14.3 Operating Budget Calculations - Others Flashcards
Which one of the following statements regarding selling and administrative budgets is most accurate?
A. Selling and administrative budgets are usually optional.
B. Selling and administrative budgets are fixed in nature.
C. Selling and administrative budgets are difficult to allocate by month and are best presented as one number for the entire year
D. Selling and administrative budgets need to be detailed in order that the key assumptions can be better understood.
D. Selling and administrative budgets need to be detailed in order that the key assumptions can be better understood.
Sales and administrative budgets are prepared after the
sales budget
A company is developing its annual budget. The company’s products are made to order and shipped immediately. The controller has information on the following accounts:
Raw materials
Direct labor
Advertising
Research and development (R&D)
Trade discounts
Factory indirect labor
Factory overhead
Selling costs
Which of the above accounts should not be included in the cost of goods sold budget?
A. Advertising, R&D, and selling costs, only.
B. Advertising and selling costs, only.
C. Advertising, R&D, trade discounts, and selling costs, only.
D. R&D and trade discounts, only.
C. Advertising, R&D, trade discounts, and selling costs, only.
The cost of goods sold budget shows all of the manufacturing costs of producing the company’s product, including raw materials, direct labor, and factory overhead (including factory indirect labor). These are all costs incurred in the factory during the production process. Cost of goods sold does not include advertising, research and development costs, trade discounts, or other types of selling costs.
A company that manufactures furniture is establishing its budget for the upcoming year. All of the following items would appear in the overhead budget except for the
A. Fringe benefits paid to the production supervisor
B. Cost of glue used to secure the attachment of the legs to the tables
C. Overtime paid to the workers who perform production scheduling
D. Freight charges paid for the delivery of raw materials to the company
D. Freight charges paid for the delivery of raw materials to the company
Included in the cost of direct materials
A manufacturer of men’s t-shirts had the following information for last year.
Number of shirts sold and produced: 125,000
Sale price per shirt: $40
Direct manufacturing: $10/shirt
Setup cost: $100/setup hour
Setup hours: 10,000
Shipping costs: $200/shipment
Number of shipments: 4,000
Administrative cost: $8/shirt
The company’s operating profit last year was
A. $1,950,000
B. $3,750,000
C. $950,000
D. $2,750,000
C. $950,000
Total income is $5,000,000. Total expenses are $4,050,000 [($10 × 125,000) + ($100 × 10,000) + ($200 × 4,000) + ($8 × 125,000)].
A company’s selling and administrative costs for the month of August, when it sold 20,000 units, were as follows.
Per unit, Total
Variable costs: $18.60, Total $372,000
Step costs: 4.25, Total 85,000
Fixed costs: 8.80, Total 176,000
Total selling and administrative costs: 31.65, Total 633,000
The variable costs represent sales commissions paid at the rate of 6.2% of sales. The step costs depend on the number of salespersons employed by the company. In August there were 17 persons on the sales force. However, two members have taken early retirement effective August 31. It is anticipated that these positions will remain vacant for several months. Total fixed costs are unchanged within a relevant range of 15,000 to 30,000 units per month. The company is planning a sales price cut of 10%, which it expects will increase sales volume to 24,000 units per month. If the company implements the sales price reduction, the total budgeted selling and administrative costs for the month of September would be
A. $759,600
B. $652,760
C. $679,760
D. $714,960
B. $652,760
If the $372,000 of variable cost is 6.2% of sales, then sales were $6,000,000. Current unit price must $300 ($6,000,000 total sales / 20,000 units). A 10% price cut will lower it to $270 ($400 x 90%), leading to total projected sales after the price cut of $6,480,000 (24,000 x $270). The sales commissions on that level of sales will be $401,760 ($6,480,000 x 6.2%). Because two salesperson will be gone in September, the step costs will be reduced to $75,000 [$85,000 x (15/17)]. Fixed costs remain at $176,000. Total anticipated S&A costs for September are therefore $652,760 ($401,760 + $75,000 + $176,000).
