accounting_principles_12th_ed_by_weygandt

1084 24 Budgetary Control and Responsibility Accounting
Compute total budgeted costs
in flexible budget.
(LO 2)
Prepare a responsibility
report.
(LO 3)
Compute ROI and expected
return on investments.
(LO 4)
Prepare a static budget report. Hint: The Budget column is based on estimated production
while the Actual column is the actual cost incurred during the period. (Note: You do
not need to prepare the heading.) Were costs controlled? Discuss limitations of the budget.
DO IT! 24-2 In Pargo Company’s flexible budget graph, the fixed cost line and the total
budgeted cost line intersect the vertical axis at $90,000. The total budgeted cost line is
$350,000 at an activity level of 50,000 direct labor hours. Compute total budgeted costs at
65,000 direct labor hours.
DO IT! 24-3 The Rockies Division operates as a profit center. It reports the following for
the year.
Budget Actual
Sales $2,000,000 $1,890,000
Variable costs 800,000 760,000
Controllable fixed costs 550,000 550,000
Noncontrollable fixed costs 250,000 250,000
Prepare a responsibility report for the Rockies Division at December 31, 2017.
DO IT! 24-4 The service division of Raney Industries reported the following results for
2017.
Sales $500,000
Variable costs 300,000
Controllable fixed costs 75,000
Average operating assets 625,000
Management is considering the following independent courses of action in 2018 in order
to maximize the return on investment for this division.
1. Reduce average operating assets by $125,000, with no change in controllable margin.
2. Increase sales $100,000, with no change in the contribution margin percentage.
(a) Compute the controllable margin and the return on investment for 2017. (b) Compute the
controllable margin and the expected return on investment for each proposed alternative.
EXERCISES
Understand the concept of
budgetary control.
(LO 1, 2)
E24-1 Connie Rice has prepared the following list of statements about budgetary control.
1. Budget reports compare actual results with planned objectives.
2. All budget reports are prepared on a weekly basis.
3. Management uses budget reports to analyze differences between actual and planned
results and determine their causes.
4. As a result of analyzing budget reports, management may either take corrective action
or modify future plans.
5. Budgetary control works best when a company has an informal reporting system.
6. The primary recipients of the sales report are the sales manager and the production
supervisor.
7. The primary recipient of the scrap report is the production manager.
8. A static budget is a projection of budget data at one level of activity.
9. Top management’s reaction to unfavorable differences is not influenced by the materiality
of the difference.
10. A static budget is not appropriate in evaluating a manager’s effectiveness in controlling
costs unless the actual activity level approximates the static budget activity level or the
behavior of the costs is fixed.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.
Prepare and evaluate static
budget report.
(LO 1)
E24-2 Crede Company budgeted selling expenses of $30,000 in January, $35,000 in February,
and $40,000 in March. Actual selling expenses were $31,200 in January, $34,525 in
February, and $46,000 in March.