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MANAGERIAL ACCOUNTING 1
CCMA 511
Winter 2019
ASSIGNMENT 4

Jaspreet Kaur Gill 260871245

STUDENT NAME STUDENT NUMBER

TRUE-FALSE STATEMENTS (5)

1. Budgets, by their very nature, create a negative effect on human behaviour within companies
because they imply that management is trying to control.

T or F

2. The direct materials budget contains only quantity data so the purchasing department knows
how much materials should be purchased.

T or F

3. The manufacturing overhead budget generally has separate sections for variable and fixed
costs.

T or F

4. A merchandiser has a merchandise purchases budget, and a manufacturer has a materials

purchases budget.

T or F

5. Budget reports comparing actual results with planned objectives should be prepared weekly
to be most effective.

T or F

6. The amount of fixed costs which appear on the flexible budget is the same as those appearing
on the master budget.

T or F
7. Management by exception means that management will investigate all areas where actual
results are greater than planned results.

T or F

8. A materials quantity variance is calculated as the difference between the standard direct
materials price and the actual direct materials price multiplied by the actual quantity of direct
materials used.

T or F

9. There could be instances where the production department is responsible for a direct
materials price variance.

T or F

10. An unfavourable labour quantity variance indicates that the actual number of direct labour
hours worked was greater than the number of direct labour hours that should have been
worked for the output attained.

T or F

MULTIPLE CHOICE QUESTIONS (5)

1. What three differences exist between long-range planning and budgeting?

a) amount of detail, content, and emphasis
b) time periods involved, amount of detail, and content
c) content, emphasis, and amount of detail
d) emphasis, time periods involved, and amount of detail

2. Of the following items, which one is found as the bottom amount on an individual budget?
a) total variable costs
b) required production units
c) cost of production
d) financing needed

3. Which one of the following is a budget that would never be prepared by a merchandising
company?
a) production budget
b) cost of goods sold budget
c) purchases budget
d) budgeted income statement
4. Which one of the following statements describes a budget report?
a) It is the preparation of long-term plans.
b) It is a comparison of actual results with planned objectives.
c) It includes the valuation of inventories.
d) It is voted on and approved by the stockholders.
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5. When setting a flexible budget, it is important to know
a) the expected profit that a firm requires.
b) the expected return that the shareholders or owners require.
c) the relevant ranges of activity and cost.
d) the impact of inflation on the budget in the year to come.

6. Which one of the following is NOT controllable by a profit centre manager?

a) variable costs
b) sales
c) controllable margin
d) assets used by the centre

7. Managers who are evaluated on their return on investment

a) may tend to underestimate the level of investment required in their division.
b) may tend to overestimate the level of investment required in their division.
c) may tend to underestimate the value of new product lines.
d) may tend to overestimate the value of new product lines.

8. If a company is concerned with the potential negative effects of establishing standards, they
should
a) set loose standards that are easy to fulfill.
b) offer wage incentives to those meeting standards.
c) not employ any standards.
d) set tight standards in order to motivate people.

9. The standard number of hours that should have been worked for the output attained is 8,000
direct labour hours and the actual number of direct labour hours worked was 8,400. If the
direct labour price variance was $8,400 unfavourable, and the standard rate of pay was $18
per direct labour hour, what was the actual rate of pay for direct labour?
a) $17.00 per direct labour hour
b) $15.00 per direct labour hour
c) $19.00 per direct labour hour
d) $18.00 per direct labour hour

10. A problem with placing excessive emphasis on labour efficiency can be

a) material costs get ignored.
b) pressure can be put on workers to work unsafely.
c) overhead costs can be improperly estimated.
d) work in progress and finished goods inventories can build up beyond acceptable
levels.
 EXERCISES

1. Evans Recycle plans to produce 1,500 recycle bins during April. Each bin requires 1.7
kilograms of plastic and 0.1 hours of direct labour. Plastic costs $2.15 per kilogram. Evans
pays its employees $12.50 per hour. Manufacturing overhead is applied at a rate of 150% of
direct labour costs. Finished plastic lids are purchased separately from another supplier.
Evans has 400 kilograms of plastic in beginning inventory and wants to have 550 kilograms
in ending inventory.

Instructions
a) How many kilograms of plastic direct materials should Evans plan to buy during
April? (2)
b) How much should Evans budget for direct labour for April? (2)
c) How much manufacturing overhead will be charged to each recycle bin in April? (2)
d) What is the cost per unit of the bins produced in April? (2)
 Solution:

a.
Units to be produced 1,500
kg/bin 1.7
kg required for production 2550
Add: ended inventory 550
minus: begging inventory 400
purchase of plastic in kg 2700

B
Units to be produced 1,500
Labour per unit 0.1
total hours required 150
Cost per hour 12.5
Direct Labour Budget 1875

C
Direct Labour cost 1875
total overhead (150%1875) 2812.5
unit to produced 1500
Overhead per cycle 1.875

D
Direct Material per
unit($2.15×1.7kgs) 3.655
Direct Labour (1875/1500) 1.25
Factory Overhead (2812.5/1500) 1.875
total cost per unit 6.78
2. Outkast Company uses a flexible budget for manufacturing overhead based on machine
hours. Variable manufacturing overhead costs per machine hour is as follows:
Indirect labour $0.50
Indirect materials 1.50
Maintenance .40
Utilities .20
Budgeted fixed overhead costs per month are:
Supervision $4,000
Insurance 2,000
Property taxes 1,000
Depreciation 9,000
The company believes it will normally operate in a range of 28,000 to 35,000 machine hours
per month. During the month of August, 2020, the company incurred the following
manufacturing overhead costs:
Indirect Labour $14,800
Indirect Materials 44,000
Maintenance 12,000
Utilities 6,500
Supervision 4,200
Insurance 2,100
Property Taxes 800
Depreciation 8,600

Instructions
Prepare a flexible budget report, assuming that the company used 31,000 machine hours
during August. (10)
Solution:

Outkast Company
Manufacturing Overhead Flexible Budget report
For Month Ended August 31,2020
Budget Actual
Machine Hours 31,000 31,000
Variable Costs
Indirect Labour ($.50×31000) 15500 14800 700 F
Indirect Material ($1.50×31000) 46500 44,000 2,500 F
Maintenance ($.40×31000) 12400 12,000 400 F
Utilities ($.20×31000) 6200 6,500 -300 U
Total variable cost 80600 77300 3,300 F
Fixed Costs
Supervision 4,000 4,200 -200 U
Insurance 2,000 2,100 -100 U
Property Taxes 1,000 800 200 F
Depreciation 9,000 8,600 400 F
Total Fixed Cost 16,000 15,700 300 F
Total Costs 96,600 93,000 3,600 F
3. M&H Inc. uses a standard cost accounting system. During January, 2020, the company
reported the following manufacturing variances:
Material price variance $1,500 F
Material quantity variance 1,300 U
Labour price variance 750 U
Labour quantity variance 1,300 U
Overhead controllable 600 F
Overhead volume 4,000 U

In addition, 12,000 units of product were sold at $20 per unit. Each unit sold had a standard
cost of $14. Selling and administrative expenses for the month were $11,000.

Instructions
Prepare an income statement for management for the month ending January 31, 2020. (10)

Solution:

M&H Inc
Income Statement
For the Month Ended January 31,2020
Sales (12,000*$20) 240000
Cost of goods sold (12,000*$14) 168000
Gross profit (standard) 72000
Variances
Material price -1500
Material Quantity 1300
Labour price 750
Labour quantity 1300
Overhead controllable -600
Overhead volume 4000
Total variance (U) 5250
Gross profit(actual) 66750
selling and administrative expense 11000
Net income 55750
4. OJ Small Company needs a cash budget for the month of April 2016. The company’s
controller has provided you with the following information and assumptions:
1. The April 1, 2016 cash balance is expected to be $11,000.
2. All sales are on account. Credit sales are collected over a three-month period—50
percent in the month of sale, 35 percent in the month following sale, and 15 percent in
the second month following sale. Actual sales for February and March were $100,000
and $90,000, respectively. April’s sales are budgeted at $110,000.
3. Marketable securities are expected to be sold for $25,000 during the month of April.
4. The controller estimates that direct materials totalling $44,000 will be purchased during
April. Sixty percent of a month’s raw materials purchases are paid in the month of
purchase with the remaining 40 percent paid in the following month. Accounts payable
for March purchases total $9,000, which will be paid in April.
5. During April, direct labour costs are estimated to be $19,000.
6. Manufacturing overhead is estimated to be 40 percent of direct labour costs, Further, the
controller estimates that approximately 10 percent of the manufacturing overhead is
depreciation on the factory building and equipment.
7. Selling and administrative expenses are budgeted at $22,000 for April. Of this amount,
$7,000 is for depreciation.
8. During April, OJ Small Company plans to buy a new delivery van costing $25,000. The
company will pay cash for the van.
9. OJ Small Company owes $35,000 in income tax, which must be paid in April.
10. OJ Small Company must maintain a minimum cash balance of $10,000. To bolster the
cash position as needed, an open line of credit is available from the bank.

Instructions
Prepare the following:
a) A schedule of cash collections for April. (3)
b) A schedule of cash payments for raw materials for April. (3)
c) A cash budget for the month of April. Indicate in the financing section any borrowing that
will be necessary during the month. (6)
Solution:

1
Cash receipts
.50×$110,000 55000
.35×$90,000 31500
.15×$100,000 15000
Total 101500

2
Cash Payments
.60×$44000 26400
March Account Payable 9000
Total 35400

3
OJ Small Company
Cash Budget
For Month Ended April 30,2016
Beginning cash balance 11,000
Add: Receipts
Collections from customers 101500
Sales of securities 25,000
Total receipts 126,500
Total Cash Available 137,500
Less: Disbursements
Direct Material 35400
Direct Labour 19000
Manufacturing Overhead (19000*.40*90) 6840
selling and administrative expense (22000-
7000) 15000
Purchase of van 25000
Income tax 35000
Total Disbursements 136240
Excess of available cash over disbursements 1,260
Financing
Borrowings $8,740
Ending Cash Balance $10,000