Budget reports compare actual results with planned objectives

Chapter 22 Homework

Due Week 8 and worth 10 points

Directions: Answer the following four questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your homework assignment using the homework assignment link in the course shell.

E22-1

Mike Trusler has prepared the following list of statements about budgetary control.

1. Budget reports compare actual results with planned objectives.

2. All budget reports are prepared on a weekly basis.

3. Management uses budget reports to analyze differences between actual and planned results and determine their causes.

4. As a result of analyzing budget reports, management may either take corrective action or modify future plans.

5. Budgetary control works best when a company has an informal reporting system.

6. The primary recipients of the sales report are the sales manager and the vice president of production.

7. The primary recipient of the scrap report is the production manager.

8. A static budget is a projection of budget data at one level of activity.

9. Top management’s reaction to unfavorable differences is not influenced by the materiality of the difference.

10. A static budget is not appropriate in evaluating a manager’s effectiveness in controlling costs unless the actual activity level approximates the static budget activity level or the behavior of the costs is fixed.

Instructions:

Identify each statement as true or false. If false, indicate how to correct the statement.

E22-2

Crede Company budgeted selling expenses of $30,000 in January, $35,000 in February, and $40,000 in March. Actual selling expenses were $31,200 in January, $34,525 in February, and $46,000 in March.

Instructions:

(a) Prepare a selling expense report that compares budgeted and actual amounts by month and for the year to date.

(b) What is the purpose of the report prepared in “a”, and who would be the primary recipient?

(c) What would be the likely result of management’s analysis of the report?

E22-14

The Mixing Department manager of Malone Company is able to control all overhead costs except rent, property taxes, and salaries. Budgeted monthly overhead costs for the Mixing Department, in alphabetical order, are:

Indirect labor

$12,000

Property taxes

$1,000

Indirect materials

7,700

Rent

1,800

Lubricants

1,675

Salaries

10,000

Maintenance

3,500

Utilities

5,000

Actual costs incurred for January 2014 are indirect labor $12,250; indirect materials $10,200; lubricants $1,650; maintenance $3,500; property taxes $1,100; rent $1,800; salaries $10,000; and utilities $6,400.

Instructions:

(a) Prepare a responsibility report for January 2014.

(b) What would be the likely result of management’s analysis of the report?

E22-17

The West Division of Nieto Company reported the following data for the current year.

Sales

$3,000,000

Variable costs

1,980,000

Controllable fixed costs

600,000

Average operating assets

5,000,000

Top management is unhappy with the investment center’s return on investment (ROI). It asks the manager of the West Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action.

1. Increase sales by $320,000 with no change in the contribution margin percentage.

2. Reduce variable costs by $150,000.

3. Reduce average operating assets by 4%.

Instructions:

(a) Compute the return on investment (ROI) for the current year.

(b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round to one decimal.)