an* in an im%roved economic%osition, although the formal accounting statements might not reflect this. s such,this gives the instructor the o%%ortunit* to discuss with students the notion of GEconomic Jalue ddedH (EJ X) as alternative financial %erformance indicator toconventional accounting income statements.
Molid Fom%an*>ro"0orma <tatement Income <tatement
0or the ear Ending ugust #1, -33!
;et sales (%art 1+ a+ove) 2#-,$#:,333Fost of goods sold (%art - a+ove) --,363,- 1Kross %rofit 213,: 5,$3O%erating e %enses (givenNsee te t)/
Marketing 2#,-33,333Keneral and administrative -,-33,333 5,633,333
Income from o%erations +efore income ta es 2 5,- 5,$3
2-11,###825,- 5,$3 4 6
c. In addition to financial terms, the firm needs to consider carefull*, among other items/
ade&uac* of the firmSs e&ui%ment to su%%ort the new s*stem%roficienc* of the firmSs accounting information s*stem to handle the new s*stemsu%%ort of vendorsacce%tance of factor* managers and %roduction workers
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STUDENT SOLUTIONS MANUAL
8-12 B%"&e#! 5or a Servi e ?ir( (53 Minutes)
1. The annual cash +udget is %resented on the ne t %age.
-. O%erating %ro+lems that Tri%le"0 Lealth Flu+ could e %erience include/
+he cash contribution from lessons and classes will decrease because the %ro,ected wa"e increase for lesson and class em%lo#ees is si"nificantl# "reater than the %ro,ected increases in revenues (i'e'- in additional volume) . Cast *ear,the cash generated from these o%erations was 2# ,333 (2-#6,333 A 21 5,333).The -33 %ro ection is onl* 21-,:$5 (2#36,-33 A 2- 1,5-5)..%eratin" e&%enses are increasin" faster than revenues from membershi% fees'Cast *ear (-33!), cash generated from regular o%erations was 2 1,3337(2#55,333 @ 2-,333) A (26:1,333 A 21 5,333)9. The -33 %ro ection is onl*
2 -,6!- 7(263-,-15 @ 2-,::$) A (2:3#, -5 A 2- 1,5-5)9. The increase in cashfrom regular o%erations is %ro ected to +e a+out 6 , whereas these revenuesare %ro ected to increase 1# .+ri%le/0 1ealth Club seems to have a cash/mana"ement %roblem . The clu+does not generate enough cash from o%erations to meet its o+ligations. It ma*not +e a+le to meet e %enditures for da*"to"da* o%erations if the trendcontinues. To avoid cash crises, the clu+ should %re%are monthl* cash +udgetsto hel% cash management.Non/o%erational %a#ments are %ro,ected to use u% virtuall# all of the cash"enerated from o%erations' Kiven the recent declines in mortgage interest rates,management should consider refinancing this de+t to reduce this cash drain.
#. 'ane FroweSs concern with regard to the oardSs e %ansion goals is ustified. The-33 +udget %ro ections show onl* a minimal increase in the cash +alance (i.e., anincrease of onl* 2-,$5$). The total cash availa+le is well short of the 2:3,333annual additional cash needed for the land %urchase. If the oard desires to%urchase the ad oining %ro%ert*, it is going to have to consider increases in fees,refinancing e isting de+t, or other methods of financing the ac&uisition (such asadditional mortgage de+t or mem+ershi% +onds).
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STUDENT SOLUTIONS MANUAL
8-12 (continued)
T=I>CE"0 LE CTL FCDFash udget
0or the ear Ending Octo+er #1, -33
>rice-33! Krowth Increase -33
; era#i & Ca!h I 5lo !: nnual mem+ershi% fees 2#55,333 #.3 13.3 263-,-15Cesson and class fees -#6,333 #3.3 #36,-33Miscellaneous -,333 ##.## -,::$Total O%erating Fash Inflows )+4*, ). 4, 82
; era#i & Ca!h ;%#5lo !:ManagerPs salar* and +enefits 2#:,333 15.3 261,633Em%lo*ee wages and +enefits/
=egular em%lo*ees 1 3,333 15.3 -1!,533Cesson and class em%lo*ees 1 5,333 #3.3 15.3 - 1,5-5
Towels and su%%lies 1:,333 -5.3 -3,333Dtilities (heat and lights) --,333 -5.3 -$,533Miscellaneous -,333 -5.3 -,533>a*off of outstanding 8> ;8 given -,533Total O%erating Fash Outflows )$1*, )1 3,42+
Ne# ; era#i & Ca!h ?lo )*3 , )* 2,$
No -; era#i & Ca!h ;%#5lo !:>a*off of e&ui%ment %a*a+le given 215,333Mortgage %rinci%al given #3,333Mortgage interest #-,633>lanned e&ui%ment %urchases given -5,333Total ;on"O%erating Fash Outflow )* $,4
;et Fash 0low 2-,$5$eginning Fash alance (given) $,#33
B%"&e#e" E "i & Ca!h Bala e )* , +. 12#:3,333 3.3 4 2#-,633
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STUDENT SOLUTIONS MANUAL
8-1$ S#ra#e&7, ro"% # li5e- 7 le, a " a!h 5lo 92+-3 (i %#e!
1. The develo%ment sta"e is generall* characteriQed +* large cash outflows and littleor no cash inflows. E %enditures for research and develo%ment, %lant ande&ui%ment, retooling, distri+ution, and %romotion are re&uired. uring this stage, a%ro ect or com%an* normall* generates losses and ma* re&uire an infusion of outside ca%ital.
uring the "rowth sta"e , sales and revenues rise ra%idl*. <ignificant cash inflowsare generall* %resentR however, these ma* +e offset in %art or com%letel* +* cashoutflows to +uild %roduction ca%acit* and for growing inventories and receiva+les.
uring this stage, manufacturing efficiencies will im%rove contri+ution margins asvolume increases.
uring the maturit# sta"e , net cash inflows are generall* at an o%timum. >roduction
ca%acit* is in %lace and inventories and receiva+les should a%%roach a stead*state. Lowever, +* this stage, com%etitors generall* have entered the marketresulting in higher %romotional costs to maintain market share. s a conse&uence,margins ma* +egin to decline.
uring the decline sta"e , +oth sales volume and %rofits fall. Increased %ricecom%etition and the increased availa+ilit* of alternative %roducts will reducemargins. The declining volume will generall* increase the unit cost at themanufacturing level. <ometimes, significant cash inflows can +e generated from theli&uidation of inventories and other %roduct"related assets.
-. The maturit# sta"e , the %eriod of o%timum net cash inflows, is missing from urkeFom%an*Ss %roduct c*cle. The com%an* must +e a+le to generate or raise sufficientcash to su%%ort = , ca%ital investment, and %romotional costs during thedevelo%ment stages and de%end on the growth stage for significant cash inflows.This will re&uire ra%id im%rovement in manufacturing efficiencies and carefulinvestment in %roduction facilities and inventories. In addition, inventor* control ise tremel* im%ortant in order to minimiQe cash investment and reduce %otentialo+solescence.
#. The techni&ues that evin ard should consider to co%e with urke Fom%an*Sscash"management %ro+lems include/
careful, timel* cash"flow %ro ections and monitoring, matching the cash recei%tsfrom %roducts in the growth stage with the e %enditures for %roducts in thedevelo%ment stage.esta+lishing good +anking relationshi%s and fle i+le lines of credit to facilitateshort"term +orrowing needs.aggressive accounts"receiva+le management.tight control of materials %urchasing and inventor* management.im%roved cost controls.timel* decisions on inventor* li&uidation as %roduct life c*cles near colla%se.
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STUDENT SOLUTIONS MANUAL
8-11 Ca!h B%"&e# (65"53 minutes)
?uartersI II III IJ ear
Fash +alance, +eginning 2#3,333 $38,000 $30,520 $30,770 $30,000 >lus/ Fash recei%ts/
Follections from customers 6-5,333 437,000 479,480 6:3,333 1,801,480
E&ui%ment dis%osal 0 0 0 5,000 5,000 Total cash availa+le 4 ( ) $455,000 26$5,333 2513,333 $495,770 $1,836,480
Fash dis+ursements/=aw material %urchases 2-33,333 2--3,333 $250,000 2-$3,333 2 63,333>a*roll 117,000 1-3,333 115,333 122,000 6$6,333<, K, e %enses :3,333 :-,333 5!,333 :6,333 244,000 E&ui%ment %urchase 20,000 30,000 30,000 0 80,000
ond interest ( ) 0 11,250 0 11,250 22,500 ond sinking fund %a*ment 0 20,000 0 0 20,000
Income ta es -3,333 -1,333 -5,333 1!,333 84,000 Total cash dis+ursements, %rior to financing 4 ( ) $417,000 $484,250 $478,000 $485,250 $1,864,500 >lus/ Minimum cash +alance $30,000 $30,000 $30,000 $30,000 $30,000 Total cash needed 4 (F) $447,000 $514,250 $508,000 $515,250 $1,894,500
E cess cash (cash deficienc*), %rior to financing ( ) 4 ( ) " (F) $8,000 ($39,250 ) $2,000 ($19,480) $(58,020 )
0inancing/<hort"term +orrowing 23 $41,000 $0 $22,000 $63,000 =e%a*ment (%rinci%al) $0 $0 $0 $0 $0 Interest ( 1- ) $0 ($1,230 ) ($1,230 ) ($1,890) ($4,350 )
Total Effects of 0inancing 4 (E) $0 $39,770 ($1,230 ) $20,110 $58,650
Ending cash +alance 4 ( ) " ( ) @ (E) 2#!,333 $30,520 $30,770 $30,630 $30,63
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8-18 Ca!h B%"&e#i &@ Se !i#ivi#7 A al7!i! 9+ Mi %#e!
1. Estimated Fash =ecei%ts, %ril -33$/
%ril Fash =ecei%ts/
%ril cash sales (-5.3 26-5,333) 4 213:,-53
%ril credit"card sales (26-5,333 55 $ ) 4 2--:,$#!
Follection of accounts receiva+le/
0rom %ril <ales (-3 26-5,333 -5 ) 4 2-1,-53
0rom March <ales (2633,333 -3 65 ) 4 2#:,333
0rom 0e+ruar* <ales (2553,333 -3 -$ ) 4 2- ,$33
Total )$*4,438-. >urchase Order for Lardware, e ecuted 'anuar* -5th (to +e %aid %ril 13th)/
a) ;um+er of units to +e ordered/
Estimated Dnit <ales, March 4 3 >lus/ esired End. Inv., March (#3 133) 4 #3 Total ;eeds (in Dnits) 4 1-3 Cess/ eg. Inv., March (#3 3) 4 -$ =e&uired >urchases (in Dnits) 4 43
+) Fost of %urchases/
<elling %rice %er unit (e.g., 2#33,3338133 units) 4 2#,333 Estimated cost %er unit ( :5 of selling %rice) 4 21, 53 Total cost of %urchases ( # units 21, 538unit) 4 )*8*,3+
Note that the cash outflow associated with these %urchases will be 234 36 7 (75 da#s after e&ecutin" the %urchase order)'
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STUDENT SOLUTIONS MANUAL
8-18 (Fontinued"1)
#. <ensitivit* nal*sis/ Three <enarios for March <ales and the FK<
Estimated<alesNMarch FK<
O%timistic Estimate 4 133 :3
ase"line Estimate 4 3 :5
>essimistic Estimate 4 !3 $3
March
Fash <ales >a*ment
<cenario (units) FK< %ril 13th
1 133 :3
- 133 :5
# 133 $3
6 3 :3
+ 4 1+0
: 3 $3
$ !3 :3
! !3 :5
!3 $3
Ma imum 4 2-13,333
Minimum 4 2156,!33
=ange 4 255,-33
6. Monthl* cash +udgets are %re%ared +* com%anies such as Fom%Fit*, Inc., in order to%lan for their cash needs This means identif*ing when +oth e cess cash and cashshortages ma* occur. com%an* needs to know when cash shortages will occur sothat %rior arrangements can +e made with lending institutions in order to have cashavaila+le for +orrowing when the com%an* needs it. t the same time, a com%an*should +e aware of when there is e cess cash availa+le for investment or re%a*ing
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STUDENT SOLUTIONS MANUAL
loans so that %lanned usage of the e cess can +e made.
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STUDENT SOLUTIONS MANUAL
8-18 (Fontinued"-)
Sensitivit# anal#sis , one t*%e of which is illustrated in %art (#) a+ove, can +e used tohel% managers deal with uncertainties in the +udgeting %rocess. <ensitivit* anal*sisena+les managers to e amine how a +udget would change in res%onse to changesin one or more underl*ing assum%tions (such as sales volume level and FK< ). ssuch, the %rocess ena+les managers to monitor ke* assum%tions and to make timel*ad ustments to %lans. In %ractice, management might view the +ase"line outcome asthe e %ected value %rediction. It might define, su+ ectivel*, Go%timisticH andG%essimisticH values as those having a small %ro+a+ilit*, (e.g., 13 or less).
Note to Student / n E cel s%readsheet solution file for this assignment isem+edded +elow. ou can o%en the s%readsheet Go+ ectH that follows +* doingthe following/
1. =ight click an*where in the worksheet area +elow.-. <elect G orksheet O+ ect,H then GO%en.H#. To return to the ord document, select G0ileH and then GFlose and return
to...H while *ou are in the s%readsheet mode.
8-68 Cash Budgeting; Sensitivity Analysis
In utsHar'ware Har'ware So(tware)Support Total
Sales *+nits -e.enue Ser.ices -e.enue -e.enue/anuar 120 #0,000 1!0,000 "00,000
e3ruar 1 0 %0,000 1#0,000 ""0,000