Page 908 - Accounting Principles (A Business Perspective)

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Sales volume for 2009 is budgeted at 90 per cent of 2008 sales volume. Prices are not expected to change. The
2009 budget amounts for the various other costs and expenses differ from those reported in 2008 only for the
expected volume change in the variable items. Actual operating data for 2009 follow:

Sales $5,800,000
Direct materials 1,300,000
Direct labor 1,100,000
Variable manufacturing overhead 300,000
Fixed manufacturing overhead 780,000
Variable selling expenses 270,000
Fixed selling expenses 290,000
Variable administrative expenses 110,000
Fixed administrative expenses 1,100,000
a. Prepare a budget report comparing the planned operating budget for 2009 with the actual results for that
year.
b. Prepare a budget report that would be useful in pinpointing responsibility for the poor showing in 2009.

(Hint: Prepare a flexible operating budget.)
Alternate problem C Use the following data for Andrea Company in preparing its 2009 planned operating
budget:
Plant capacity 500,000 units
Expected sales volume 450,000 units
Expected production 500,000 units
Forecasted selling price $72 per unit
Variable manufacturing costs per unit:
Direct materials $ 27.00
Direct labor 9.00
Manufacturing overhead 6.00
Fixed manufacturing overhead per period $900,000
Selling and administrative expenses:
Variable (per unit) $ 3.00
Fixed (per period) $ 750,000
Assume no beginning inventory. Federal income taxes are budgeted at 40 per cent of income before income
taxes.
The actual results for Andrea Company for the year ended 2009 December 31, follow. (Note: The actual sales
price was USD 80 per unit. Actual unit production was equal to actual unit sales.)

Sales (500,000 units @ $80 per unit) $40,000,000
Cost of goods sold:
Direct materials $12,000,000
Direct labor 4,400,000
Variable manufacturing overhead 4,000,000
Fixed manufacturing overhead 1,000,000 21,400,000
Gross margin $18,600,000
Selling and administrative expenses:
Variable $ 1,400,000
Fixed 800,000 2,200,000
Income before federal income taxes $16,400,000
Deduct: Federal income taxes 6,560,000
Net income $ 9,840,000
a. Prepare a planned operating budget for the year ended 2009 December 31, for (1).
b. Using a flexible operating budget, analyze the efficiency of operations. Comment on the results of 2009 and
on the company's sales policy in (2).
Alternate problem D Rocklin Company gathered the following budget information for the quarter ending

2009 September 30:
Sales $540,000
Purchases 450,000

Accounting Principles: A Business Perspective 909 A Global Text