Student Sol08 4ee

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 the
cash discount included in the sales term. (In this regard, see Eercise !"#$.) The
other is the constant occurrence of rush orders, last"minute changes, and other
o%erating emergencies that re&uire the %urchasing de%artment to do last minute
%urchases.
'anet needs to ensure that the (ccounting )e%artment records all %urchases
at the net %rice whenever a %urchase is made with cash discounts included in the
sales terms. (n* additional amount that the firm has to %a* +ecause of the failure
to make the %a*ment within the %a*ment terms should +e charged to the finance
de%artment as a loss and not treated as an ad,ustment to the cost of %urchase.
The firm needs to +e ver* clear in its o%erating %rocedures a+out the minimum
amount of time re&uired for %urchases. (n* additional ac&uisition cost +ecause of
rush orders, last"minute changes, or o%erating emergencies should +e +orne +*
the de%artment making the re&uest.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-1 The McGraw-Hill Companies, 2008
8-3$ B%"&e#e" Ca!h Di!'%r!e(e#! (-5 minutes)
1. .udgeted cash %a*ments for merchandise %urchases/
a. 0e+ruar*/
-51 2133,333 4 2-5,333
$51 21-3,333 4 253,333 )**+,---
+. March/
-51 21-3,333 4 2#3,333
$51 2113,333 4 2!-,533 )**2,+--
-. .udgeted cash %a*ments for merchandise %urchases/
a. 0e+ruar*/
-51 2133,333 3.5! 4 2-6,533
$51 21-3,333 3.5! 4 2!!,-33 )**2,.--
+. March/
-51 21-3,333 3.5! 4 2-5,633
$51 2113,333 3.5! 4 2!3,!53 )**-,2+-
#. The financial cost of not taking advantage of the earl*"%a*ment discount can +e
a%%roimated +* the following formula/
O%%ortunit* cost (1) 4 7discount 18(1 " discount 1)9 7#:58no. of etra
da*s allowed if discount is not taken9
4 73.3-8(1 " 3.3-)9 7#:58-39 4 3.3-363! 1!.-5 4 3./2+0
.asicall*, if *ou choose not to take the earl*"%a*ment discount, *ou are giving u%
a -1 discount (on the net amount) in return for an etra -3 da*s in which to %a*.
There are 1!.-5 (#:58-3) -3"da* %eriods in a *ear. ;ote that in the first term of
this formula we divide the -1 discount rate +* 5!1 (1 " -1) +ecause, in effect,
*ou are %a*ing -1 to dela* for -3 da*s %a*ing 5!1 of the total +ill. <o, the
%ercentage rate *ou are %a*ing in this case is reall* -.363!1 of the net bill (the
+ill without financing cost). =egardless of the technicalities here, students should
understand that the o%%ortunit* cost of not taking advantage of the earl*"
%a*ment (cash) discount can +e ver* significant, as is the case here. 0or this
reason, firms record %urchases at net cost and an* discounts lost as interest
e%ense.
8-31 Pro"%2#io a" (a#erial! 3%r2ha!e! '%"&e#! (-3 minutes)
>roduction .udget/
-nd ?uarter #rd ?uarter
.udgeted sales #!,333 #6,333
)esired ending inventor* (131) @ #,633 @ 6,!33
Total units needed 61,633 #!,!33
.eginning inventor* A #,!33 A #,633
Total units to %roduce 3.,1-- #5,633
.udgeted >urchases of )irect Materials for the <econd &uarter/
-nd ?uarter #rd ?uarter
.udgeted %roduction #$,:33 #5,633
)irect materials %er unit # #
)irect materials needed in %roduction 11-,!33 13:,-33
)esired ending inventor* of direct materials
(-31 of 13:,-33) @ -1,-63
Total direct materials needed 1#6,363
.eginning inventor* of )M (-31 of 11-,!33) A --,5:3
.udgeted %urchases of direct materials (l+s.) ***,$8-
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8- The McGraw-Hill Companies 2008
8-38 Pro"%2#io a" (a#erial! '%"&e#!--3ro2e!! 2o!#i& (-3 minutes)
1. .udgeted >roduction (B>C#3)/
Dnits
.udgeted sales 6!3,333
.udgeted finished goods ending inventor* ('une #3, -33!) @ 53,333
Total num+er of units needed 5#3,333
Cess/ .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) 653,333
.udgeted EI> ending inventor* ('une #3, -33!) @ -3,333
Total num+er of units needed 6$3,333
Cess/ .udgeted EI> +eginning inventor* ('ul* 1, -33$) A 13,333
Total 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) 6:3,333
Dnits of raw materials needed %er unit of B>C#3 -
Total raw materials needed for %roduction 5-3,333
.udgeted raw materials ending inventor* ('une #3, -33!) @ 53,333
Total num+er of units of raw materials needed 5$3,333
.udgeted raw materials +eginning inventor* ('ul* 1, -33$) A 63,333
Total units of raw materials that must +e %urchased 43-,---
6. Ehile 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 EI>
inventor*, and the raw materials cost %er e&uivalent unit, it will have no im%act on
the +udgeted %urchases of materials for the %eriod.

Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-! The McGraw-Hill Companies, 2008
8-$- Ca!h '%"&e# (13"15 minutes)
Fash (vaila+le
Fash +alance, +eginning 2 13,333
Fash collections from customers @ 153,333
Total cash availa+le 21:3,333
Fash )is+ursements
)irect materials %urchases 2 -5,333
O%erating e%enses 253,333
Cess/ )e%reciation e%enses " -3,333 #3,333
>a*roll $5,333
Income taes :,333
Machiner* %urchase @ #3,333
Total cash dis+ursements %rior to financing 21::,333
0inancing/
Fash ecess (shortage) +efore financing (2 :,333)
Minimum cash +alance desired " -3,333
0inancing need )21,---
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-" The McGraw-Hill Companies 2008
8-$2 Ca!h B%"&e#i&: No#-5or-Pro5i# Co#e6# (#3 minutes)
1. GEndowment fund/H a gift (contri+ution) whose %rinci%al must +e maintained +ut whose
income ma* +e e%ended. (Iou might use the eam%le of an Gendowed %rofessorshi%H
as an eam%le.)
-.
Fash .udget for Tri"Fount* <ocial <ervice (genc*
-33$
(in thousands)
?uarters
I II III IJ Iear
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 M maintenance 2- 26 2: $5 21$
<%ecific assistance 2-3 215 21! $20 2$#
Total dis+ursements $427 $426 $437 $421 $1,711
Ecess (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#5 ) $0 ($104 ) ($143 )
Total financing effects $54 ($39 ) $112 ($104 ) $23
Fash .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+uted
over the *ear. The agenc* ma* want to increase re&uests for donations and seek
additional grants.
5. ;o. (ssuming there is careful fiscal management, +orrowing onl* occurs when
necessar*.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-# The McGraw-Hill Companies, 2008
8-$$ A22o%#! Re2eiva'le Colle2#io! a" Se!i#ivi#7 Aal7!i! (65 minutes)
Original (ssum%tions8)ata/
(ctual credit sales for March 21-3,333
(ctual credit sales for (%ril 2153,333
Estimated credit sales for Ma* 2-33,333
Estimated collections in month of sale -51
Estimated collections in first month following month of sale :31
Estimated collections in the second month after month of sale 131
Estimated %rovision for +ad de+ts in month of sale 51
1. Estimated cash recei%ts from collections in Ma*/
Follection from sales in March (3.13 21-3,333) 21-,333
Follection from sales in (%ril (3.:3 2153,333) 253,333
Follection from sales in Ma* (3.-5 2-33,333) 253,333
Total estimated cash collections in Ma* )*+2,---
-. Gross accounts receiva+le, Ma* #1
st
/
0rom credit sales made in (%ril (3.15 2153,333) 2--,533
0rom credit sales made in Ma* (3.$5 2-33,333) 2153,333
Estimated gross accounts receiva+le, Ma* #1
st
)*.2,+--
#. ;et accounts receiva+le, Ma* #1
st
/
Kross accounts receiva+le, Ma* #1
st
21$-,533
Cess/ (llowance for uncollecti+le accounts/
0rom credit sales made in (%ril 2$,533
0rom credit sales made in Ma* 213,333
;et accounts receiva+le, Ma* #1
st
)*++,---
6. =evised data8assum%tions/
Estimated collections in month of sale :31
Estimated collections in first month following month of sale -51
Estimated collections in the second month after month of sale 131
Estimated %rovision for +ad de+ts in month of sale 51
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-$ The McGraw-Hill Companies 2008
8-$$ (Fontinued)
a. 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.-5 2153,333) 2#$,533
Follection from sales in Ma* (3.:3 2-33,333) 21-3,333
Total cash collections in Ma* )*14,+--
+. Gross accounts receiva+le, Ma* #1st/
0rom credit sales made in (%ril (3.15 2153,333) 2--,533
0rom credit sales made in Ma* (3.63 2-33,333) 2!3,333
Kross accounts receiva+le, Ma* #1st )*-2,+--
Note to Student/ (n Ecel s%readsheet solution file is em+edded in this document.
Iou 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 Eord document, select G0ileH and then GFlose and return
to...H while *ou are in the s%readsheet mode. The screen should then
return *ou to the Eord 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%al
costs would relate to whatever %rograms are needed to secure the accelerated
collection of cash. These costs could include %ersonal, travel, mailings,
tele%hone, incentive %rograms, and costs related to customer relations.
I3%# Da#a
Estimated collections in month of sale -51
Estimated collections in first month following month of sale :31
Estimated collections in the second month after month of sale131
8-$1 B%"&e#i& Ca!h Re2ei3#!: Ca!h Di!2o%#! Allo8e" o Re2eiva'le! (#3
Minutes)
*/ .reakdown of Fash8
<ales )ata (mount .ank Fredit"Fard <ales
'une 2:3,333 Fash sales 631
'ul* 2!3,333 Fredit cards :31
(ugust 253,333
<e%tem+er 25:,333 .ank charges #1
Octo+er 2!!,333
Fredit sales/ Follection of Fredit <ales
Furrent month -31
<ales .reakdown and Terms 1st month 531
Fash and +ank credit card sales -51 -nd month 151
Fredit sales $51 #rd month 1-1
Terms 18eom, n865 Cate charge8mo. -1

<ales 1 1 Fash
Se3#e('er Total 1 >aid Follected =ecei%ts
Fash sales 25:,333 -51 631 2 5,:33
.ank credit card sales 25:,333 -51 :31 5$1 21#,5:!
Follections of (8=/
<e%tem+er credit sales 25:,333 $51 -31 551 216,-5:
(ugust credit sales 253,333 $51 531 2##,$53
'ul* credit sales 2!3,333 $51 151 2 5,333
'une credit sales 2:3,333 $51 1-1 13-1 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 sales
and thus can +e reflected as a deduction in determining Gnet salesH (see tet
Ehi+it !.15). (lternativel*, these amounts can +e considered Gselling e%ensesH
and, as such, +e treated as an Go%erating e%ense,H (i.e., an element of G<elling
and (dministrative E%ensesH on the Income <tatement).
+) Cash discounts allowed on collection of receivables/ these can +e considered a
Gselling 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
8-$8 A2#ivi#7-Ba!e" B%"&e#i& 9ABB: (-3 Minutes)
1. .udgeted Fost
(ctivit* Jolume )river =ate Total Fost
<torage 633,333 23.65-5 2 15$,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 #$5,333
)ata Entr*/ num+er of lines :63,333
)ata Entr*/ num+er of re&uisitions #:,333
E%ected Fost <avings, 'anuar* -33$ 4 )*,-+*,---
If the firm uses a single cost"rate s*stem +ased on the num+er of cartons
delivered, the firm will not +e a+le to estimate the savings without s%ecial
efforts to gather additional information.
8-+- Ca!h '%"&e# (#3 minutes)
1. Total credit sales in ;ovem+er 2-63,333
>ercentage collecti+le O 551
Total amount collecti+le from credit sales in ;ovem+er 2--!,333
>ercentage collected in the month following month of sales 631
.udgeted collections in )ecem+er from ;ov. credit sales ) 4*,2--
-. Fash sales in 'anuar* 2 :3,333
Follections from credit sales in 'anuar*/
Total collecti+le from credit sales
21!3,333 551 4 21$1,333
>ercentage to +e collected in 'anuar* :31 213-,:33
Follections from credit sales in )ecem+er/
Total collecti+le from credit sales
2#:3,333 551 4 2#6-,333
>ercentage to +e collected in 'anuar* 631 1#:,!33
.udgeted total cash recei%ts in 'anuar* )244,$--
#. Total inventor* %urchases in ;ovem+er/
0or ;ovem+er sales/ 2#-3,333 3.# B 3.: 4 2 5$,:33
0or )ecem+er sales/ 26:3,333 3.$ B 3.: 4 15#,-33 2-53,!33
>ercentage of ;ov. %urchases to +e %aid in )ecem+er $51
>a*ment in )ecem+er for %urchases in ;ovem+er 21!!,133
.udgeted %urchases in )ecem+er/
0or )ecem+er sales/ 26:3,333 3.# B 3.: 4 2 !-,!33
0or 'anuar* sales/ 2-63,333 3.$ B 3.: 4 133,!33 21!#,:33
>ercentage of )ec. %urchases to +e %aid in )ecem+er -51
>a*ment in )ecem+er for %urchases in )ecem+er 265,533
.udgeted %a*ment in )ecem+er for inventor* %urchases )23$,---
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-11 The McGraw-Hill Companies 2008
8-+2 B%"&e#ar7 Pre!!%re a" E#hi2! 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(Ps
Statement of Ethical rofessional ractice (see/ www.imanet.org). The
Co(3e#e2e !#a"ar" is violated +ecause of failure to %erform duties in
accordance with relevant accounting (technical) standards. It can %ro+a+l* +e
argued that the com%etence standard is also violated +ecause the accountant is
not %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* and
o+,ectivel*.
-. Ies, costs related to revenue should +e e%ensed in the %eriod in which the
revenue is recogniQed (Gmatching %rinci%leH). >erisha+le su%%lies are %urchased
for use in the current %eriod, will not %rovide +enefits in future %eriods, and
should therefore +e matched against revenue recogniQed in the current %eriod. In
short, the accounting treatment for su%%lies was not in accordance with generall*
acce%ted accounting %rinci%les (K((>). ;ote that similar issues, +ut on an
etremel* large +asis, occurred at EorldFom and at Klo+al Frossing. In the case
of the latter, the com%an* was engaging simultaneousl* in contracts to +u* and to
sell +andwidth, treating the former as ca%italiQed e%enses and the latter as
revenue for the current accounting %eriod.
#. The actions of Kar* Eoods were a%%ro%riate. D%on discovering how su%%lies
were +eing accounted for, Eood +rought the matter to the attention of his
immediate su%erior, KonQales. D%on learning of the arrangement with >M=,
Eood told KonQales that the action was im%ro%erR he then re&uested that the
accounts +e corrected and the arrangement discontinued. Eood clarified the
situation with a &ualified and o+,ective %eer (advisor) +efore disclosing
KonQalesPs arrangement with >M= to .elcoPs division manager, Tom CinN
KonQalesPs 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 is
not involved. In this case, however, the su%erior is involved. (ccording to the
IM(Ps statement regarding !esolution of Ethical Conduct, Eood acted
a%%ro%riatel* +* a%%roaching Cin without KonQalesPs knowledge and +* having a
confidential discussion with an im%artial advisor.
PR;B<EMS
8-+$ E#hi2! i B%"&e#i&=B%"&e#ar7 Sla2> (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 to
deal with or reduce uncertaint* and risk).
Bud"etar# slack allows em%lo*ees to Glook good,H (i.e., to eceed
e%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 with
higher salaries, %romotions, and +onuses.
.* G%adding the +udget,H the manager is more likel* to get what he8she
actuall* 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%
%erformance
affecting their a+ilit* to identif* trou+le s%ots and take a%%ro%riate corrective
action
reducing their credi+ilit* in the e*es of management
reducing the a+ilit* of to% management to effectivel* allocate resources to
organiQational su+units on the +asis of actual economic %erformance. 0or
eam%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 and
KrangerSs 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 that
Ga commitment to ethical %rofessional %racticeH includes/ overarching %rinci%les
(e%ressions of core values) and a set of standards intended to guide actual
conduct and %ractice.
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 +e
referenced in con,unction with the use of +udgetar* slack, as descri+ed a+ove/
Fom%etence/ >rovide decision su%%ort information and recommendations that
are accurate, clear, concise, and timel*.
Integrit*/ =efrain from engaging in an* conduct that would %re,udice carr*ing out
duties ethicall*.
Fredi+ilit*/ Fommunicate information fairl* and o+,ectivel*R disclose all relevant
information that could reasona+l* +e e%ected to influence an intended userPs
understanding of the re%orts, anal*ses, or recommendations.
Though not asked for in the original FM( eam %ro+lem, *ou might want to discuss
with students how, in %ractice, the* would deal with ethical dilemmas. In its
!esolution of Ethical Conflict statement the IM( %rovides the following guidance/
1& $iscuss the issue with #our immediate su%ervisor e&ce%t when it a%%ears that
the su%ervisor is involved' In that case, %resent the issue to the net level. If
*ou cannot achieve a satisfactor* resolution, su+mit the issue to the net
management level. If *our immediate su%erior is the chief eecutive officer or
e&uivalent, the acce%ta+le reviewing authorit* ma* +e a grou% such as the
audit committee, eecutive committee, +oard of directors, +oard of trustees, or
owners. Fontact with levels a+ove the immediate su%erior should +e initiated
onl* with *our su%eriorPs knowledge, assuming he or she is not involved.
Fommunication of such %ro+lems to authorities or individuals not em%lo*ed or
engaged +* the organiQation is not considered a%%ro%riate, unless *ou
+elieve there is a clear violation of the law.
2&Clarif# relevant ethical issues b# initiatin" a confidential discussion with an ()*
Ethics Counselor or other im%artial advisor to obtain a better understandin" of
%ossible courses of action.
&Consult #our own attorne# as to le"al obli"ations and ri"hts concernin" the
ethical conflict.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-1! The McGraw-Hill Companies, 2008
8-+1 Co(3rehe!ive Pro5i# Pla (53 minutes)
1. <ales .udget
<%ring Manufacturing Fom%an*
<ales .udget
-33$
F1- )5$ Total
<ales (in units) 1-,333 5,333 -1,333
<elling >rice >er Dnit 2153 2--3
Total <ales =evenue )*,8--,--- )*,48-,--- )3,.8-,---
-. >roduction .udget
>roduction .udget
-33$
F1- )5$
.udgeted <ales (in units) 1-,333 5,333
@ )esired finished goods ending inventor* #33 -33
Total units needed 1-,#33 5,-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
8-+1 (Fontinued"1)
#. )irect Materials >urchases .udget
)irect Materials >urchases .udget (units and dollars)
-33$
F1- )5$ Total
=aw Material (=M) 1/
.udgeted >roduction 11,533 5,353
>ounds %er Dnit 13 !
=M 1 needed for %roduction 115,333 $-,633 151,633
>lus/ )esired Ending Inventor* (l+s.) 6,333
Total =M 1 needed (l+s.) 155,633
Cess/ .eginning inventor* (l+s.) #,333
=e&uired %urchases of =M 1 (l+s.) *42,$--
Fost %er %ound 2-.33
.udgeted %urchases, =M 1 )38$,8--
=aw Material (=M) -/
>ounds %er Dnit 3 6
=M - needed for %roduction 3 #:,-33 #:,-33
Total =M - needed (l+s.) #$,-33
Cess/ .eginning inventor* (l+s.) 1,533
=e&uired %urchases of =M - (l+s.) 3+,.--
.udgeted %urchases, =M - )84,2+-
=aw Material #/
>ounds %er Dnit - 1
=M # needed for %roduction -#,!33 5,353 #-,!53
Total =M # needed (l+s.) #6,#53
=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
8-+1 (Fontinued"-)
6. )irect Manufacturing Ca+or .udget
)irect Ca+or .udget
-33$
F1- )5$ Total
.udgeted %roduction 11,533 5,353
)irect la+or hours %er unit - #
Total direct la+or hours needed -#,!33 -$,153 53,553
Lourl* wage rate 2-5.33
.udgeted direct la+or costs )*,2.3,.+-
5. 0actor* Overhead .udget
0actor* Overhead .udget
-33$
Jaria+le 0actor* Overhead/
Indirect materials 213,333
Miscellaneous su%%lies and tools 5,333
Indirect la+or 63,333
>a*roll taes and fringe +enefits -53,333
Maintenance costs 13,3!3
Leat, light, and %ower 11,333 2#-:,3!3
0ied 0actor* Overhead/
<u%ervision 21-3,333
Maintenance costs -3,333
Leat, light, and %ower 6#,6-3
Total Fash 0ied 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
8-+1 (Fontinued"#)
:. .udgeted Fost of Koods <old
Ending 0inished Koods Inventor* and .udgeted FK<
-33$
F1- )5$ Total
<ales volume 1-,333 5,333 -1,333
Fost %er unit (<chedule 1 and -) 25#.!3 21#5.$3
Fost of goods sold 21,1-5,:33 21,--1,#33 )2,3$1,4--
0inished goods ending inventor* #33 -33
Fost %er unit (<chedule 1 and -) 25#.!3 21#5.$3
.udgeted ending inventories 2-!,163 2-$,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 - 253.33
Jaria+le factor* OL (2#-:,3!3853,553) 2:.63 - 21-.!3
0ied factor* OL (2-56,$53853,553) 25.33 - 213.33
Manufacturing cost %er unit )43/8-
<chedule -/ Fost %er Dnit"">roduct )5$/
In%uts Fost
=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$5.33
Jaria+le factor* OL (2#-:,3!3853,553) 2:.63 # 215.-3
0ied factor* OL (2-56,$53853,553) 25.33 # 215.33
Manufacturing cost %er unit )*3+/.-
8-+1 (Fontinued"6)
$. .udgeted selling and administrative e%enses/
<elling and (dministrative E%ense .udget
-33$
<elling E%enses/
(dvertising 2:3,333
<ales salaries -33,333
Travel and entertainment :3,333
)e%reciation 5,333 2#-5,333
(dministrative e%enses/
Offices salaries 2:3,333
Eecutive salaries -53,333
<u%%lies 6,333
)e%reciation :,333 2#-3,333
Total selling and administrative e%enses )1$+,---
!. .udgeted Income <tatement/
.udget Income <tatement
0or the Iear -33$
F1- )5$ Total
<ales (%art 1) 21,!33,333 21,5!3,333 2#,$!3,333
Fost of goods sold (%art :) 1,1-5,:33 1,--1,#33 -,#6:,533
Kross %rofit 2:$6,633 2$5!,$33 21,6##,133
<elling and administrative e%enses (%art $) 2:65,333
>re"ta o%erating income 2$!!,133
Income taes (T631) 2#15,-63
(fter"ta o%erating income )$.2,81-
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-1% The McGraw-Hill Companies 2008
8-+1 (Fontinued"5)
Iou can o%en the s%readsheet Go+,ectH that follows +* doing the following/
-. <elect GEorksheet O+,ect,H then GO%en.H
#. To return to the Eord document, select G0ileH and then GFlose and return to...H
while *ou are in the s%readsheet mode.
!"5: <%ring Manufacturing Fom%an*
1. <ales .udget
<ales .udget
F1- )5$ Total
-33$
8-+8 Co(3rehe!ive Pro5i# Pla 8i#h Kaizen (53 minutes, +ut much less if assigned
in con,unction with !"5: and com%leted with an Ecel s%readsheet)
1. <ales .udget
<ales .udget
-33$
F1- )5$ Total
<ales (in units) 1-,333 5,333 -1,333
<elling >rice >er Dnit 2153 2--3
Total revenue )*,8--,--- )*,48-,--- )3,.8-,---
-. >roduction .udget
>roduction .udget
-33$
F1- )5$
.udgeted <ales (in units) 1-,333 5,333
>lus/ )esired finished goods ending inventor* #33 -33
Total units needed
1-,#33
5,-33
Cess/ .eginning finished goods inventor* 633 153
.udgeted >roduction (in units) **,4-- 4,-+-
8-+8 (Fontinued"1)
#. )irect Materials >urchases .udget (units and dollars)
)irect Materials >urchases .udget (units and dollars)
-33$
F1- )5$ Total
=aw Material (=M) 1/
>ounds %er Dnit 5 $
=M 1 needed for %roduction 13$,133 :#,#53 1$3,653
Total =M 1 needed (l+s.) 1$6,653
Cess/ .eginning inventor* (l+s.) #,333
=e&uired %urchases of =M 1 (l+s.) 1$1,653
.udgeted %urchases, =M 1 )3$2,4--
=aw Material (=M) -/
>ounds %er Dnit 3 #.:
=M - needed for %roduction 3 #-,5!3 #-,5!3
Total =M - needed (l+s.) ##,5!3
=e&uired %urchases of =M - (l+s.) #-,3!3
.udgeted %urchases, =M - )8-,2--
=aw Material #/
>ounds %er Dnit 1.! 3.!
=M # needed for %roduction -1,6-3 $,-63 -!,::3
Total =M # needed (l+s.) #3,1:3
=e&uired %urchases of =M # (l+s.) -5,1:3
Fost %er %ound 23.53
.udgeted %urchases, =M # )*$,+8-
8-+8 (Fontinued"-)
6. )irect Manufacturing Ca+or .udget
)irect Ca+or .udget
-33$
F1- )5$ Total
.udgeted %roduction 11,533 5,353
)irect la+or hours %er unit 1.5 -
Total direct la+or hours needed 1$,!53 1!,133 #5,553
Lourl* wage rate 2#3.33
.udgeted direct la+or costs )*,-.8,+--
5. 0actor* Overhead .udget
0actor* Overhead .udget
-33$
Original Jaria+le OL .udget/
Indirect materials 213,333
Miscellaneous su%%lies and tools 5,333
Indirect la+or 63,333
>a*roll taes and fringe +enefits -53,333
Maintenance costs 13,3!3
Leat, light, and %ower 11,333
Total Jaria+le 0actor* Overhead 2#-:,3!3
=eduction =ate for Jaria+le OL Fosts 13.331
Original 0ied OL, Ecluding )e%reciation/
<u%ervision 21-3,333
Maintenance costs -3,333
Leat, light, and %ower 6#,6-3
Total Fash 0ied 0actor* Overhead 21!#,6-3
)e%reciation $1,##3
Total Original 0ied OL 2-56,$53
=eduction =ate for Cash 0ied OL Fosts 4 5.331
8-+8 (Fontinued"#)
.udgeted Jaria+le OL/
(2#-:,3!3 (1 " 3.13)) 4 )243,$.2
.udgeted 0ied OL/
Fash Fharges 4 (21!#,6-3 (1 " 3.35)) 4 21$6,-65
)e%reciation (same as last *ear) 4 2$1,##3
Total .udgeted 0ied OL 4 )2$+,+.4
:. .udgeted FK< and Ending 0inished Koods Inventor* .udget
Ending 0inished Koods Inventor* and .udgeted FK<
-33$
F1- )5$ Total
<ales volume 1-,333 5,333 -1,333
Fost %er unit (<chedule 1 and -) 2!:.#51$3 211#.#!!5#
Fost of goods sold 21,3#:,$33 21,3-3,533 )2,-+.,2--
0inished goods ending inventor* #33 -33
Fost %er unit (<chedule 1 and -) 2!:.#51$3 211#.#!!5#
.udgeted ending inventories 2-5,51! 2--,:$! )$8,+41
<chedule 1/ Fost %er DnitN>roduct F1-/
In%uts Fost
=M"1 2-.33 5 21!.33
=M"# 23.53 1.! 23.53
)irect la+or 2#3.33 1.5 265.33
Jaria+le factor* OL (2-5#,6$-8#5,553) 2!.1:##6 1.5 21-.-6531
0ied factor* OL (2-65,5$58#5,553) 2:.!#11# 1.5 213.-6::5
Manufacturing cost %er unit )81/34*.-
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-2! The McGraw-Hill Companies, 2008
8-+8 (Fontinued"6)
<chedule -/ Fost %er DnitN>roduct )5$/
In%uts Fost
=M"1 2-.33 $ 216.33
=M"- 2-.53 #.: 25.33
=M"# 23.53 3.! 23.63
)irect la+or 2#3.33 - 2:3.33
Jaria+le factor* OL (2-5#,6$-8#5,553) 2!.1:##6 - 21:.#-::!
0ied factor* OL (2-65,5$58#5,553) 2:.!#11# - 21#.::--5
Manufacturing cost %er unit )**3/38843
$. <elling and (dministrative E%ense .udget
<elling and (dministrative E%ense .udget
-33.
<elling E%enses/
(dvertising 2:3,333
<ales salaries -33,333
Travel and entertainment :3,333
)e%reciation 5,333 2#-5,333
(dministrative e%enses/
Offices salaries 2:3,333
Eecutive salaries -53,333
<u%%lies 6,333
)e%reciation :,333 2#-3,333
Total selling and administrative e%enses )1$+,---
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-2" The McGraw-Hill Companies 2008
8-+8 (Fontinued"5)
!. .udgeted Income <tatement
.udget Income <tatement
0or the Iear -33$
F1- )5$ Total
<ales (%art 1) 21,!33,333 21,5!3,333 2#,$!3,333
Fost of goods sold (%art :) 1,3#:,$33 1,3-3,533 -,35$,-33
Kross %rofit 2$:#,#33 2555,533 21,$--,!33
<elling and administrative e%enses (%art $) 2:65,333
>re"ta o%erating income 21,3$$,!33
Income taes (T631) 26#1,1-3
(fter"ta o%erating income )1$1,18-
A!8er!:
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 #$1 from
26$-,!: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 and
lessens the need for additional ca%ital investments8re%lacements.
Iou can o%en this s%readsheet Go+,ectH that follows +* doing the following/
#. To return to the Eord 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)/
8-1- Sale! '%"&e# a" 3ro-5or(a 5ia2ial !#a#e(e#! ($5 minutes)
1.
Original .udget )ata
<ales (units)/
.eginning inventor* of finished goods (5818-33$) 5,#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. M +. =evised sales volume""units and dollars/
<ales in units in the original +udget (see a+ove) 1:!,333
Increase in units of %roduction (1$3,333 " 1:-,333)V @ !,333
=evised total salesNunits *.1,---
<elling %rice %er unit (see a+ove) 2 1!:
=evised %ro,ected dollar"volume of net sales )32,.31,---
VEith no change in the ending finished goods inventor* (#,#33 units) the increase in
%roduction is a result of the e%ected increase in sales.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-2$ The McGraw-Hill Companies 2008
21!: 4
1:!,333
3 2#1,-6!,33
4

<ales Dnit >ro,ected
<ales of )ollars >ro,ected
4 >rice8Dnit <elling
8-1- (Fontinued"1)
-.
Molid Fom%an*
>ro"0orma <tatement of Fost of Koods <old (=evised)
0or the Iear Ending (ugust #1, -33!
)irect materials/
Materials inventor*, 58183$ 2 1,#:3,333
Materials %urchases
1
15,5$:,333
Materials availa+le for use 21:,5#:,333
Materials inventor*, !8#183!
-
1,$35,633
)irect Materials used 215,--:,:33
)irect la+or
#
1,-15,-33
0actor* overhead/
Indirect material
6
2 1,5--,::3
Keneral factor* overhead
5
#,#-3,333 6,!6-,::3
Fost of goods manufactured 2-1,-!6,6:3
>lus/ 0inished goods inventor*, 58183$ (given) 1,1:5,333
Fost of goods availa+le for sale 2--,65#,6:3
Cess/ 0inished goods inventor*, !8#183!
:
61#,1:5
Fost of goods sold ) 22,-$-,24*
1
<u%%orting Falculations (units re%resent Ge&uivalent units of out%utH)/
#$,533 units T 2!!.33V 4 2 #,#33,333
65,333 unitsVV T 2!!.33 4 #,5:3,333
53,333 units T 25-.63VVV4 !,#1:,333
215,5$:,333
8-1- (Fontinued"-)
V2#,#33,3338#$,533 units 4 2!!.33
VV)esired ending inventor* of materials 1!,533
Materials needed for %roduction this *ear @ 1$3,333
Total materials needed 1!!,533
.eginning inventor* A 1:,333
Total materials %urchases for the *ear 1$-,533
Cess/ Materials %urchased in the 1
st
&uarter A #$,533
Materials *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 25-.63
-
1!,533 units T 25-.63 4 21,$35,633
#
)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,$33,333
0ied 2#,-63,333 18- 4 1,:-3,333
Total 2#,#-3,333
:
(verage manufacturing cost8unit, -33$"!/
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#,1:5
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-2% The McGraw-Hill Companies 2008
21,-15,-33
-5,-33 4 .3!
units 1$3,333
units 65,333
21,153,333
21,153,333 4
units 1:-,333
units 1$3,333
21,1#6,333
8-1- (Fontinued"#)
#.
a. <avings in working ca%ital from eliminating ending inventor*/
0inished goods 2 61#,1:5
)irect materials 25-.63 (1!,533 A 133) 4 1,$33,1:3
Total savings 2-,11#,#-5
The firm can reduce the need for working ca%ital +* 2-,11#,#-5. The final net
savings de%ends on the cost of ca%ital of the firm. (t 131, the com%an* saves
financing costs of over 2-33,333 %er *ear. The firm can save more than 2-11,###
%er *ear if the cost of ca%ital eceeds 131. ;ote that this estimate refers to
financing (cost"of"ca%ital"related) costs, not o%erating costs.
+. Ies. Dnder the assum%tion that the com%an*Ps cost of ca%ital is 131, the economic
savings would re%resent a+out 61 of its current %re"ta o%erating income figure, as
shown +elow. ;ote that these savings %ut the com%an* in an im%roved economic
%osition, although the formal accounting statements might not reflect this. (s such,
this gives the instructor the o%%ortunit* to discuss with students the notion of
GEconomic Jalue (ddedH (EJ(X) as alternative financial %erformance indicator to
conventional accounting income statements.
Molid Fom%an*
>ro"0orma <tatement Income <tatement
0or the Iear Ending (ugust #1, -33!
;et sales (%art 1+ a+ove) 2#-,$#:,333
Fost of goods sold (%art - a+ove) --,363,-51
Kross %rofit 213,:55,$35
O%erating e%enses (givenNsee tet)/
Marketing 2#,-33,333
Keneral and administrative -,-33,333 5,633,333
Income from o%erations +efore income taes 2 5,-55,$35
2-11,###825,-55,$35 4 61
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*stem
su%%ort of vendors
acce%tance of factor* managers and %roduction workers
8-12 B%"&e#! 5or a Servi2e ?ir( (53 Minutes)
1. The annual cash +udget is %resented on the net %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#5,333 (2-#6,333 A 2155,333).
The -335 %ro,ection is onl* 21-,:$5 (2#36,-33 A 2-51,5-5).
.%eratin" e&%enses are increasin" faster than revenues from membershi% fees'
Cast *ear (-33!), cash generated from regular o%erations was 251,333
7(2#55,333 @ 2-,333) A (26:1,333 A 2155,333)9. The -335 %ro,ection is onl*
25-,6!- 7(263-,-15 @ 2-,::$) A (2:3#,5-5 A 2-51,5-5)9. The increase in cash
from regular o%erations is %ro,ected to +e a+out 61, whereas these revenues
are %ro,ected to increase 1#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 trend
continues. To avoid cash crises, the clu+ should %re%are monthl* cash +udgets
to 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
-335 +udget %ro,ections show onl* a minimal increase in the cash +alance (i.e., an
increase of onl* 2-,$5$). The total cash availa+le is well short of the 2:3,333
annual 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 eisting de+t, or other methods of financing the ac&uisition (such as
additional mortgage de+t or mem+ershi% +onds).
8-12 (continued)

T=I>CE"0 LE(CTL FCD.
Fash .udget
0or the Iear Ending Octo+er #1, -335
>rice
-33! Krowth Increase -335
;3era#i& Ca!h I5lo8!:
(nnual mem+ershi% fees 2#55,333 #.31 13.31 263-,-15
Cesson and class fees -#6,333 #3.31 #36,-33
Miscellaneous -,333 ##.##1 -,::$
Total O%erating Fash Inflows )+4*,--- ).-4,-82
;3era#i& Ca!h ;%#5lo8!:
ManagerPs salar* and +enefits 2#:,333 15.31 261,633
Em%lo*ee wages and +enefits/
=egular em%lo*ees 153,333 15.31 -1!,533
Cesson and class em%lo*ees 155,333 #3.31 15.31 -51,5-5
Towels and su%%lies 1:,333 -5.31 -3,333
Dtilities (heat and lights) --,333 -5.31 -$,533
Miscellaneous -,333 -5.31 -,533
>a*off of outstanding (8> ;8( given -,533
Total O%erating Fash Outflows )$1*,--- )1-3,42+
Ne# ;3era#i& Ca!h ?lo8 )*3-,--- )*-2,$--
No-;3era#i& Ca!h ;%#5lo8!:
>a*off of e&ui%ment %a*a+le given 215,333
Mortgage %rinci%al given #3,333
Mortgage interest #-,633
>lanned e&ui%ment %urchases given -5,333
Total ;on"O%erating Fash Outflow )*-$,4--
;et Fash 0low 2-,$5$
.eginning Fash .alance (given) $,#33
B%"&e#e" E"i& Ca!h Bala2e )*-,-+.
OOOOOOOOOOOOOOO
1
2#:3,333 3.35 4 2#-,633
8-1$ S#ra#e&7, 3ro"%2# li5e-272le, a" 2a!h 5lo8 92+-3- (i%#e!:
1. The develo%ment sta"e is generall* characteriQed +* large cash outflows and little
or no cash inflows. E%enditures for research and develo%ment, %lant and
e&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 inflows
are generall* %resentR however, these ma* +e offset in %art or com%letel* +* cash
outflows to +uild %roduction ca%acit* and for growing inventories and receiva+les.
)uring this stage, manufacturing efficiencies will im%rove contri+ution margins as
volume 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 market
resulting 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 %rice
com%etition and the increased availa+ilit* of alternative %roducts will reduce
margins. The declining volume will generall* increase the unit cost at the
manufacturing level. <ometimes, significant cash inflows can +e generated from the
li&uidation of inventories and other %roduct"related assets.
-. The maturit# sta"e, the %eriod of o%timum net cash inflows, is missing from .urke
Fom%an*Ss %roduct c*cle. The com%an* must +e a+le to generate or raise sufficient
cash to su%%ort = M ), ca%ital investment, and %romotional costs during the
develo%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 careful
investment in %roduction facilities and inventories. In addition, inventor* control is
etremel* im%ortant in order to minimiQe cash investment and reduce %otential
o+solescence.
#. The techni&ues that )evin Eard should consider to co%e with .urke Fom%an*Ss
cash"management %ro+lems include/
careful, timel* cash"flow %ro,ections and monitoring, matching the cash recei%ts
from %roducts in the growth stage with the e%enditures for %roducts in the
develo%ment stage.
esta+lishing good +anking relationshi%s and flei+le lines of credit to facilitate
short"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.
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8- The McGraw-Hill Companies 2008
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-! The McGraw-Hill Companies, 2008
8-11 Ca!h B%"&e# (65"53 minutes)
?uarters
I II III IJ Iear
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 2563,333
>a*roll 117,000 1-3,333 115,333 122,000 6$6,333
<, K, M ( 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 (T51) 0 11,250 0 11,250 22,500
.ond sinking fund %a*ment 0 20,000 0 0 20,000
Income taes -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
Ecess 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 (T1-1) $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 $30,63
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-" The McGraw-Hill Companies 2008
8-18 Ca!h B%"&e#i&@ Se!i#ivi#7 Aal7!i! 9+- Mi%#e!:
1. Estimated Fash =ecei%ts, (%ril -33$/
(%ril Fash =ecei%ts/
(%ril cash sales (-5.31 26-5,333) 4 213:,-53
(%ril credit"card sales (26-5,333 551 5$1) 4 2--:,$#!
Follection of accounts receiva+le/
0rom (%ril <ales (-31 26-5,333 -51) 4 2-1,-53
0rom March <ales (2633,333 -31 651) 4 2#:,333
0rom 0e+ruar* <ales (2553,333 -31 -$1) 4 2-5,$33
Total )$*4,438
-. >urchase Order for Lardware, eecuted 'anuar* -5th (to +e %aid (%ril 13th)/
a) ;um+er of units to +e ordered/
Estimated Dnit <ales, March 4 53
>lus/ )esired End. Inv., March (#31 133) 4 #3
Total ;eeds (in Dnits) 4 1-3
Cess/ .eg. Inv., March (#31 53) 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 (T:51 of selling %rice) 4 21,553
Total cost of %urchases (5# units 21,5538unit) 4 )*8*,3+-
Note that the cash outflow associated with these %urchases will be 234536557
(75 da#s after e&ecutin" the %urchase order)'
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-# The McGraw-Hill Companies, 2008
8-18 (Fontinued"1)
#. <ensitivit* (nal*sis/ Three <enarios for March <ales and the FK<1

Estimated
<alesNMarch FK< 1

O%timistic Estimate 4 133 :31
.ase"line Estimate 4 53 :51
>essimistic Estimate 4 !3 $31
March
Fash
<ales >a*ment
<cenario (units) FK< 1 (%ril 13th

1 133 :31
- 133 :51
# 133 $31
6 53 :31
+ 4- 1+0
: 53 $31
$ !3 :31
! !3 :51
5 !3 $31
Maimum 4 2-13,333
Minimum 4 2156,!33
=ange 4 255,-33
6. Monthl* cash +udgets are %re%ared +* com%anies such as Fom%Fit*, Inc., in order to
%lan for their cash needs This means identif*ing when +oth ecess cash and cash
shortages ma* occur. ( com%an* needs to know when cash shortages will occur so
that %rior arrangements can +e made with lending institutions in order to have cash
availa+le for +orrowing when the com%an* needs it. (t the same time, a com%an*
should +e aware of when there is ecess cash availa+le for investment or re%a*ing
Blocher, Stout, Cokins, Chen, Cost Management, 4/e 8-$ The McGraw-Hill Companies 2008
loans so that %lanned usage of the ecess can +e made.
8-18 (Fontinued"-)
Sensitivit# anal#sis, one t*%e of which is illustrated in %art (#) a+ove, can +e used to
hel% managers deal with uncertainties in the +udgeting %rocess. <ensitivit* anal*sis
ena+les managers to eamine how a +udget would change in res%onse to changes
in one or more underl*ing assum%tions (such as sales volume level and FK< 1). (s
such, 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 as
the e%ected value %rediction. It might define, su+,ectivel*, Go%timisticH and
G%essimisticH values as those having a small %ro+a+ilit*, (e.g., 131 or less).
Note to Student/ (n Ecel s%readsheet solution file for this assignment is
em+edded +elow. Iou can o%en the s%readsheet Go+,ectH that follows +* doing
the following/
#. To return to the Eord 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-% The McGraw-Hill Companies 2008
8-68 Cash Budgeting; Sensitivity Analysis
Inuts
Har'ware Har'ware So(tware)Support Total
Sales *+nits, -e.enue Ser.ices -e.enue -e.enue
/anuar0 120 1#0,000 11!0,000 1"00,000
2e3ruar0 10 1%0,000 11#0,000 1""0,000

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STUDENT SOLUTIONS MANUAL

CHAPTER 8: STRATEGY AND THE MASTER BUDGET

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