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Cornerstones of Cost Management Hansen 3rd Edition Solutions Manual
CHAPTER 8
BUDGETING FOR PLANNING AND CONTROL
DISCUSSION QUESTIONS
1. Budgets are the quantitative expressions of priate percentage to yield the amount of cash
plans. Budgets are used to translate the expected.
goals and strategies of an organization into
8. If the vice president of sales is a pessimistic
operational terms.
individual, one might expect that she or he
2. Control is the process of setting standards, would underestimate sales for the coming
receiving feedback on actual performance, year. In your role as head of the budget pro-
and taking corrective action whenever actual cess, you might increase the budgeted sales
performance deviates from planned perfor- figure to take out the individual bias.
mance. Budgets are the standards, and they
are compared with actual costs and reve- 9. If the factory controller is a particularly opti-
mistic individual, it is possible that the costs
nues to provide feedback.
for direct materials, direct labor, and over-
3. Budgeting forces managers to plan, provides head could be underestimated. For exam-
resource information for decision making, ple, an optimistic person might assume that
sets benchmarks for control and evaluation, everything will go well (e.g., that there will be
and improves the functions of communication no problems in obtaining an adequate sup-
and coordination. ply of materials at the lowest possible price).
As head of the budget process, you might
4. The master budget is the collection of all
allow for somewhat higher costs to more ac-
individual area and activity budgets. Operat-
curately reflect reality.
ing budgets are concerned with the income-
generating activities of a firm. Financial 10. The learning curve is the relationship be-
budgets are concerned with the inflows and tween unit costs of production and increas-
outflows of cash and with planned capital ing number of units. As time goes on, the
expenditures. number of units produced in a time period
5. The sales forecast is a critical input for build- will increase and the cost per unit will de-
ing the sales budget. It, however, is not nec- crease. The budgets affected will be the
essarily equivalent to the sales budget. Upon direct materials purchases budget, the direct
receiving the sales forecast, management labor budget, and the overhead budget.
may decide that the firm can do better or 11. Small firms often do not engage in a compre-
needs to do better than the forecast is indi- hensive master budgeting process. (Person-
cating. Consequently, actions may be taken
ally, we believe that is a mistake. The budget-
to increase the sales potential for the coming
ing process helps management more fully
year (e.g., increasing advertising). This ad-
justment then becomes the sales budget. understand the business and helps them to
plan for the coming year.) Even small busi-
6. Yes. All budgets essentially are founded on nesses create cash budgets, however, be-
the sales budget. The production budget cause cash flow is critically important. For
depends on the level of planned sales. The example, it is possible to have positive oper-
manufacturing budgets, in turn, depend on ating income, but negative cash flow (e.g., if
the production budget. The same is true for sales on account are high, but customers are
the financial budgets since sales is a critical slow to pay). Negative cash flow could put a
input for budgets in that category. company out of business in short order.
7. An accounts receivable aging schedule gives 12. The master budget has been criticized for
the proportion of accounts receivable that
the following reasons: it does not recognize
are, on average, collected in the months fol-
the interdependencies among departments,
lowing sale. It is important in creating the
cash budget, since the sales on account for it is static, and it is results rather than pro-
past months can be multiplied by the appro- cess oriented. These criticisms are especially
apparent when companies are in a competi-
8-1
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accessible website, in whole or in part.
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tive, dynamic environment. When the envi- 14. A flexible budget is (1) a budget for various
ronment changes slowly, if at all, the master levels of activity or (2) a budget for the actual
budget would do a good job of both planning level of activity. The first type of flexible
and control. budget is used for planning and sensitivity
analysis. The second type of budget is used
13. A static budget is one that is not adjusted for
for control, since the actual costs of the actual
changes in activity. Using a static budget for
level of activity can be compared with the
control can be a real problem. For example,
planned costs for the actual level of activity.
suppose that the master (static) budget is
based on the production and sale of 100,000 15. The activity-based budget starts with output,
units, but that only 90,000 units are actually determines the activities necessary to create
produced and sold. Further suppose that the that output, and then determines the re-
budgeted variable cost of goods sold was sources necessary to support the activities.
$2,000,000, and that the actual variable cost This differs from the traditional master
of goods sold was $1,890,000. It looks as if budgeting process in that the master budget
the company spent less than expected for leaps directly from output to resources.
variable manufacturing costs. However, the Some of the resource levels are assumed to
budgeted variable cost was $20 per unit be fixed. This makes them independent of
($2,000,000/100,000), and the actual varia- volume changes and hides the drivers that
ble cost per unit is $21 per unit actually do affect the fixed resources. As a
($1,890,000/90,000). Not adjusting the result, the budget format does not support
budget for changes in activity level can mis- the creation of value and the thinking that
lead managers about efficiency. would go into determining the sources of
waste.
8-2
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
CORNERSTONE EXERCISES
Cornerstone Exercise 8.1
1. FlashKick Company
Sales Budget
For the First Quarter
January February March Quarter
Practice ball:
Units .................. 50,000 58,000 80,000 188,000
Unit price ........... × $8.75 × $8.75 × $8.75 × $8.75
Sales .................. $437,500 $507,500 $ 700,000 $1,645,000
Match ball:
Units .................. 7,000 7,500 13,000 27,500
Unit price ........... × $16.00 × $16.00 × $16.00 × $16.00
Sales .................. $112,000 $120,000 $ 208,000 $ 440,000
Total sales ............. $549,500 $627,500 $ 908,000 $2,085,000
2. FlashKick Company
Sales Budget
For the First Quarter
January February March Quarter
Practice ball:
Units .................. 50,000 58,000 80,000 188,000
Unit price ........... × $8.75 × $8.75 × $8.75 × $8.75
Sales .................. $437,500 $507,500 $ 700,000 $1,645,000
Match ball:
Units .................. 4,200 4,500 7,800 16,500
Unit price ........... × $16.00 × $16.00 × $16.00 × $16.00
Sales .................. $67,200 $ 72,000 $ 124,800 $ 264,000
Tournament ball:
Units .................. 2,800 3,000 5,200 11,000
Unit price ........... × $45.00 × $45.00 × $48.00 × $46.42*
Sales .................. $126,000 $135,000 $ 249,600 $ 510,600
Total sales ............. $630,700 $714,500 $1,074,400 $2,419,600
* $510,600/11,000 = $46.42 (rounded)

1. Production budget for practice balls:

January February March
Unit sales .................................... 50,000 58,000 80,000
Desired ending inventory .......... 11,600 16,000 20,000
Total needed ......................... 61,600 74,000 100,000
Less: Beginning inventory ........ 3,100 11,600 16,000
Units produced ..................... 58,500 62,400 84,000
Production budget for match balls:

January February March
Unit sales .................................... 7,000 7,500 13,000
Total needed ......................... 8,500 10,100 16,600
Less: Beginning inventory ........ 400 1,500 2,600
Units produced ..................... 8,100 8,600 14,000
2. In order to construct a production budget for April, you would need May
sales. This is due to the calculation of desired ending inventory, which is 20
percent of the next period’s sales.
1. Direct materials purchases budget for practice balls:

Polyvinyl chloride panels: January February
Units produced .............................................. 58,500 62,400
Direct materials per unit ............................... × 0.7 × 0.7
Direct materials for production ............... 40,950 43,680
Desired ending inventory* ............................ 8,736 11,760
Total needed ............................................. 49,686 55,440
Less: Beginning inventory** ......................... 8,190 8,736
Direct materials purchases ...................... 41,496 46,704
*Desired ending inventory = 0.20 × next month’s production needs; January
ending inventory = 0.20 × 43,680 = 8,736; February ending inventory = 0.20 ×
(84,000 × 0.7 sq. yd.) = 11,760
**Beginning inventory for January equals ending inventory for December
= 0.20 × 40,950 = 8,190
Cornerstone Exercise 8.3 (Concluded)
Bladder and valve: January February

Units produced .............................................. 58,500 62,400
Direct materials per unit ................................ × 1 × 1
Total needed.............................................. 70,980 79,200
ending inventory = 0.20 × 62,400 = 12,480; February ending inventory = 0.20 ×
(84,000 × 1) = 16,800
= 0.20 × 58,500 = 11,700
Glue: January February

Units produced .............................................. 58,500 62,400
Direct materials per unit ................................ × 3 × 3
Total needed.............................................. 212,940 237,600
ending inventory = 0.20 × 187,200 = 37,440; February ending inventory = 0.20
× (84,000 × 3) = 50,400
= 0.20 × 175,500 = 35,100
2. If the desired ending inventory percentage decreases, then less would be or-
dered to satisfy the decreased need for materials on hand.
1. Number of wrong numbers = Total calls × Percent

= 5,000 × 0.10 = 500
Number of answering machine calls = Total calls × Percent
= 5,000 × 0.15 = 750
Number of alumni contact calls = Total calls × Percent
= 5,000 × 0.75 = 3,750
Minutes for wrong numbers (500 × 3)............................ 1,500

Minutes for answering machine calls (750 × 2) ............ 1,500
Minutes for alumni contact calls (3,750 × 10) ............... 37,500
Total minutes ................................................................... 40,500
 60 Minutes per hour ..................................................... ÷ 60
Total student hours ......................................................... 675
 Number of students ..................................................... ÷ 15
Total hours per volunteer ............................................... 45
 3 Hours per night.......................................................... ÷ 3
Total nights of calling ................................................ 15
2. Minutes for wrong numbers (500 × 1)............................ 500

Minutes for answering machine calls (750 × 0) ............ 0
Minutes for alumni contact calls (3,750 × 8) ................. 30,000
Total minutes ................................................................... 30,500
 60 Minutes per hour ..................................................... ÷ 60
Total student hours ......................................................... 508.33
 Number of students ..................................................... ÷ 15
Total hours per volunteer ............................................... 33.89
 3 Hours per night.......................................................... ÷ 3
Total nights of calling ................................................ 11.30
1. Direct labor hours = Budgeted unit × Budgeted direct labor hours per unit
= 120,000 × 1.3 = 156,000 direct labor hours
Variable overhead = Supplies + Gas = $216,000 + $50,000 = $266,000
Variable overhead rate = $266,000/156,000
= $1.71 per direct labor hour (rounded)
Budgeted fixed overhead:

Indirect labor ....................................................... $176,000
Supervision.......................................................... 73,500
Depreciation on equipment ................................ 47,000
Depreciation on the building .............................. 40,000
Rental of special equipment............................... 11,000
Electricity ............................................................. 28,900
Telephone ............................................................ 4,300
Landscaping service ........................................... 1,200
Other overhead.................................................... 50,000
Total fixed overhead ...................................... $431,900
2. Overhead Budget
For the Year
Budgeted direct labor hours.................................... 156,000
Variable overhead rate ............................................. × $1.71
Budgeted variable overhead.................................... $266,760
Budgeted fixed overhead ......................................... 431,900
Total budgeted overhead.................................... $698,660
Fixed overhead rate = $431,900/156,000 = $2.77 per direct labor hour
Total overhead rate = $698,660/156,000 = $4.48 per direct labor hour
3. Overhead Budget
For the Year
Budgeted direct labor hours* .................................. 153,400
Variable overhead rate ............................................. × $1.71
Budgeted variable overhead.................................... $262,314
Budgeted fixed overhead ......................................... 431,900
Total budgeted overhead.................................... $694,214
*Budgeted direct labor hours = 118,000 × 1.3 = 153,400
Fixed overhead rate = $431,900/153,400 = $2.82 per direct labor hour
Total overhead rate = $694,214/153,400 = $4.53 per direct labor hour
1. Unit costs:
Direct materials ..................................... $1.67
Direct labor ............................................ 0.56
Overhead:
Budgeted variable overhead........... 0.72
Budgeted fixed overhead ................ 1.80
Total cost per unit ...................................... $4.75
Total ending inventory cost = Units ending inventory* × Unit cost

= 31,000 × $4.75 = $147,250
*Units ending inventory = Beginning inventory + Units produced – Units sales
= (16,000 + 300,000) – 285,000 = 31,000
2. If the number of units sold increases to 290,000, there will be 5,000 fewer units
in ending inventory, and the cost of ending inventory will decrease to $123,500
(26,000 units in ending inventory × $4.75).
1. Budgeted direct materials ($1.67 × 300,000) $ 501,000

Budgeted direct labor($0.56 × 300,000) 168,000
Budgeted overhead [($0.72 + $1.80) × 300,000] 756,000
Total budgeted manufacturing cost $1,425,000
2. Direct materials .................................................... $ 501,000

Direct labor ........................................................... 168,000
Overhead............................................................... 756,000
Total manufacturing cost .................................... $1,425,000
Add: Beginning inventory, finished goods* ....... 76,000
Less: Ending inventory, finished goods ............ 147,250
Cost of goods sold ............................................... $1,353,750
*Beginning finished goods inventory = 16,000 × $4.75 = $76,000
3. If the cost of beginning inventory of finished goods was only $75,200, the cost
of goods sold would decrease to $1,352,950.
1. Hair-Again
Marketing Expense Budget
For the Year Ended December 31
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Budgeted unit sales .................... 5,000 15,000 40,000 35,000 95,000
Unit variable expense* .............. × $0.45 × $0.45 × $0.45 × $0.45 × $0.45
Total variable expense............... $ 2,250 $ 6,750 $18,000 $15,750 $ 42,750
Fixed marketing expense:
Internet ads ............................. $ 7,600 $ 7,600 $ 7,600 $ 7,600 $ 30,400
Television time ........................ 10,000 10,000 25,000 25,000 70,000
Telephone operators ............... 4,000 4,000 4,000 4,000 16,000
Travel ....................................... 3,000 3,000 3,000 3,000 12,000
Total fixed expense .................... $24,600 $24,600 $39,600 $39,600 $ 128,400
Total marketing expense ........... $26,850 $31,350 $57,600 $55,350 $171,150
*Unit variable expense = Selling price × 3% Commission = ($15 × 0.03) = $0.45
2. If the cost of internet ads rises to $15,000 in Quarters 2, 3, and 4, the fixed
marketing expense in those quarters will be $7,400 higher, as will the total
marketing expense. There will be no impact on variable marketing expense.
1. Green Earth Landscaping Company

Administrative Expense Budget
For the Summer Months
June July August Total
Salaries ............................................... $ 9,600 $ 9,600 $ 9,600 $28,800
Insurance ........................................... 2,500 2,500 2,500 7,500
Depreciation....................................... 3,700 3,700 3,700 11,100
Accounting services ........................... 500 500 500 1,500
Total administrative expense $16,300 $16,300 $16,300 $48,900
2. The increase in insurance rates at the beginning of July will increase the total
administrative cost by $100 in July and August.
1. Coral Seas Jewelry Company

Budgeted Income Statement
For the Coming Year
Sales ............................................................ $ 15,900,000
Less: Cost of goods sold .......................... 8,750,000
Gross margin .............................................. $ 7,150,000
Less:
Marketing expense ................................. $2,800,000
Administrative expense ......................... 675,000 3,475,000
Operating income ....................................... $ 3,675,000
Less: Income taxes (0.40 × $3,675,000) .... 1,470,000
Net income .................................................. $ 2,205,000
2. If Coral Seas Jewelry Company has interest expense of $500,000, there would
be no impact on operating income. Interest expense would be subtracted from
operating income to yield income before taxes of $3,175,000. Income taxes
would be calculated on income before taxes and would equal $1,270,000. Net
income would decrease to $1,905,000.
1. Cash Sales Credit Sales

Quarter Total Sales (10% of total sales) (90% of total sales)
3, current year $4,900,000 $490,000 $4,410,000
4, current year 6,850,000 685,000 6,165,000
1, next year 4,600,000 460,000 4,140,000
2, next year 5,100,000 510,000 4,590,000
3, next year 5,000,000 500,000 4,500,000
4, next year 7,600,000 760,000 6,840,000
Cornerstone Exercise 8.11 (Concluded)
2. Quarter 1 Quarter 2 Quarter 3 Quarter 4

Cash sales .................................. $ 460,000 $ 510,000 $ 500,000 $ 760,000
Received on account from:
Quarter 3, current yeara ...... 308,700
Quarter 4, current yearb...... 1,541,250 431,500
Quarter 1, next yearc ........... 2,691,000 1,035,000 289,800
Quarter 2, next yeard ........... 2,983,500 1,147,500 321,300
Quarter 3, next yeare ........... 2,925,000 1,125,000
Quarter 4, next yearf ............ 0 0 0 4,446,000
Total cash receipts .................... $5,000,950 $4,960,000 $4,862,300 $6,652,300
a$4,410,000 × 0.07 = $308,700
b$6,165,000 × 0.25 = $1,541,250; $6,165,000 × 0.07 = $431,500
c$4,140,000 × 0.65 = $2,691,000; $4,140,000 × 0.25 = $1,035,000; $4,140,000 ×
0.07 = $289,800
d$4,590,000 × 0.65 = $2,983,500; $4,590,000 × 0.25 = $1,147,500; $4,590,000 ×
0.07 = $321,300
e$4,500,000 × 0.65 = $2,925,000; $4,500,000 × 0.25 = $1,125,000
f$6,840,000 × 0.65 = $4,446,000
3. If Shalimar’s percentage of uncollectible accounts rises to 10 percent, then no

cash would be collected in the second quarter after the sale. The 10 percent of
credit sales is bad debt expense; it never appears on the cash budget since it
is never collected in cash. The following is the cash receipts budget using the
new assumption.
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Cash sales .................................. $ 460,000 $ 510,000 $ 500,000 $ 760,000
Received on account from:
Quarter 4, current year ....... 1,541,250
Quarter 1, next year ............. 2,691,000 1,035,000
Quarter 4, next year ............. 4,446,000
Total cash receipts .................... $4,692,250 $4,528,500 $4,572,500 $6,331,000
1. Khloe Company
Cash Budget
For the Month of November
Beginning balance, cash account.................................................. $ 53,817
Received on account from sales in:
October ($1,240,000 × 0.28) ....................................................... 347,200
November ($2,145,000 × 0.70) ................................................... 1,501,500
Total cash available ........................................................................ $1,902,517
Disbursements:
Payments for purchases made in:
October ($980,000 × 0.85) .................................................... 833,000
November ($2,000,000 × 0.15).............................................. 300,000
Salaries paid for work in:
October ($48,000 × 0.10) ...................................................... 4,800
November ($48,000 × 0.90)................................................... 43,200
Rent ............................................................................................. 12,300
Utilities ........................................................................................ 6,100
Employment taxes ..................................................................... 6,625
Customs duty and shipping ($2,000,000 × 0.30) ..................... 600,000
Other cash expenses ................................................................. 41,500
Total disbursements ....................................................................... $1,847,525
Ending cash balance....................................................................... $ 54,992
2. If Khloe Company faced a customs duty and shipping percentage of 35 percent,

the cost of customs duty and shipping for November would be $100,000 higher
and the budgeted ending balance of cash would be negative. Since Khloe Com-
pany cannot have a negative cash balance, the company would have to explore
other options such as finding ways to cut expenses or obtaining short-term
financing.
1. Variable
Cost Range of Production in Units
per Unit 160,000 170,000 175,000
Production costs:
Variable:
Direct materials ............... $7.20 $ 1,152,000 $ 1,224,000 $ 1,260,000
Direct labor ...................... 1.54 246,400 261,800 269,500
Variable overhead:
Supplies ........................... 0.23 36,800 39,100 40,250
Maintenance .................... 0.19 30,400 32,300 33,250
Power ............................... 0.18 28,800 30,600 31,500
Total variable costs ............. $9.34 $1,494,400 $1,587,800 $1,634,500
Fixed overhead:
Supervision...................... $ 98,000 $ 98,000 $ 98,000
Depreciation .................... 76,000 76,000 76,000
Other overhead................ 245,000 245,000 245,000
Total fixed costs .................. $ 419,000 $ 419,000 $ 419,000
Total production costs........ $1,913,400 $ 2,006,800 $2,053,500
2. Per-unit product cost @ 160,000 units = $1,913,400/160,000 = $11.96 (rounded)

Per-unit product cost @ 170,000 units = $2,006,800/170,000 = $11.80 (rounded)
Per-unit product cost @ 175,000 units = $2,053,500/175,000 = $11.73 (rounded)
3. If maintenance cost rose to $0.22 per unit, then the per-unit cost would in-
crease by $0.03 ($0.22 – $0.19) per unit.
1. Actual Cost Flexible Budget Cost Variance
Direct materials ........ $1,170,000 $1,175,040 $5,040 F
Direct labor ............... 258,000 251,328 6,672 U
Supplies .................... 38,100 37,536 564 U
Maintenance ............. 30,960 31,008 48 F
Power ........................ 29,300 29,376 76 F
Supervision .............. 99,450 98,000 1,450 U
Depreciation ............. 76,000 76,000 0
Other overhead ........ 244,300 245,000 700 F
Total cost .............. $1,946,110 $1,943,288 $2,822 U
2. If Nashler Company’s actual direct materials cost was $1,175,040, the variance
would be zero and the total variance would increase by $5,040, and would be
$7,862 U.
EXERCISES
Exercise 8.15
Palmgren Company
Production Budget
For the Third Quarter
July August September Total
Unit sales .................................... 32,500 33,700 38,000 104,200
Desired ending inventory .......... 8,425 9,500 9,000 9,000
Total needed ......................... 40,925 43,200 47,000 113,200
Less: Beginning inventory ........ 8,125 8,425 9,500 8,125
Units produced ..................... 32,800 34,775 37,500 105,075
Exercise 8.16
1. Berring Company
Sales Budget
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year
Deluxe:
Units ........... 12,000 14,300 16,600 20,000 62,900
Unit price .... × $40 × $40 × $40 × $40 × $40
Sales ........... $ 480,000 $ 572,000 $ 664,000 $ 800,000 $2,516,000
Standard:
Units ........... 90,000 88,400 92,000 91,600 362,000
Unit price .... × $10 × $10 × $10 × $10 × $10
Sales ........... $ 900,000 $ 884,000 $ 920,000 $ 916,000 $3,620,000
Total sales ....... $1,380,000 $1,456,000 $ 1,584,000 $1,716,000 $6,136,000
2. Berring Company probably asked the marketing vice president for sales
quantity and price estimates. This vice president might have considered the
level of the past year’s sales of the two products, the actions of competitors,
status of customers, the state of the economy, and so on.
Exercise 8.16 (Concluded)
3. Production budget for deluxes:

Quarter 1 Quarter 2 Quarter 3
Unit sales .................................... 12,000 14,300 16,600
Total needed ......................... 14,860 17,620 20,600
Units produced ..................... 13,560 14,760 17,280
Production budget for standards:

Quarter 1 Quarter 2 Quarter 3
Unit sales .................................... 90,000 88,400 92,000
Total needed ......................... 98,840 97,600 101,160
Units produced ..................... 97,670 88,760 91,960
Exercise 8.17
1. Crescent Company
Direct Materials Purchases Budget for Fabric
For the Fourth Quarter
October November December Total
Units produced .......................... 42,000 90,000 50,000 182,000
DM per unit (yd.) ........................ × 0.20 × 0.20 × 0.20 × 0.20
Production needs ............... 8,400 18,000 10,000 36,400
Desired ending inventory (yd.) . 3,600 2,000 1,600 1,600
Total needed ....................... 12,000 20,000 11,600 38,000
Less: Beginning inventory........ 1,680 3,600 2,000 1,680
DM to be purchased (yd.)... 10,320 16,400 9,600 36,320
Cost per yard ............................. × $3.50 × $3.50 × $3.50 × $3.50
Total purchase cost............ $ 36,120 57,400 $ 33,600 $127,120
2. Crescent Company
Direct Materials Purchases Budget for Polyfiberfill
For the Fourth Quarter
Units produced........................... 42,000 90,000 50,000 182,000
DM per unit (oz.) ......................... × 8 × 8 × 8 × 8
Production needs....................... 336,000 720,000 400,000 1,456,000
Desired ending inventory (oz.).. 288,000 160,000 128,000 128,000
Total needed........................ 624,000 880,000 528,000 1,584,000
Less: Beginning inventory ........ 134,400 288,000 160,000 134,400
DM to be purchased (oz.) ... 489,600 592,000 368,000 1,449,600
Cost per ounce ........................... × $0.05 × $0.05 × $0.05 × $0.05
Total purchase cost ............ $ 24,480 $ 29,600 $ 18,400 $ 72,480
3. Crescent Company
Direct Labor Budget
For the Fourth Quarter 20XX
Units produced........................... 42,000 90,000 50,000 182,000
Direct labor time per
unit (hours) .......................... × 0.10 × 0.10 × 0.10 × 0.10
Direct labor hours needed ........ 4,200 9,000 5,000 18,200
Cost per direct labor hour ......... × $15 × $15 × $15 × $15
Total direct labor cost ........ $63,000 $135,000 $75,000 $273,000
Exercise 8.18
Audio-2-Go, Inc.
Sales Budget
For 2013
Model Units Price Total Sales
A-1 ............................... 10,000 $ 65 $ 650,000
A-2 ............................... 33,000 75 2,475,000
A-3 ............................... 50,000 72 3,600,000
A-4 ............................... 16,500 120 1,980,000
A-5 ............................... 6,000 200 1,200,000
A-6 ............................... 15,000 180 2,700,000
Total .......................... $12,605,000
Exercise 8.19
1.
January February March April May
Unit sales .............. 170 160 180 190 210
Desired EI ............. 16 18 19 21 20
Total needed ...... 186 178 199 211 230
Less: BI ................. 23 16 18 19 21
Unit purchases .. 163 162 181 192 209
2. Sales price = $9 (Monthly dollar sales/Unit sales)

Cost × 1.80 = Price
Cost = $9/1.80
Cost = $5
Unit Unit Total
Month Purchases Cost Cost
January........... 163 $5 $ 815
February ......... 162 5 810
March .............. 181 5 905
April ................ 192 5 960
May ................. 209 5 1,045
Exercise 8.20
Rosita’s Mexican Restaurant

Schedule of Cash Receipts
For the Months of May and June
May June
Cash sales:
($45,000 × 80%) .............................. $36,000
($56,000 × 80%) .............................. $44,800
Checks* ................................................. 8,670 10,789
Total ................................................ $44,670 $55,589
*Check collections for: May June
(0.20 × $45,000) .............................. $ 9,000
(0.20 × $56,000) .............................. $11,200
Less: Bad checks
(0.03 × $9,000) ................................ (270)
(0.03 × $11,200) .............................. (336)
Less: Service charge
[($9,000/$75) × $0.50] ..................... (60)
[($11,200/$75) × $0.50] ................... (75)
$ 8,670 $10,789
Exercise 8.21
Revised sales estimates:

April ($32,000 × 1.30) ..................................... $41,600
May ($45,000 × 1.30) ...................................... 58,500
June ($56,000 × 1.30) ..................................... 72,800
Rosita’s Mexican Restaurant

For the Months of May and June
May June
Cash sales:
($58,500 × 10%) .............................................. $ 5,850
($72,800 × 10%) .............................................. $ 7,280
VISA/MasterCard:
[(0.75 × $41,600) – $1,092*]............................ 30,108
[(0.75 × $45,000) – $1,536*]............................ 42,339
American Express:
[(0.15 × $41,600) – $343**] ............................. 5,897
[(0.15 × $58,500) – $483**] ............................. 8,292
Total ....................................................................... $41,855 $57,911
*VISA/MasterCard fee: May fee = [(0.75 × $41,600) × 0.035] = $1,092; June fee =
[(0.75 × $58,500) × 0.035] = $1,536
**American Express fee: May fee = [(0.15 × $41,600) × 0.055] = $343; June fee =
[(0.15 × $58,500) × 0.055] = $483
Exercise 8.22
1. Cash Budget
For the Month of October
Beginning cash balance............................................. $ 1,118
Collections:
Cash sales ........................................................... 5,000
Credit sales:
October ($63,000 × 40%) .............................. 25,200
September ($62,000 × 36%) ......................... 22,320
August ($58,000 × 22%) ............................... 12,760
Total cash available.................................................... $66,398
Disbursements:
Inventory purchases:
October ($68,000 × 70% × 45%)................... $21,420
September ($66,500 × 70% × 55%) .............. 25,603
Salaries and wages ............................................. 3,850
Rent ...................................................................... 3,150
Taxes .................................................................... 1,635
Other operating expenses .................................. 3,800
Owner withdrawal................................................ 3,500
Advertising........................................................... 1,500
Internet and telephone ........................................ 320 64,778
Ending cash balance .................................................. $ 1,620
2. The ending cash balance does not meet the desired level of $3,000. To quick-
ly adjust the expected ending cash balance, the owner could consider with-
drawing less for her own salary or decreasing discretionary expenses. Alter-
natively, she could look into borrowing money.
Exercise 8.23
1. From payments in May for credit sales in:

February ($182,000 × 0.80 × 0.05) ....................... $ 7,280
March ($192,000 × 0.80 × 0.20)............................ 30,720
April ($196,000 × 0.80 × 0.35) .............................. 54,880
May ($210,000 × 0.80 × 0.40) ............................... 67,200
Plus: May cash sales........................................... 42,000
Total .................................................................. $202,080
2. April credit sales = $196,000 × 0.80 = $156,800

Decrease in cash from April credit sales = 0.02 × $156,800 = $3,136
Exercise 8.24
Del Spencer’s Men’s Clothing Store

For the months of August and September
August September
Cash sales ............................................................ $ 5,600 $ 8,300
Received from sales in:
June: [(0.9 × $55,000) × (0.14 × 1.03)] 7,138 —
July: [(0.9 × 0.65) × 45,000)] ................ 26,325
(0.9)(0.14)($45,000)(1.03)............ 5,840
August: [(0.9 × 0.15) × $56,000] ............... 7,560
[(0.9 × 0.65) × $56,000] ............... 32,760
September: [(0.9 × 0.15) × $83,000] ............... — 11,205
Total cash receipts ............................................... $46,623 $58,105
Exercise 8.25
1. August September
July: [(1/3 × $22,500) × 0.98] ...................... $ 7,350 —
(2/3 × $22,500) ............................. 15,000 —
August: [(1/3 × $28,000) × 0.98] ...................... — $ 9,147
(2/3 × $28,000) ................................... — 18,667
Total ............................................................ $22,350 $27,814
2. July August
July 1: [(1/3 × $27,500) × 0.98] .................. $ 8,983 —
11: [(1/3 × $22,500) × 0.98] ............ 7,350 —
21: [(1/3 × $22,500) × 0.98] ............ 7,350 —
Aug. 1: [(1/3 × $22,500) × 0.98] ............ — $ 7,350
11: [(1/3 × $28,000) × 0.98] ............ — 9,147
21: [(1/3 × $28,000) × 0.98] .................. — 9,147
Total ............................................................ $23,683 $25,644
3. Monthly cost of temporary clerk = (2 × 4) × $20 = $160

This is a good idea as long as monthly purchases exceed $8,000 ($160/0.02)
because the savings from taking the cash discount (2% of purchases) will
more than pay for the clerk.
Exercise 8.26
1. Production budget for August:*

Unit sales ....................................... 2,900
Desired ending inventory ............. 840
Total needed ............................ 3,740
Less: Beginning inventory ........... 1,160
Units produced ........................ 2,580
*The production budget is based on the sales budget and inventory policy,
not on actual inventory figures.
2. August purchases budget for table legs:

Units produced .............................. 2,100
DM per unit .................................... × 4
Production needs .................... 8,400
Desired ending inventory* ............ 4,560
Total needed ............................ 12,960
Less: Beginning inventory ........... 4,000
DM to be purchased ................ 8,960
*Desired ending inventory = (1,900 × 4) × 0.60 = 4,560
3. Number of direct labor hours = 2,340 units × (16/60) direct labor hour per unit
= 624 direct labor hours
Number of employees = Direct labor hours/Hours per week
= 624/(40 × 4) = 3.90
Exercise 8.27
1. Meliore, Inc.
Overhead Budget
Formula 24,600 DLH*
Variable costs:
Maintenance ......................... 1.25 $ 30,750
Power .................................... 0.50 12,300
Indirect labor ........................ 2.30 56,580
Total variable costs ....... $ 99,630
Fixed costs:
Maintenance ......................... $ 34,500
Indirect labor ........................ 68,400
Rent ....................................... 31,500
Total fixed costs ............ 134,400
Total overhead costs ............... $234,030
*Standard model: (0.05 × 300,000) ............... 15,000
Deluxe model: (0.08 × 120,000) .................. 9,600
Total direct labor hours.......................... 24,600
2. 10% higher:
Meliore Products
Overhead Budget
Formula 27,060 DLH*
Variable costs:
Maintenance ......................... 1.25 $ 33,825
Power .................................... 0.50 13,530
Indirect labor ........................ 2.30 62,238
Total variable costs ......... $ 109,593
Fixed costs:
Maintenance ......................... $ 34,500
Indirect labor ........................ 68,400
Rent ...................................... 31,500
Total fixed costs .............. 134,400
Total overhead costs ................ $ 243,993
*24,600 DLH × 110% = 27,060
20% lower:
Meliore Products
Overhead Budget
Formula 19,680 DLH*
Variable costs:
Maintenance ......................... 1.25 $ 24,600
Power .................................... 0.50 9,840
Indirect labor ........................ 2.30 45,264
Total variable costs ......... $ 79,704
Fixed costs:
Maintenance ......................... $ 34,500
Indirect labor ........................ 68,400
Rent ...................................... 31,500
Total fixed costs .............. 134,400
Total overhead costs ................ $ 214,104
*24,600 DLH × 80% = 19,680
Exercise 8.28
Meliore Products
Performance Report
Actual Budget Variance
DLH for units produced .......... 24,700 24,700 0
Production costs*
Maintenance ..................... $ 64,100 $ 65,375 $(1,275) F
Power ................................ 12,420 12,350 70 U
Indirect labor .................... 129,400 125,210 4,190 U
Rent ................................... 31,500 31,500 0
Total ......................................... $237,420 $ 234,435 $ 2,985 U
*Flexible budget amounts are based on 24,700 DLH:
[(0.05 × 310,000) + (0.08 × 115,000)] = 24,700 DLH
Maintenance: $34,500 + ($1.25 × 24,700) = $65,375
Power: $0.50 × 24,700 = $12,350
Indirect labor: $68,400 + ($2.30 × 24,700) = $125,210
Exercise 8.29
1. Sales revenue:
Pessimistic Expected Optimistic
Sleepeze ....................... $2,250,000 $ 3,000,000 $ 3,600,000
Plushette ...................... 3,000,000 4,200,000 5,040,000
Ultima ........................... 1,800,000 5,000,000 6,000,000
Total sales .............. $7,050,000 $12,200,000 $14,640,000
2.
Pessimistic Expected Optimistic
Salaries .......................... $ 130,000 $ 130,000 $ 130,000
Depreciation .................. 20,000 20,000 20,000
Office supplies & other . 21,000 21,000 21,000
Advertising:
Sleepeze & Plushette 20,000 20,000 20,000
Ultima ......................... 270,000 750,000 900,000
Commissions ................. 262,500 360,000 432,000
Shipping:
Sleepeze ..................... 625,000 750,000 900,000
Plushette .................... 500,000 600,000 700,000
Ultima ......................... 150,000 375,000 375,000
Total................................ $1,998,500 $3,026,000 $3,498,000
Exercise 8.30
1. Activity-based budget:
Research:
Salary .............................. $ 30,000
Internet connections...... 1,920 $ 31,920
Shipping:
Salaries ........................... $ 24,500
Telephone ....................... 2,500
Ship Sleepeze................. 750,000
Ship Plushette ................ 600,000
Ship Ultima ..................... 375,000 1,752,000
Jobbers:
Salaries ........................... $ 18,750
Telephone ....................... 2,500
Commissions ................. 360,000 381,250
Basic ads:
Salaries ........................... $ 16,000
Advertising ..................... 20,000 36,000
Ultima ads:
Salaries ........................... $ 20,750
Advertising ..................... 750,000 770,750
Office management:
Salaries ........................... $ 20,000
Depreciation ................... 20,000
Office Supplies ............... 14,080 54,080
Total ..................................... $ 3,026,000
2. Clearly, shipping is the most costly activity, followed by Ultima advertising

and commissions to jobbers. It would be worthwhile to investigate shipping
costs to see if those could be reduced, for example, by getting bids from sev-
eral shippers. It is unlikely that Ultima advertising should be reduced the first
year. It is a very different, and expensive, model, and consumers may need to
be educated as to its benefits. Another method of selling to retail stores might
be worth investigating, for example, the use of a salaried sales staff.
CPA-TYPE EXERCISES
Exercise 8.31
d.
September production in units (toy cars) 100,000
Add: ending inventory (0.10 × 125,000) 12,500
Needed 112,500
Less: beginning inventory (0.10 × 100,000) 10,000
September purchases in units 102,500
× number of wheels per toy car ×4
Total January purchases of wheels 410,000
Exercise 8.32
b.
Exercise 8.33
a.
Salaries expense ($360,000 × 1.03) $370,800
Materials costs ($400,000 × 1.03) 412,000
Depreciation expense* 48,000
Interest expense on 10-year fixed-rate notes* 27,350
Total budget $858,150
* Depreciation and interest expense are fixed and not affected by inflation.
Exercise 8.34
c.
July cash sales ($156,000 × 0.2) $ 31,200
Payments on account for:
May credit sales (0.8 × $155,000 × 0.15) 18,600
June credit sales (0.8 × $149,000 × 0.70) 83,440
July credit sales (0.8 × $156,000 × 0.10) 12,480
Cash expected in July $145,720
Exercise 8.35
a.
PROBLEMS
Problem 8.36
1. Schedule 1: Sales budget

January February March Total
Units ...................... 10,000 10,500 13,000 33,500
Unit selling price... × $110 × $110 × $110 × $110
Sales ...................... $ 1,100,000 $ 1,155,000 $ 1,430,000 $ 3,685,000
2. Schedule 2: Production budget

Unit sales (Schedule 1) ......... 10,000 10,500 13,000 33,500
Desired ending inventory...... 2,100 2,600 3,200 3,200
Total needed ..................... 12,100 13,100 16,200 36,700
Less: Beginning inventory.... 900 2,100 2,600 900
Units produced ................. 11,200 11,000 13,600 35,800
3. Schedule 3: Direct materials purchases budget (Assumes May sales equal

April sales in units)
January February
Part K29 Part C30 Part K29 Part C30
Units produced ............. 11,200 11,200 11,000 11,000
Dir. mat. per unit ........... × 2 × 3 × 2 × 3
Production needs ..... 22,400 33,600 22,000 33,000
Desired EI ...................... 6,600 9,900 8,160 12,240
Total needed ............. 29,000 43,500 30,160 45,240
Less: BI ......................... 6,720 10,080 6,600 9,900
Dir. mat. to purchase 22,280 33,420 23,560 35,340
Cost per unit ................. × $4 × $7 × $4 × $7
Total purchase cost $ 89,120 $233,940 $ 94,240 $247,380
March Total
Part K29 Part C30 Part K29 Part C30
Units produced .............. 13,600 13,600 35,800 35,800
Dir. mat. per unit ............ × 2 × 3 × 2 × 3
Production needs ...... 27,200 40,800 71,600 107,400
Desired EI ....................... 9,900 14,850 9,900 14,850
Total needed .............. 37,100 55,650 81,500 122,250
Less: BI .......................... 8,160 12,240 6,720 10,080
Dir. mat. to purchase 28,940 43,410 74,780 112,170
Cost per unit .................. × $4 × $7 × $4 × $7
Total purchase cost... $115,760 $303,870 $ 299,120 $785,190
Problem 8.36 (Continued)
4. Schedule 4: Direct labor budget

Units to be produced
(Schedule 2) .................... 11,200 11,000 13,600 35,800
Direct labor time per
unit (hrs.)......................... × 1.5 × 1.5 × 1.5 × 1.5
Total hours needed ........ 16,800 16,500 20,400 53,700
Wages per hour .................. × $20 × $20 × $20 × $20
Total direct labor cost .... $336,000 $330,000 $408,000 $1,074,000
5. Schedule 5: Overhead budget

Budgeted direct labor
hours (Schedule 4) ......... 16,800 16,500 20,400 53,700
Variable overhead rate ....... × $3.90 × $3.90 × $3.90 × $3.90
Budgeted var. overhead .... $ 65,520 $64,350 $79,560 $209,430
Budgeted fixed overhead .. 161,800 161,800 161,800 485,400
Total overhead cost ....... $227,320 $226,150 $241,360 $694,830
6. Schedule 6: Selling and administrative expense budget

Planned sales (Schedule 1) 10,000 10,500 13,000 33,500
Variable selling &
administrative expense
per unit ........................... × $6.60 × $6.60 × $6.60 × $6.60
Total variable expense ...... $ 66,000 $ 69,300 $85,800 $221,100
Fixed selling &
administrative expense:
Salaries ...................... $ 88,500 $ 88,500 $ 88,500 $265,500
Depreciation .............. 25,000 25,000 25,000 75,000
Other........................... 137,000 137,000 137,000 411,000
Total fixed expenses ......... $ 250,500 $250,500 $250,500 $751,500
Total selling &
administrative exp. .... $316,500 $319,800 $336,300 $972,600
7. Schedule 7: Ending finished goods inventory budget

Unit cost computation:
Direct materials:
Part K29 (2 × $4) .............................................................. $ 8.00
Part C30 (3 × $7) .............................................................. 21.00
Direct labor (1.5 × $20) ........................................................... 30.00
Overhead:
Variable (1.5 × $3.90) ....................................................... 5.85
Fixed (1.5 × $9.04)* .......................................................... 13.56
Total unit cost ................................................................................ $78.41
*$485,400/53,700 = $9.039106, or $9.04 rounded
Units Cost per Unit Total Amount
Finished goods ........................ 3,200 $78.41 $250,912
8. Schedule 8: Cost of goods sold budget

Direct materials used (Schedule 3):
Part K29 (71,600 × $4.00).................................... $286,400
Part C30 (107,400 × $7.00).................................. 751,800 $1,038,200
Direct labor used (Schedule 4) ................................. 1,074,000
Overhead (Schedule 5) .............................................. 694,830
Budgeted manufacturing costs ......................... $2,807,030
Add: Beginning finished goods (900 × $78.41)* 70,569
Goods available for sale .................................... $2,877,599
Less: Ending finished goods (Schedule 7).............. 250,912
Budgeted cost of goods sold ............................ $2,626,687
*Assumes that these units cost the same as current quarter’s production.
9. Schedule 9: Budgeted income statement

Sales (Schedule 1) ............................................................................ $3,685,000
Less: Cost of goods sold (Schedule 8) ........................................... 2,626,687
Gross margin ............................................................................. $ 1,058,313
Less: Selling and administrative expense (Schedule 6) ............... 972,600
Income before income taxes .................................................... $ 85,713
Problem 8.36 (Concluded)
10. Schedule 10: Cash budget

Beginning balance ............ $ 62,900 $ 30,020 $ 25,450 $ 62,900
Cash receipts .................... 1,100,000 1,155,000 1,430,000 3,685,000
Total cash available ...... $1,162,900 $ 1,185,020 $ 1,455,450 $ 3,747,900
Disbursements:
Purchases ...................... $ 323,060 $ 341,620 $ 419,630 $1,084,310
DL payroll ...................... 336,000 330,000 408,000 1,074,000
Overhead* ...................... 182,320 181,150 196,360 559,830
Marketing & admin.* ..... 291,500 294,800 311,300 897,600
Land ............................... 68,000 68,000
Total disbursements ......... $ 1,132,880 $ 1,215,570 $1,335,290 $ 3,683,740
Ending balance ................. $ 30,020 $ (30,550) $ 120,160 $ 64,160
Financing:
Borrowed/repaid ........... 0 56,000 (56,000) 0
Interest paid .................. 0 0 (560) (560)
Ending cash balance ........ $ 30,020 $ 25,450 $ 63,600 $ 63,600
*Excludes depreciation, which is a noncash expense.
Problem 8.37
1. Schedule of purchases:
Cost of sales + 0.3333 Cost of sales = Sales
Cost of sales = 0.75 Sales
August September October November

Cost of sales................. $ 90,000 $ 67,500 $ 75,000 $101,250
Desired end. inventory* 27,000 30,000 40,500 45,000
Total requirements... $117,000 $ 97,500 $115,500 $146,250
Less: Beg. inventory.... 36,000 27,000 30,000 40,500
Purchases ................. $ 81,000 $ 70,500 $ 85,500 $105,750
*0.40 × next month’s cost of sales
Since purchases are paid for in the following month, accounts payable at the
end of August is $81,000. Inventory for August 31 is $27,000.
Accounts receivable for August 31 is computed as follows:
From August: 0.8 × $120,000 × 0.8* = $ 76,800

From July: 0.8 × $100,000 × 0.3 = 24,000
Total .................................................. $100,800
*By August 31, 20 percent of August credit sales have been collected, leaving
80 percent still on account.
Given accounts payable, the total assets must equal $569,750 ($81,000 +
$220,000 + $268,750). Cash is computed as the difference between total as-
sets and all other assets except cash ($569,750 – $431,750 – $27,000 –
$100,800). This difference is $10,200.
Assets L&OE
Cash ......................................... $ 10,200
Accounts receivable ............... 100,800
Inventory.................................. 27,000
Plant and equipment .............. 431,750
Accounts payable ................... $ 81,000
Common stock ........................ 220,000
Retained earnings................... 268,750
Totals ................................. $569,750 $569,750
2. Cash Budget
For the Period Ending November 30
September October November Total
Beginning cash balance.... $ 10,200 $ 10,900 $ 17,425 $ 10,200
Cash collectionsa ............... 104,400 100,800 110,200 315,400
Total cash available.... $ 114,600 $ 111,700 $127,625 $325,600
Disbursements:
Accounts payableb ..... $ 81,000 $ 70,500 $ 85,500 $237,000
Salaries and wages .... 10,000 10,000 10,000 30,000
Utilities ........................ 1,000 1,000 1,000 3,000
Other ............................ 1,700 1,700 1,700 5,100
Property taxes ............ 15,000 — — 15,000
Advertising fees.......... — 6,000 — 6,000
Lease ........................... — — 5,000 5,000
Total disbursements.......... $ 108,700 $ 89,200 $103,200 $301,100
Minimum cash balance ..... 10,000 10,000 10,000 10,000
Total cash needs ............... $ 118,700 $ 99,200 $113,200 $311,100
Excess (deficiency) ........... $ (4,100) $ 12,500 $ 14,425 $ 14,500
Financing:
Borrowings ................. $ 5,000 $ 5,000
Repayments ................ $ (5,000) (5,000)
Interestc ....................... (75) (75)
Total financing ................... $ 5,000 $ (5,075) $ (75)
Ending cash balanced ....... $ 10,900 $ 17,425 $ 24,425 $ 24,425
aCash collections:
Cash sales ................... $ 18,000 $ 20,000 $ 27,000 $ 65,000
Credit sales:
Current month........ 14,400 16,000 21,600 52,000
Prior month ............ 48,000 36,000 40,000 124,000
From 2 months ago 24,000 28,800 21,600 74,400
Total collections ............... $ 104,400 $ 100,800 $110,200 $315,400
bFor Accounts Payable taken from the balance sheet developed in Requirement 1.
c$5,000 × 0.09 × (2/12) (beginning of September to end of October).
dIncludes minimum cash balance of $10,000.
3. Creighton Hardware Store

Pro Forma Balance Sheet
November 30
Cash .......................................................... $ 24,425
Accounts receivablea............................... 110,400
Inventoryb ................................................. 45,000
c
Plant and equipment .............................. 419,750
Accounts payableb................................... $105,750
Common stock ......................................... 220,000
Retained earningsd .................................. 273,825
Totals ................................................. $599,575 $599,575
a(0.8 × $135,000 × 0.8) + (0.8 × $100,000 × 0.3).
bFrom purchases schedule prepared in Requirement 1.
c$431,750 – (3 × 4,000).
dIf total assets equal $599,575, then liabilities plus stockholders’ equity must
also equal that amount. Subtracting accounts payable and common stock
from total liabilities and stockholders’ equity gives retained earnings of
$273,825.
Problem 8.38
1. a. Production budget:

Unit sales .............................. 36,000 34,500 39,000 109,500
Desired ending inventory .... 12,075 13,650 13,510 13,510
Total units required .......... 48,075 48,150 52,510 123,010
Less: Beginning inventory .. 5,600 12,075 13,650 5,600
Units produced ................. 42,475 36,075 38,860 117,410
b. Direct labor budget (hours):

Units produced ..................... 42,475 36,075 38,860 117,410
Direct labor hours per unit .. × 3.0 × 3.0 × 2.5
Total labor budget (hours) 127,425 108,225 97,150 332,800
c. Direct materials cost budget:

Units produced..................... 42,475 36,075 38,860 117,410
Cost per unit ......................... × $9 × $9 × $9 × $9
Total direct materials ....... $382,275 $324,675 $349,740 $1,056,690
d. Sales budget (dollars):

Unit sales .............................. 36,000 34,500 39,000 109,500
Unit selling price .................. × $80 × $80 × $75 × $78.22*
Total sales revenue.......... $2,880,000 $2,760,000 $2,925,000 $8,565,000
*Total price is the weighted average of the sales price in three months and is
rounded. The total sales revenue is the total of the sales revenue for the
three months.
2. Greiner Company
Budgeted Contribution Margin
First Quarter, 2015
Sales revenue ................... $2,880,000 $2,760,000 $2,925,000 $8,565,000
Direct labor cost* .............. 2,293,650 1,948,050 1,943,000 6,184,700
Materials cost** ................. 382,275 324,675 349,740 1,056,690
Contribution margin .... $ 204,075 $ 487,275 $ 632,260 $1,323,610
*Total labor budget hours × Direct labor hourly rate
**From 1.(c)
Problem 8.39
Friendly Freddie’s
Cash Budget
October through December
October November December
Beginning cash balance ......................... $ 8,800 $ 8,600 $ 9,120
Receipts:
Cash sales .......................................... 14,000 29,000 44,000
Collections of sales on accounta ..... 118,200 126,340 134,080
Note receivable repayment ............... 13,000
Total cash available ................................ $154,000 $ 163,940 $187,200
Disbursements:
Payment of inventory purchasesb .... $116,400 $108,640 $124,160
Operating expenses .......................... 38,000 41,000 46,000
Loan repayment ................................. 5,000 4,000
Interestc .............................................. 180 80
Total disbursements ............................... $154,400 $ 154,820 $174,240
Cash balance ........................................... $ (400) $ 9,120 $ 12,960
Bank loand ............................................... 9,000
Adjusted cash balance ........................... $ 8,600 $ 9,120 $ 12,960
aCollections of sales on account:
July: 6% of $130,000 .............. $ 7,800
August: 20% of $104,000 ............ 20,800
6% of $104,000 .............. $ 6,240
September: 70% of $128,000 ............ 89,600
20% of $128,000 ............ 25,600
6% of $128,000 .............. $ 7,680
October: 70% of $135,000 ............ 94,500
20% of $135,000 ............ 27,000
November: 70% of $142,000 ............ 99,400
December: 0 .....................................
Total .................................................... $118,200 $ 126,340 $134,080
bPayments for inventory purchases:
September purchases (97% of $120,000) $116,400
October purchases (97% of $112,000) ..... $108,640
November purchases (97% of $128,000) . $124,160
cInterest:
November—2% of $9,000
December—2% of $4,000
dLoans must be taken out and repaid in multiples of $1,000.
Problem 8.40
1. Overhead rate = $423,167/13,446 = $31.47

Predicted Actual
Month Overhead Overhead Variance
January ................... $ 31,470 $ 32,296 $ 826 U
February ................. 29,267 31,550 2,283 U
March ...................... 34,617 36,280 1,663 U
April......................... 33,044 36,867 3,823 U
May .......................... 36,820 36,790 30 F
June ........................ 37,764 37,800 36 U
July.......................... 38,865 40,024 1,159 U
August .................... 37,449 39,256 1,807 U
September .............. 33,673 33,800 127 U
October ................... 38,079 33,779 4,300 F
November ............... 37,984 37,225 759 F
December ............... 34,113 27,500 6,613 F
Totals .................. $423,145 $423,167 $ 22 U
2. The regression for overhead cost as a function of machine hours gives the
following formula:
Overhead cost = $8,699.64 + $23.71 (machine hours)
Predicted Actual
January ................... $ 32,410 $ 32,296 $ 114 F
February ................. 30,750 31,550 800 U
March ...................... 34,781 36,280 1,499 U
April......................... 33,595 36,867 3,272 U
May .......................... 36,440 36,790 350 U
June ........................ 37,152 37,800 648 U
July.......................... 37,981 40,024 2,043 U
August .................... 36,915 39,256 2,341 U
September .............. 34,069 33,800 269 F
October ................... 37,389 33,779 3,610 F
November ............... 37,318 37,225 93 F
December ............... 34,401 27,500 6,901 F
Totals ................. $423,201 $423,167 $ 34 F
The flexible budget based on machine hours is better than the budget using
only the plantwide overhead rate because the flexible budget divides overhead
costs into fixed and variable components. This division would at least give the
controller the ability to make a rough calculation of the marginal cost of run-
ning additional machine hours at the factory. However, the regression equa-
tion on which the flexible budget is based is not particularly good (adjusted R2
of 0.345).
Problem 8.41
1. The multiple regression for overhead cost gives the following formula:
Overhead cost = $6,035.99 + $4.56 (machine hours) + $771.10 (setups)

+ $29.94 (purchase orders)
Predicted Actual
January ................... $ 32,485 $ 32,296 $189 F
February .................. 31,642 31,550 92 F
March ...................... 36,227 36,280 53 U
April ......................... 36,643 36,867 224 U
May .......................... 36,868 36,790 78 F
June ......................... 37,971 37,800 171 F
July .......................... 39,583 40,024 441 U
August ..................... 39,041 39,256 215 U
September............... 33,972 33,800 172 F
October ................... 34,356 33,779 577 F
November................ 37,359 37,225 134 F
December ................ 27,037 27,500 463 U
Totals ................. $423,184 $423,167 $ 17 F
The flexible budget based on multiple regression is much better than the one
based on simple regression. Multiple regression enables the controller to use
three independent variables, each based on a different driver. We can see that
the R2 has improved considerably (to 0.99). In addition, if we compare the
monthly variances of the two budgets, the flexible budget using three varia-
bles shows much smaller monthly variations. As a result, this budget will be
more useful to the controller for planning and decision making. Finally, the
use of the three independent variables moves the factory closer to the more
powerful technique of activity-based budgeting.
2. The multiple regression for overhead cost gives the following formula:
Overhead cost = $5,715.47 + $3.74 (machine hours) + $767.03 (setups) +

$34.68 (purchase orders) + $887 (Party)
Predicted Actual
January ................... $ 32,287 $ 32,296 $ 9U
February ................. 31,670 31,550 120 F
March ...................... 36,341 36,280 61 F
April......................... 36,648 36,867 219 U
May .......................... 36,850 36,790 60 F
June ........................ 37,702 37,800 98 U
July.......................... 40,150 40,024 126 F
August .................... 39,083 39,256 173 U
September .............. 33,901 33,800 101 F
October ................... 33,878 33,779 99 F
November ............... 37,235 37,225 10 F
December ............... 27,364 27,500 136 U
Total .................... $423,109 $423,167 $ 58 U
The flexible budget based on multiple regression with the four variables is bet-
ter than the one using multiple regression with three variables. The R2 for both
regressions is 0.99, so that is not the deciding factor. Instead, we see that the
addition of the “Party” variable begins to move the budget even more in the
direction of activity-based budgeting, since the throwing of the parties is an
activity. In this case, we see that each party costs the factory about $887. Now,
managers can begin to balance the cost of the parties with the benefits (prob-
ably improved morale).
Problem 8.42
1. a. An imposed budgetary approach does not allow input from those who are
directly affected by the process. This can tend to make the employees
feel that they are unimportant and that management is concerned only
with meeting budgetary goals and not necessarily with the well-being of
employees. The employees will probably feel less of a bond with the or-
ganization and will feel that they are meeting standards set by others. An
imposed budgetary approach is impersonal and can give employees the
feeling that goals are set arbitrarily or that some people benefit at the ex-
pense of others. Goals that are perceived as belonging to others are less
likely to be internalized, increasing the likelihood of dysfunctional behav-
ior. Furthermore, imposed budgets fail to take advantage of the
knowledge subordinate managers have of operations and local market
conditions.
b. A participative budgetary approach allows subordinate managers consid-

erable say in how budgets are established. This communicates a sense of
responsibility to the managers and fosters creativity. It also increases the
likelihood that the goals of the budget will become the managers’ per-
sonal goals, due to their participation. This results in a higher degree of
goal congruence. Many feel that there will be a higher level of perfor-
mance because individuals who are involved in setting their own stand-
ards may work harder to achieve them. When managers are allowed to
give input in developing the budget, they tend to feel that its success or
failure reflects more personally on them.
2. a. In an imposed budgetary setting, communication flows from the top to

the bottom and is mostly a one-way flow. Any upward flow would have to
do with understanding the budgets being communicated. For participa-
tive budgeting, the communication flows are necessarily in both direc-
tions, with much of the communication being initiated by subordinate
managers.
b. The first communication process leaves the impression that the opinions
and thoughts of lower-level managers are unimportant. They may feel that
no input is being solicited because their input is not valued. The second
process, however, conveys the impression that opinions and views are
important and valued. This tends to create a greater feeling of worth to
the organization and a stronger commitment to achieving its goals.
Problem 8.43
1. a. The reasons that Marge Atkins and Pete Granger use budgetary slack in-
clude the following:
• They are hedging against the unexpected, thereby reducing uncer-
tainty and risk.
• The use of budgetary slack allows employees to exceed expectations
and/or show consistent performance. This is particularly important
when performance is evaluated on the basis of actual results versus
budget.
• Employees are able to blend personal and organizational goals
through the use of budgetary slack as good performance generally
leads to higher salaries, promotions, and bonuses.
b. The use of budgetary slack can adversely affect Marge and Pete by:
• Limiting the usefulness of the budget to motivate their employees to
top performance.
• Affecting their ability to identify trouble spots and take appropriate
corrective actions.
• Reducing their credibility in the eyes of management.
• Also, the use of budgetary slack may affect management decision
making, as the budgets will show lower contribution margins (lower
sales, higher expenses). Decisions regarding the profitability of
product line, staffing levels, incentives, etc., could have an adverse
effect on Marge’s and Pete’s departments.
2. The use of budgetary slack, particularly if it has a detrimental effect on the

company, may be unethical. In assessing the situation, the specific provi-
sions of the “Statement of Ethical Professional Practice” that should be con-
sidered are:
Competence: Provide decision support information and recommendations

that are accurate, clear, concise, and timely.
Integrity: Mitigate actual conflicts of interest, regularly communicate with

business associates to avoid apparent conflicts of interest. Advise all parties
of potential conflicts.
Credibility: Information should be fairly and objectively communicated. All

relevant information should be disclosed.
Cornerstones of Cost Management Hansen 3rd Edition Solutions Manual
CYBER RESEARCH CASE
8.44
Answers will vary.
The Collaborative Learning Exercise Solutions can be found on the

instructor website at http://login.cengage.com.
The following problems can be assigned within CengageNOW and are auto-
graded. See the last page of each chapter for descriptions of these new assign-
ments.
• Integrative Problem—Budgeting, Standard Costing, Decentralization (Covering

chapters 8, 9, and 10)
• Blueprint Problem—Master Budget-The Operating Budget
• Blueprint Problem—Master Budget-The Financial Budget
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India,” by J. Talboys Wheeler.
A summary of all the eighteen sections of the epic is to be found in
Sir Monier Williams’s “Indian Epic Poetry” (Williams and Norgate,
1863).
CONCLUDING REMARKS
Having presented to the reader the foregoing condensed epitomes of
the great Hindu Epics, it only remains for me to offer a few brief
observations upon some of the more abiding features of the national
life and the religious and moral sentiments of the Hindus, as
illustrated by these gigantic poems, in which we see, as in a mirror,
an unconscious reflection of the ideas and tendencies, the
intellectual cravings and the moral instincts, of the age to which they
belong.
It may seem superfluous to remind the reader that the “Ramayana”
describes the adventures of Rama, including amongst them a war
which he undertook in order to avenge an insult and to recover the
person of his wife, who had been carried off by an unscrupulous
enemy. The campaign against Ravana had not for its object
extension of territory, but the punishment of an evil-doer and the
righting of a personal wrong; while the protracted struggle, which is
the basis of the “Mahabharata,” is purely a contest for supremacy
between kindred families, each side being backed by friends and
allies from amongst their own race, as well as from amongst alien
tribes (the Mlecchas). In neither poem, be it noted, does any
question of patriotism arise; for the contest in which the heroes are
involved are not against foreign invaders or national enemies.
The India known to the compilers of the “Ramayana” and
“Mahabharata,”—the extensive theatre upon which their heroes
played the stirring drama of their lives—was evidently a land covered
with vast tracts of dense forest, whose mysterious gloom, pervaded
with the aroma of incense and burnt-offerings, has cast a vague and
mighty shadow over the hearts of the Hindu bards, as surely as the
breezy atmosphere and the restless waves of the Ægean have
imparted a healthy buoyancy to the Homeric rhapsodists.
The dreamy solitudes in which Valmiki and Vyasa love to linger have
a restfulness about them which the European, unused to Eastern
lands, can hardly comprehend. They have also a mystery only to be
found in primæval forests, and they possess a dark background of
horror, in the roar of the ferocious tiger, the hiss of the deadly
serpent, and the grip of the invisible fever-fiend, enough to awaken
strange and gloomy imaginings.
The few who have lived, as I have done, through changing seasons
in the dense forests of Eastern India, can hover in spirit through
Valmiki and Vyasa’s woodlands of the past.
First it is summer, and the hot sunbeams come filtering through the
leafy covering, under the shadow of which man and beast listlessly
repose through uneventful hours, while the shrill cricket chirps its
monotonous song and the cokil’s sweet note fills the hot and
trembling air. Then the black clouds gather overhead. God Indra
parts them with his flashing bolts. Loud thunder peals in the sky, the
roaring hurricane enters into fearful conflict with the warring trees,
and the rain descends, not in tiny drizzles, but in torrents; and its
voice, as it buries itself in square miles of standing forest, is like the
roar of many waters. Cascades, starting into life, leap gladly from the
hill-side. The swollen streams, muddy and impassable, swirl and
rush along, carrying with them a burden of forest trees. A mantle of
vivid green covers, as if by magic, the whole earth, and climbs up till
it almost hides the little cottage in which the proprietor takes refuge
from the incessant drip, which descends from the leafy covering
above.
To this succeeds a period when the steamy miasma rises in the
green light from the rotten ground, and man and beast sicken in the
malarious atmosphere, wherein the odour of decaying vegetation
mingles with the exquisite perfume of orchids and strange flowers of
the wilderness. In the glorious sky—in mystic cloudland—appear
displays of light and colour, of subtle tints and gorgeous hues, utterly
beyond description or the artist’s cunningest skill. Watch, with
fevered vision, from the neighbourhood of one of these dark forests
the rapidly shifting cloud-phantasms, arrayed in red and gold, upon
the evening sky, then cease from marvelling at the exuberant and
unbridled imaginings of the Indian bard! Fix your attention at night
upon the monstrous shapes which hover, skulking in the
background, in the flickering firelight, listen to the unearthly wailing
and stifled cries which steal through the hideous darkness, and
doubt no more the existence and doings of gruesome Rakshasas
who change their shapes at will! Learn also, at the same time, how
indispensable a god is Agni, who protects you through the horrors of
darkest night in the forests.
Later in the year winter smiles mildly over the enervated land and
chills the tepid air. For hours after sunrise a dense fog wraps the
primæval forest in its embrace, but when it, ghost-like, steals silently
away, it reveals the white smoke of the cottages curling upwards into
a blue unclouded sky. The sun hardly affords sufficient warmth to the
labourer in the little patch of cultivation near the hut, and the moon
looks cold and pallid: the streams begin to dwindle away; the
cascades are silent.
Such is the succession of seasons in a tropical forest-land like the
India of the Epics. And, throughout all the seasons, the forest is
enveloped in a dreamy air of depression and despondency, which
peoples the solitudes with hideous Rakshasas, but leaves no place
for sporting nymphs or dancing fairies. Life in such woodlands is real
forest-life, not like Thoreau’s delightful playing at hermit in Walden,
within a couple of miles of Concord, and in sight of a railway.
Thus far the forests; but the sublime Alps of the Indian world, tallest
and most majestic of mountains, have not been without influence
upon the feelings of the Indian poets, elevating them to lofty heights
of contemplation. And when we read what the few travellers who
have penetrated those regions have to tell us of the ineffable
grandeur and sublimity of the lone mountains, the glittering ice-fields,
and the untrodden snows of the interior, when we consider the
solemn silence of those uninhabited solitudes, we cannot wonder
that the Indian poets who had heard of them, and perhaps visited
their rocky fastnesses, made of them a land of mystery and the
sporting place of their gods and Apsaras.
Not only from the woods of Dandhaka and the vales and crests of
mighty Himavat did the epic poets of India gather inspiration; but
also from the noble and lovely rivers of their fair land, winding
beneficently through many hundreds of miles of fertile country, from
their birth-places above the clouds to the bosom of the all-embracing
ocean, while determining in their course the march of migration and
conquest.
Mountains, forests and rivers, all of colossal proportions, have
served to impress a grandiose if bewildering character upon the
great Epics of India, which the reader, even of this volume, can
hardly fail to observe.
Religion, being the dominant note of these voluminous poems,
claims our first consideration. In this connection I would draw
attention to the fact that India is very far from that stage of
intellectual development in which literature, science, art and politics
become secularized. In Europe secularization has taken place
gradually under the influence of the spirit of rationalism, as Mr. Lecky
has so admirably explained. In India a beginning has been made in
the secularization of knowledge. It is yet only a mere beginning,
which owes its origin to the influence of English education; but the
effects being confined to a very small class indeed, it may still be
said with truth that all departments of knowledge which form the
intellectual heritage of the Indian people—even law, poetry and the
drama—fall within the domain of theology. And, certainly, there is no
indigenous science amongst the Hindus which is not subject to
priestly influence and interpretation.
Throughout the Epics we find the supernatural beings, who influence
the destinies of mankind, arrayed in two distinctly hostile camps. On
one side are the gods with the Gandharvas and Apsaras. On the
other side the Asuras, including Daityas and Danavas, Rakshasas
and Picáchas. The contest lies, be it noted, between the lesser gods
and the Asuras with their allies. The superior gods interpose from
time to time in the interests of the celestials; but behind and above
the turmoil of existence the shadowy form of inexorable destiny
reveals its overwhelming presence.
The part of man in the perpetual strife carried on between the two
orders of superhuman beings is neither an ignoble nor a passive
one. Man is not, as in most other religions, either the abject and
unworthy recipient of gracious favours from the gods, or the unhappy
victim of the malice of devils and demons. His position in the
universe, as conceived by the authors of the Indian Epics, reflecting,
no doubt, the prevailing ideas of their time, was a far higher one.
Man is no nonentity in the struggle between the good and the evil
forces of nature, but is rather a very important factor; for it is his
especial duty to piously assist and nourish the celestials by perpetual
sacrifices, so that they on their part might have the strength to
perform their respective duties in the government of the universe,
and insure the repression of the forces of evil. Neither is man a
merely useful but servile auxiliary of the celestials; since he may by
austerities, sacrifices, and ceremonies, earn and acquire rights and
power for himself, and use his accumulated store of energy at his
own will and for his own purposes.
Now it is a noteworthy fact that this high ideal of man’s dignity in the
scale of beings has led in India to a degradation of the gods. It would
seem as if you could not raise man without pulling down the deity; as
if you could not exalt the human race without abasing the celestials.
Hence we see the irreverent familiarity with which the highest gods,
even Mahadeva, is personated by the Hindus in religious
processions, or even on the occasion of the wild saturnalia of the
Holi festival, when a man painted white with a wig of long yellow hair
on his head, a string of huge beads about his neck, and a trident in
his hand—the Supreme Deity personified—is borne aloft amidst a
crowd of excited men who are indulging in the grossest license of
obscene speech and gesture.
In regard to a life beyond the grave the writers of the Epics hold very
decided opinions, a fact of great interest, if we remember that the
Jews acquired their ideas about existence after death and of good
and evil spirits for the first time in their Babylonian captivity, and
passed them on as a heritage to Christianity; the conceptions of our
great Christian poet, Milton, being strongly coloured by ideas which,
undoubtedly, had their roots in Persian Mazdeism.
The heavens of the Hindu gods are essentially material and
sensuous, with their palaces and gardens, music and dancing, their
lively Gandharvas and frail Apsaras. Yet the goddesses play a very
subordinate part, indeed, in India’s heroic age. We find in the Epics
no powerful Hera, no wise Pallas Athene, no lovely Venus, no silver-
footed Thetis—bright creations which lend such a charm to the
myths of Hellas. Ganga, it is true, acts a minor and appointed part in
the great drama, and Parbati is mentioned, while Durga and Kali only
flit across the stage. But it is quite evident that in the Olympus of the
Aryan Indians the goddesses had not attained the power and dignity
they enjoy to-day. The frequent boasts in the Epics against the
celestials with Indra at their head, the way in which every chief or
leader, even of the Venars, is said to be a match for Indra’s self,
seem to indicate an unmistakable, if covert, hostility to the old gods
of the Aryan invaders, which is well worthy of notice, as indicating a
transition period in the religious development of the Hindus, a period
of doubt and confusion, which is emphasized by the fulsome flattery
addressed to anyone of whom a favour is desired, be he man or god.
He is the best of men, the greatest of kings; equal to gods, he is a
god; he is Indra; he is Yama; he is Prajapati; he is superior to all the
gods; he is the ruler of the three worlds; he is, in fact, anything and
all things to the uncertain suppliant who craves his help. And in
these perplexities we seem to have a share too; for under the
influence of the pantheistic notions of the writers, combined with their
conceptions of endless transmigrations and utter indifference to
permanent shapes of any kind, individuality seems lost (as when we
find Krishna addressed as the younger brother of Indra[130]), and a
world of confused phantasmagorial forms seems to dance before us,
till we feel dizzy contemplating this distracting and impermanent
universe.
But amidst the ever-shifting pageant of existence the Hindu seems to
have arrived at and firmly grasped the idea of a periodic law which
has given a certain grandeur to his speculations about both the past
and the hereafter.
From the orderly sequence of natural phenomena, as in the
succession of day and night; in the measured march of the seasons
of the revolving year; in the periodic movements of the heavenly
bodies; the Hindu recognized an appointed, unvarying and endless
cycle of changes. Generalizing from these facts he concluded that
this law must hold for the entire Cosmos as well, which would pass
through its grand but destined cycle of changes, over and over
again, in the æons of eternity. He held these ideas in common with
the Greek of old, and, like the Greek of old, he never rose to the
conception of progress, development, evolution.[131]
How the Hindu thinker accounted, by his doctrine of Karma, for the
striking inequalities and apparent injustice inseparable from
mundane existence, the reader has learned in sufficient detail
already. As to the moral responsibility of man for his actions, the
poets of the Epics had thought out the problem in its various aspects
and despairingly left it unsolved. For as Sanjaya, the envoy of the
Pandavas to their cousins, sadly says, in the true spirit of
agnosticism: “In this respect three opinions are entertained; some
say that everything is ordained by God;[132] some say that our acts
are the results of free will; and others say that our acts are the
results of those of our past lives.”[133]
The attribution of righteousness to the gods does not seem to be
insisted upon; for Krishna, as we have seen, is particularly prone to
guileful arts in order to compass his objects, like the Pallas Athene of
Homer, at whose suggestion Pandaros treacherously and
unjustifiably wounded Menelaus with an arrow.
In regard to the political condition of India in those earlier times we
may, I think, gather from the Epics that the petty rulers who shared
the land amongst themselves were very numerous—thousands,[134]
indeed, if the poet’s statements could be relied upon,—and we need
not doubt that it was the perpetual endeavour of the more able and
ambitious of these kings to get as many as possible of their fellow
chiefs to acknowledge their supremacy.
No one who studies the narratives attributed to Valmiki and Vyasa
will fail to catch glimpses of the simple sagas which formed the
ground-work of the great edifices raised by the Indian poets; but, as I
have observed in the Introductory Chapter, the value and extent of
what is usually considered historical matter to be traced in the
“Ramayana” and “Mahabharata” is so small and so doubtful that it
fails to command either my interest or my confidence. It may be due
to perversity of character, or to want of historical acumen on my part;
but when I am expected to believe that the progress of the Bhojas
and their allies eastward may be traced in the legend of Karna, given
in the “Mahabharata,” with which the reader of the foregoing pages is
familiar, I do not feel inclined to acquiesce. And when I am gravely
assured that the romantic story of Satyavati, the fisherman’s
daughter, her marriage with Santanu and her previous amour with
the father of Vyasa, although absurd in Vyasa’s own poem, becomes
intelligible,—if we will only put the individual fisherman out of court
altogether, forget what the poet tells us about Satyavati, and imagine
that the young lady in question was a personage of some importance
in the family of the king of the fishing people,—I feel such efforts
towards constructive history are somewhat beyond my abilities.[135]
While writers of one class strain after the hidden historical elements
in the “Ramayana” and “Mahabharata,” those of another class
(represented by both Europeans and Indians), ingeniously discover
in these narratives merely solar myths or moral allegories. It were
needless to enlarge upon this topic here, and I have already given
instances of such interpretations in the Note appended to the
“Ramayana” (p. 91) and in the summary of the “Bhagavatgita” (p.
217). I would merely add that if it be the true function of history to
reveal to us living pictures of bygone times, to disclose to us the
social life of earlier days, and to make us acquainted with the
thoughts, ideals and aspirations of former generations, then the
Indian Epics are a solid contribution to historical literature even if
they do not happen to chronicle actual events.
The heroes of the Epics, being mostly demigods with a long previous
history, an appointed destiny, and subject, like mortal men, to pass
through many future existences in other forms, do not, I confess,
engage my sympathies very much. Even human beings upon this
epic stage lose their distinctive character and cease to interest us if
we regard them merely as souls masquerading, as it were, for a
certain time in particular forms assumed for the occasion, different
from the many they have worn in former states, and unlike those
which they will wear in future lives. Indeed the doctrine of
metempsychosis, with its fluxional succession of beings, human and
divine, undermines the conceptions of definite and permanent
individuality so thoroughly that I do not wonder that sober human
history, with its limited stage and narrow chronology, has had but
little charm for the Hindus.
More remarkable than the heroes of Kurukshetra, however, are the
Rishis and Hermits, who stand out upon the canvas of the Epic poets
with startling distinctness. These sages, with their austerities, their
superhuman powers, their irascibility and their terrible curses, are
the Hindu representatives of the magicians and sorcerers of other
countries, and form a remarkable feature in the life of even modern
India. As a rule the saints of Christendom are of another type, yet,
strange to say, there are a few of them, St. Renan for example, to
whom have been attributed characteristics not unlike those of the
Indian Rishis.[136] Elsewhere a large share, perhaps the greater
share, of magical power has been credited to the fair sex; but the
Hindu has, characteristically, made no such concession to women,
who never at any time in India were granted the free and honoured
position accorded them amongst the Germans of Tacitus or the
Norsemen of the Eddas, and never enjoyed even the restricted
liberty which Greek women were privileged to exercise.
Nevertheless, there is, undoubtedly, a substratum of chivalrous
feeling towards the weaker sex manifested throughout the Epics,
often in a distinct and pronounced manner.
As to the social life of the early heroic age, of which we get so many
interesting glimpses in the Epics, it is certain that it was extremely
simple and rude; as, for instance, to cite a single example, the life of
the Pandavas in their primitive “house of lac,” where their mother
ministered to them without the assistance of any servants at all,
although, be it remembered, the young princes were supposed to be
enjoying themselves away from home on a sort of holiday excursion.
There is, however, ample evidence to show that by the time the
poems were actually compiled or, at any rate, cast into their present
forms, a complicated society had been evolved, and a life of
luxurious ease and refinement was not unknown. Throughout the
period embraced in the Epics the caste-system was well established,
animal food commonly used,[137] and spirituous drinks not
prohibited. Polygamy was common, and polyandry a recognized
institution, while the practice known as Niyoga—of raising up
offspring to deceased relatives or childless men—was, undoubtedly,
fully established.
Now caste, with its baleful influences, still dominates Hindu life;
polygamy continues to be common in some parts of India; polyandry
is still practised, here and there, in backward places; and Niyoga,
which has never ceased to be orthodox doctrine, has, in these days,
had special prominence given to it by Swami Dayanand, and the
sect recently founded by him. The practice in question—which is
known in a modified form as levirate[138] amongst the Jews—has
been established in India since time immemorial, and we have had
important instances of it in the foregoing pages.
What Manu, the great Indian lawgiver, says on the subject of Niyoga
is as follows: “On failure of issue by the husband, if he be of the
servile class, the desired offspring may be procreated, either by his
brother or some other sapinda, on the wife, who has been duly
authorized. Sprinkled with clarified butter, silent, in the night, let the
kinsman thus appointed beget one son, but a second by no means,
on the widow or childless wife. By men of twice-born classes no
widow or childless wife must be authorized to conceive by any other
man than her lord.”[139]
Swami Dayanand, however, does not limit the practice of Niyoga to
the inferior castes, nor to the cases referred to by Manu. The modern
reformer goes much further, teaching a doctrine, said to be founded
on the Vedas, which allows a latitude in respect to the relations
between the sexes that, to say the least, is extremely startling in this
nineteenth century.[140] I am bound to add that I have been very
positively assured that Swami Dayanand’s precepts in respect to
Niyoga are not actually practised by his followers, but their
dangerous tendency is, I presume, undeniable.
From the earliest ages known to the writers of the “Ramayana” and
“Mahabharata” cremation of the dead has been the practice in India.
Hence in Indian archæology we are deprived of those sources of
information—graves, tumuli, cromlechs and sepulchres—which
elsewhere, as in Egypt, have furnished such a wealth of facts
regarding the earlier races of mankind.
The sacred character of the Brahmans receives abundant
recognition in the Epics; and it is noteworthy that, except in the
relinquishment of animal food and vinous drinks by a great majority
of the Hindus, little change has taken place in the social habits of the
people since the heroic age depicted in the Epics. We need not
doubt, however, that the abstention from animal food and, with it,
from wine and spirits of all kinds has, in the course of many
generations, profoundly modified the national character; and has,
perhaps, more than anything else, gradually converted the turbulent,
aggressive Aryan into the mild and contemplative Hindu.[141]
A high degree of culture had doubtless been attained by the Indians
before the Epics were cast into their present forms. The industrial
arts would seem to have flourished, and we have seen how highly
the poets appreciated and enjoyed the beauty of the woodlands, and
how much they were impressed with the scenery of their grand
mountains. This in itself is a remarkable fact, as the charms of
landscape beauty do not seem to have been realized in the West
until a somewhat later time.
The ideal of human (particularly female) beauty which possessed the
minds of the Hindu bards has been indicated by several allusions
and quotations in the preceding chapters. It is certainly not that
embodied in the Venus of Melos or the Apollo Belvedere; but every
age and country has its own ideals.
Throughout the foregoing brief narrative there has been ample
evidence of the height to which the speculative imagination of the
Hindus had carried them in endeavouring to read the riddle of human
destiny, and notably so in the subtle pantheism of the
“Bhagavatgita,” a work which, even if the date assigned to it by
European scholars be accepted, and with that its authors’ supposed
acquaintance with Christian ideas, must still excite our admiration by
its largeness of conception and liberality of sentiments—expressed
many centuries before Luther nailed his famous ninety-five theses
upon the door of the church at Wittenberg.
The imaginative faculty never fails the bards of the Indian Epics, who
too often indulge in a very delirium of exaggeration. Yet,
notwithstanding their supreme contempt for probabilities or
consistency, and their lofty scorn of numerical limitations, it cannot
be denied that these Hindu poets, with their lawless imaginations,
take us completely captive and carry us along with them, surprised
and delighted, through the wonderful scenes of their creation; while
one cannot but feel in their company that the intellectual atmosphere
which surrounds them is a stronger one and more spiritual than that
which was breathed by the Greeks of Homer or the Teutons of the
Eddas.
On the whole, it may be said that the Indian Epics as they have
reached us, reveal to the careful student an ancient free and
vigorous primitive social life and turbulent times, overlaid by a later
and less healthy, if more refined civilization, which was permeated
with ecclesiasticism; and that they exhibit a strange mixture of what
Mr. Herbert Spencer would call the “ethics of enmity” and the “ethics
of amity.” The later stage of Indian history—the age of Brahmanism
succeeding the heroic age and continuing to the present day—may, I
think, be well compared with the Middle Ages in Europe, when
priestly influence was predominant and national life at a low ebb.
Europe, under the influence of the spirit of industrialism and modern
science, has emancipated itself from the numbing influences of the
Dark Ages. When will India do the same? For how many more
centuries is she destined to wrangle over unprofitable theological
questions, as did the Byzantine Greeks while the conqueror was
thundering at their gates?
My pleasant undertaking has occupied more time than I had
anticipated when I took it in hand; but I leave it now with a profound
appreciation of the capabilities of a people who have produced such
works as the “Ramayana” and “Mahabharata.”
In every age—even in an industrial age of busy scientific progress
and mechanical triumphs like our own—the human mind turns with
fond interest to any picture which shows how men in the fore-time
lived and thought, and it listens eagerly to any song which echoes
through the vanished years the fervent hopes and lofty aspirations of
buried generations. Therefore, I trust that my little work, though it be
but a sketch of a great picture and the echo of a grand old song, may
find favour with the public, and help to open up to English readers a
strange but interesting world of Eastern ideas and conceptions.
Above all, however, I hope that my pages represent—as I believe
they do—both fairly and adequately the great Epics of India.
CHISWICK PRESS:—CHARLES WHITTINGHAM AND CO.
TOOKS COURT CHANCERY LANE, LONDON.
FOOTNOTES:
[1] “No other work in India at the present day possesses the attraction which these
epics have for the majority of the people.”—Life in an Indian Village, by T. Rama
Krishna, B.A. (T. Fisher Unwin, 1891).
[2] Professor Max Müller’s Hibbert Lectures, 1878, p. 50.
[3] Prisoners of war of all ranks were sacrificed in numbers.
[4] Du Chaillu’s “The Viking Age,” vol i., chapter xx., et seq.
[5] “A Brief History of the Indian People,” by Sir William Wilson Hunter, K.C.S.I.
(Trübner and Co.).
[6] The world has recently been informed by Dr. Brinton that the theory attributed
to Dr. Latham was really first advanced by Omalius D’Halloy in the “Bulletins de
l’Academie Royale de Belgique” in May, 1848 (“Nature,” July 21st, 1892).
[7] As is maintained by Dr. Hermann Braunehoffer, “Journal of Royal Asiatic
Society,” 1890, pp. 687-689.
[8] “The Origin of the Aryans,” by Isaac Taylor, M.A., LL.D. (Walter Scott);
“Prehistoric Antiquities of the Aryan Peoples,” by Dr. O. Schrader, translated by F.
B. Jevons, M.A. (Charles Griffin and Co.).
[9] The preparations for a recital of this kind in a village in the Madras Presidency
are thus described. “People came pouring in from Kelambakam and from
neighbouring villages to the house of the village headman. On the pial of his
house was seated the preacher. Before him was placed the picture of Krishna
playing the flute and leaning on a cow. The picture was profusely decorated with
flowers. There were also two small vessels. In one there were camphor and some
burning incense, in the other were flowers and fruits. The people swarmed about
like bees.”—Life in an Indian Village, by T. Rama Krishna, B.A., p. 144.
[10] “The Ethnography of Afghanistan,” by Dr. H. W. Bellew, C.S.I., in the “Asiatic
Quarterly Review,” October, 1891.
[11] “The Rámáyan of Válmikí,” translated into English verse by Ralph T. H.
Griffith, M.A., Principal of the Benares College (London, Trübner and Co.).
[12] Of Yoga and Yogaism I have given a brief account in a previous work, “Indian
Life, Religious and Social,” pp. 11-47 (London, Fisher Unwin).
[13] “The Ramayana,” translated into English prose from the original Sanskrit of
Valmiki by Manmatha Nath Dutt, M.A. (Deva Press, Calcutta). If not otherwise
stated, all prose quotations from the “Ramayana” included in the following pages
are derived from this work.
[14] “The ruins of the ancient capital of Kama and the children of the Sun may still
be traced in the present Ajudhya near Fyzabad. Ajudhya is the Jerusalem or
Mecca of the Hindus.”—Note, vol. i., p. 35, of Mr. Griffith’s translation of the
“Ramayana” (Trübner and Co., London).
[15] What a terrible thing it is for a Hindu to be childless can be understood, and
then only partially, by bearing in mind that, without a son to perform the complex
funeral rights and ceremonies for a deceased father, the dead man’s soul must
undergo ages of trouble in the next world.
[16] According to Hindu belief the gods and the spirits of departed ancestors are
actually nourished and sustained by the aroma of the burnt-offerings made by
pious persons. Hence the vital importance of these sacrifices, upon which the very
safety and continuance of the Universe depend.
[17] This incident introduces us to an important Hindu idea, that the exact
performance of certain prescribed rites and sacrifices leads to the attainment of
definite objects, as, for example, purification from a particular sin, the destruction
of a hated enemy or the discovery of a friend. The gods themselves performed
sacrifices, and Indra is commonly addressed as “the performer of a hundred
sacrifices.”
[18] The Indian ideas respecting austerities are very peculiar, and as they pervade
their religion and literature are specially noteworthy. “According to the Hindu
theory the performance of penances was like making deposits in the bank of
heaven. By degrees an enormous credit was accumulated, which enabled the
depositor to draw to the amount of his savings, without fear of his draughts being
refused payment. The power gained in this manner by weak mortals was so
enormous, that gods as well as men were equally at the mercy of these all but
omnipotent ascetics; and it is remarkable, that even the gods are described as
engaging in penance and austerities, in order, it may be presumed, not to be
outdone by human beings. Siva was so engaged when the god of love shot an
arrow at him.”—Note to page 4 of Professor Sir Monier Williams’s “Indian Epic
Poetry.” In the course of the following pages of this book we shall meet with
ascetics very often and become familiar with their doings.
[19] The belief in divine incarnations, for the benefit or salvation of the world, is a
common and familiar one in the Hindu religion.
[20] The modern Gogra.
[21] Protection against fever would be specially desirable in a country covered with
forest and jungle, as the India of the “Ramayana” evidently was.
[22] The power of assuming a multiplicity of forms at will, and of passing from a
huge to a minute size, or the reverse, to suit the exigencies of the moment is
enjoyed by a great number of personages in the Hindu epics.
[23] We shall in the course of the development of this story have frequent
opportunities of learning the awful and irrevocable character of curses uttered by
Brahmans and others, rejoicing in the possession of stores of power acquired by
the practice of austerities.
[24] Vide M. N. Dutt’s “Ramayana,” p. 75.
[25] “The remains of the capital founded by Janaka and thence termed Janakapur
are still to be seen, according to Buchanan, on the northern frontier at the
Janeckpoor of the maps.”—Note to Professor H. H. Wilson’s translation of the
“Uttara Rama Charitra.”
[26] I have had the good fortune to be present at a marriage ceremony, carried out
professedly in accordance with Vedic rites, which closely resembled the wedding
of Rama and his brothers, as described by Valmiki.
[27] In this description of Rama and in other places I have borrowed the epithets I
find in Dutt’s translation of the “Ramayana,” in order to preserve something of the
peculiar character of the original.
[28] Here is a pretty picture for an artist, Hindu or other.
[29] Dasahratha himself attributed these misfortunes to his having when a youth
unwittingly killed, with a chance arrow, a young hermit in the forest. The boy’s
father, himself a hermit, cursed Dasahratha, and the effects of the malediction
were apparent in the troubles attending the king’s declining years.
[30] This significant passage from the “Ramayana” ought to clear away the doubts
that may linger in anyone’s mind regarding the fact that animal food was
commonly eaten in ancient India, since animal sacrifices are constantly referred
to. Of course there is abundant positive evidence on the subject as in the
preceding page.
[31] Near Salem in Southern India are “some chalk hills supposed by the natives
to be formed of the bones of the mythical bird Jatayus, killed by Ravana when
carrying off Sita.”—Professor Sir Monier Williams’s “Modern India,” p. 165.
[32] Mr. Griffith’s “Ramayana,” vol. iii., p. 324.
[33] As respects the Vanars it has to be noted that while implying that they were
monkeys and nothing more, the poet has, for the most part, represented them—if
we may judge by their sentiments and actions—as beings of a very superior order.
[34] This car from the hand of Visvakarma recalls the famous embossed shield of
Achilles, the masterpiece of Vulcan’s art, made of brass, tin, gold and silver, and
divided into twelve compartments, each representing a distinct and complicated
scene (for example, a wedding procession or a battle) wrought with marvellous
skill.
[35] There can be no doubt whatever that the seclusion of women was the
common practice in ancient India. Wherever polygamy exists the seclusion of
women is a necessity, and that polygamy did exist in the India of the “Ramayana”
is abundantly evident from what we are told concerning the courts of Dasahratha,
Sugriva and Ravana. The Greeks kept their women a good deal in the
background; but Helen’s position in the court of her husband Menelaus, or
Penelope’s in that of Ulysses, was far more free than the position of any queen
mentioned in the “Ramayana.”
[36] The lover of English poetry will recall to mind the similar description of
sleeping beauties in the sixth canto of “Don Juan,” stanzas lxiv. - lxix.
[37] The contrast between the fair Vaidehi and her ruthless persecutors in the
enchanting ashoka grove might make a striking subject for the canvas of an able
artist. Indeed, there is in the “Ramayana” no lack of suggestive and satisfactory
motifs for the chisel and the brush. It is, indeed, a mine not yet wrought.
[38] Whoever has not forgotten his Virgil will probably be reminded of the famous
storm in the “Æneid” and of Neptune’s serene and majestic appearance above the
troubled waters of the sea.
[39] Some hundred thousand billions (see note to Griffith’s “Ramayana,” vol. v., p.
88).
[40] Camped; but not like a modern army under canvas. The Vanars, I trow,
needed no commissariat department, living as they did on fruits and roots. And the
sons of Raghu were nearly as well used to woodland fare and lodging as their
simian allies.
[41] “The chariots of Ravana’s present army are said to have been one hundred
and fifty million in number, with three hundred million elephants and twelve
hundred million horses and asses. The footmen are merely said to have been
unnumbered.”—Note to Griffith’s “Ramayana,” book vi., canto xcvi.
[42] At this point the great epic of Valmiki properly ends; but a supplementary
work, also popularly attributed to Valmiki, exists which affords further details of the
lives of the principal personages of the poem. Upon the particulars supplied in this
work the succeeding paragraphs are based.
[43] Professor E. B. Cowell (“Academy,” No. 43). In Bhavabhuti’s drama, entitled
“Uttara Rama Charitra,” the dénouement is different. Sita’s purity is attested by the
goddess Ganga (the Ganges) and by Prithivi (the earth). The people bow in
respectful homage to her. Rama welcomes her back, and with her two sons, Kusa
and Lava, they pass many happy years together.
[44] Muir, “Sanskrit Texts,” part iv., appendix.
[45] The “Ramayana” of Tulsi Das, which differs in some respects from the original
poem of Valmiki, has been translated into English by Mr. F. J. Growse of the
Bengal Civil Service.
[46] Ravana is described as having ten heads; but the effigy I saw had several
faces, I do not think so many as ten, with the head of an ass surmounting all.
[47] Properly the figure should have had twenty arms.
[48] Bishop Heber was told that, in the good old times, the poor children were
always “poisoned in the sweetmeats given to them the last day of the show, that it
might be said their spirits were absorbed into the deities whom they had
represented.”—Heber’s “Narrative of a Journey through the Upper Provinces of
India” (1824-25), p. 191.
[49] Vide “On the Ramayana,” by Dr. Albrecht Weber (Trübner and Co., 1863).
[50] “Indian Epic Poetry,” p. 3 (Williams and Norgate, London, 1863).
[51] “Early History of Northern India,” by J. F. Hewitt, “Journal of the Royal Asiatic
Society,” 1890, p. 744.
[52] “Nouvelle Géographie Universelle,” par Elisée Reclus, tome viii., p. 873, et
seq. Keane’s “Asia,” pp. 678-680.
[53] It is, I think, impossible, after reading the tedious genealogies of the kings in
the “Mahabharata,” to avoid the conclusion that there is a substratum of history
beneath it all, notwithstanding the clouds of mythological dust which obscure the
view.
[54] The “Mahabharata” of Krishna-Dwaipayana Vyasa, translated into English
prose, by Pratap Chundur Roy (Calcutta, Bharata Press). If not otherwise stated,
all prose quotations from the “Mahabharata” included in the following pages are
derived from this work.
[55] “Every race has in its history one grand achievement on which it hangs all its
past and all its future: and the memory of which is a rallying cry and a pledge of
prosperity. The Exodus, the Jews would say; the overthrow of the Medes, would
the Persians; the Median wars, the Greeks in their turn say. These will be recalled
on all occasions to furnish arguments, political claims, rhetorical effects, patriotic
encouragement in great crises, and in the end imperishable regrets.”—Essai sur
l’histoire universelle, par M. Prévost-Paradol, tome premier, p. 166.
[56] “Adi Parva,” of the “Mahabharata,” section xcvi. A somewhat different story is
told in section xcix.
[57] The battle, as described by the poet, is of little interest; but Bhisma’s
challenge to the assembled kings is worthy of reproduction, as throwing light upon
the marriage customs of the olden time in India. “In a voice like the roar of the
clouds he exclaimed: ‘The wise have directed that after inviting an accomplished
person a maiden may be bestowed on him, decked in ornaments and along with
many valuable presents. Others again may bestow their daughters by accepting of
a couple of kine, some again bestow their daughters by taking a fixed sum, and
some take away maidens by force. Some wed with the consent of the maidens,
some by drugging them into consent, and some by going unto the maidens’
parents and obtaining their sanction. Some again obtain wives as presents for
assisting at sacrifices. Of these the learned always applaud the eighth form of
marriage. Kings, however, speak highly of the swayamvara (the fifth form as
above) and themselves wed according to it. But the sages have said that that wife
is dearly to be prized who is taken away by force, after slaughter of opponents,
from amid the concourse of princes and kings invited to a swayamvara. Therefore,
ye monarchs, I bear away these maidens from hence by force. Strive ye to the
best of your might to vanquish me or be vanquished.’”—P. C. Roy’s translation of
the “Adi Parva” of the “Mahabharata,” p. 307.
[58] The custom referred to in this paragraph and known as niyoga, is considered
briefly in the concluding chapter.
[59] P. C. Roy’s “Adi Parva,” p. 325. This story throws considerable light on the
ideas of the Hindus with respect to their gods.
[60] Vyasa, as we have seen, was no blood relation of the house of Bharata.
Similarly, the widows of King Vichitra-virya and the Sudra slave-girl were not
connected to the family by ties of consanguinity; and yet the children of Vyasa by
these women are, from the Hindu point of view, lineal descendants of King
Shantanu.
[61] This parentage is rather bewildering after what we have learned already about
Vidura being no other than Dharma in human form.
[62] This is an instance of suttee in ancient India worth noting.
[63] The modern Allahabad and, at that time, probably a frontier town of the Aryan
invaders.
[64] “The traditional site of this event is in the Allahabad district, on the left bank of
the Ganges, three miles south of Handia Taksil. The village of Lachagarh (Laksha
= lac) is said to take its name from this event. It stands on the bank of the river,
which is never cut away by the stream. This is said to be due to the melted lac
which keeps the earth together. People come to bathe on the Somwati Amawas
when the new moon falls on a Monday. Jhusi or Pratishtapur, the capital of the
Chandraransi Rajah is twenty-four miles from there.”—North Indian Notes and
Queries, August, 1894, p. 89.

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Cornerstones of Cost Management

Hansen 3rd Edition Solutions Manual

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Cornerstone Exercise 8.1

* $510,600/11,000 = $46.42 (rounded)

1. Production budget for practice balls:

Production budget for match balls:

Cornerstone Exercise 8.3

1. Direct materials purchases budget for practice balls:

Bladder and valve: January February

Glue: January February

1. Number of wrong numbers = Total calls × Percent

Minutes for wrong numbers (500 × 3)............................ 1,500

2. Minutes for wrong numbers (500 × 1)............................ 500

Budgeted fixed overhead:

Total ending inventory cost = Units ending inventory* × Unit cost

Cornerstone Exercise 8.7

1. Budgeted direct materials ($1.67 × 300,000) $ 501,000

2. Direct materials .................................................... $ 501,000

Cornerstone Exercise 8.9

1. Green Earth Landscaping Company

1. Coral Seas Jewelry Company

Cornerstone Exercise 8.11

1. Cash Sales Credit Sales

2. Quarter 1 Quarter 2 Quarter 3 Quarter 4

3. If Shalimar’s percentage of uncollectible accounts rises to 10 percent, then no

2. If Khloe Company faced a customs duty and shipping percentage of 35 percent,

2. Per-unit product cost @ 160,000 units = $1,913,400/160,000 = $11.96 (rounded)

3. Production budget for deluxes:

Production budget for standards:

2. Sales price = $9 (Monthly dollar sales/Unit sales)

Rosita’s Mexican Restaurant

Revised sales estimates:

Rosita’s Mexican Restaurant

1. From payments in May for credit sales in:

2. April credit sales = $196,000 × 0.80 = $156,800

Del Spencer’s Men’s Clothing Store

3. Monthly cost of temporary clerk = (2 × 4) × $20 = $160

1. Production budget for August:*

2. August purchases budget for table legs:

2. Clearly, shipping is the most costly activity, followed by Ultima advertising

1. Schedule 1: Sales budget

2. Schedule 2: Production budget

3. Schedule 3: Direct materials purchases budget (Assumes May sales equal

4. Schedule 4: Direct labor budget

5. Schedule 5: Overhead budget

6. Schedule 6: Selling and administrative expense budget

7. Schedule 7: Ending finished goods inventory budget

8. Schedule 8: Cost of goods sold budget

9. Schedule 9: Budgeted income statement