RCA Solutions Mod4 PDF
RCA Solutions Mod4 PDF
RCA Solutions Mod4 PDF
EXERCISES
SUGGESTED SOLUTIONS
PROBLEM 1
Budgets aid in determining how to acquire resources, and when and how these
resources should be used. In plain and simple terms, a formal budgeting
program is a key ingredient to effective management. The five purposes of
budgeting are to:
1. develop a plan of action.
2. facilitate communication of the plan and coordinate various views within an
organization.
3. allocate limited resources effectively and efficiently.
4. serve as a benchmark to control profit and operations.
5. evaluate performance and provide incentives to managers.
PROBLEM 2
• Past sales levels and economic trends for the firm as well as for the industry
as a whole
• General conditions in the economy such as growth or decline, recession or
boom, etc.
• External forces such as weather or potential strikes
• Political or legal factors such as litigation or new legislation
• Pricing policies of the organization
• Advertising and promotion plans
• Competitors' actions
• Potential for new product lines
• Market research studies
PROBLEM 3
Memorandum
Date: Today
To: President, East Bank of Clarion
From: I.M. Student and Associates
Subject: Budgetary slack
The bank's bonus system for the new-accounts manager tends to encourage
budgetary slack. Since the manager's bonus is determined by the number of
new accounts opened in excess of the budgeted number, there is an incentive for
the manager to understate her activity projections. There is evidence of this
behavior, as a 10% increase over the bank's current 10,000 accounts would be
1,000 new accounts in 20x2. Tara's projection, however, is only 700.
PROBLEM 4
Participative budgets will make the plant managers feel that their opinions are
valued by top management and, generally speaking, the plant managers will
have a better attitude about trying to achieve the budget. Additionally, it is
possible in this case that the participative approach will result in a more realistic
budget document. Chicago personnel may be too far removed from daily
activities in Dallas to get an accurate picture of on-going operations.
On the negative side, a participative budget may take longer to prepare and may
lead to some local in-fighting when compared with one that is imposed from
corporate headquarters. Also, participative budgets may have some padding or
slack, as the Dallas managers are faced with an aging facility. This facility may
be inefficient and, with their participation, managers may bend the numbers a bit
to improve appearance.
PROBLEM 5
Budgeted sales in June (units) 4,500
Add: Desired ending finished-goods inventory (5,100 x 3,570
70%)
Total finished units needed 8,070
Less: Beginning finished-goods inventory
40
Number of units to be produced in June 8,030
PROBLEM 7
A. Projected sales:
July 400,000
August (400,000 x 1.05) 420,000
September (420,000 x 1.05) 441,000
Quarterly total 1,261,000
B. Atlantic's production will require 50,900 wheels (25,450 x 2). Given that
inventory will drop by 215 units (4,300 x 5%), the company must purchase
50,685 wheels (50,900 - 215).
D Purchasing activity would likely affect the balance sheet in several ways.
. Atlantic's Cash account would decrease and any end-of-period obligations to
suppliers would be disclosed as accounts payable. In addition, the wheels
on hand at the end of the period would affect raw-material inventories, and
the cost of wheels acquired and used would influence the ending inventory
of bicycles.
PROBLEM 9
A. A B
Sales volume in units 10,000 12,000
Add: Ending finished-goods inventory 2,000 3,000
Total units required 12,000 15,000
Less: Beginning finished-goods inventory 7,000 9,000
Total units to be produced 5,000 6,000
Finishing
PROBLEM 10
A. Month of Sale October Collections
July P30,000 x 4% P 1,200
=
August P35,000 x 10% 3,500
=
September P40,000 x 15% 6,000
=
October P45,000 x 70% 31,500
=
Total P42,200
B. Credit Amount Collected
Month of Sale Sales October November December
PROBLEM 11
A. January: Accounts receivable (P195,000) + January cash sales (P500,000 x
40%)
+ January credit sales collected in January (P500,000 x 60% x 30%) =
P485,000
February: January credit sales collected in February (P500,000 x 60% x
70%) +
February cash sales (P530,000 x 40%) + February credit sales collected in
February (P530,000 x 60% x 30%) = P517,400
B. Since credit sales are collected over two months, 70% of February's credit
sales are still outstanding: P530,000 x 60% x 70% = P222,600
C. Although sales have increased, the credit and collection patterns have
deteriorated. One of the company's likely objectives is to accelerate cash
inflows. Notice that in percentage terms, cash sales have declined (40% vs.
20%); credit customers now take longer to pay as judged by collections in
the month of sale (30% vs. 15%); and high levels of uncollectibles have
arisen (0% vs. 10%).
D. The data reveal that total sales increased as did the percentage of sales
made on credit. It appears that the sales manager's emphasis on market
share may have led to sales being made to poor credit risks [as judged by
the high rate of uncollectibles and reduced percentages of sales being settled
in the month of sale (both cash and credit)]. These actions may have been
triggered by a commission system based on gross sales, thus "encouraging"
employees to increase sales despite the credit worthiness and profitability of
the customer.
PROBLEM 12
A. Month Sales Percent Collections
March P165,000 10% P 16,500
April 178,000 30% 53,400
May 166,000 60% 99,600
Total P169,500
PROBLEM 13
A. July sales: P105,000 + P45,000 = P150,000; P150,000 ÷ P20 = 7,500 units
B. July sales collected in July: P105,000 ÷ P150,000 = 70%
Seventy percent of credit sales are collected in the month of sale; the
remaining 30% are collected in the month following sale.
C. Seventy percent of August sales were collected in August; thus, total August
sales =
P168,000 ÷ 0.70, or P240,000. August sales in units: P240,000 ÷ P20 =
12,000
D. P240,000 - P168,000 = P72,000
PROBLEM 14
A. The income statement will report revenues earned of P788,125 [P250,000 +
(P250,000 x 1.05 = P262,500) + (P262,500 x 1.05 = P275,625)].
January:
Given P240,400
February:
January receivables P120,000
February cash services: P262,500 x 52,500
20%
February credit services: P262,500 x 84,000 P256,500
80% x 40%
March:
February credit services: P262,500 x P126,000
80% x 60%
March cash services: P275,625 x 20% 55,125
March credit services: P275,625 x 80% 88,200 P269,325
x 40%
PROBLEM 15
A. Income Statement for the Two Months Ended March 31, 20x1
B. The degree of controllability is important because not all factors are subject
to the same amount of control. For example, the market for the raw material
may be a seller's market in which case management would have very little
control over the material price variance. On the other hand, management
generally has more control over the usage of materials because of the ability
to influence the amount of scrap and rejected units produced.
PROBLEM 17
While a connection between these variances cannot be guaranteed, the following
scenario is plausible. Better-than-standard quality materials were purchased,
leading to an unfavorable materials price variance. When these materials were
used during the period (JIT basis for raw materials purchases), favorable
efficiency variances arose because the material was easier for labor and
machines to process.
PROBLEM 18
A. An unfavorable price variance reduces any net favorable variance that may
have arisen during the year. A sufficient number of such events could cause
the net materials price variance to be unfavorable and would eliminate the
bonus to the materials purchasing manager.
B. The use of the variance in this way would lead to an undesirable behavioral
outcome. The materials purchasing manager is a gatekeeper; that is, this
manager observes the purchasing opportunities available and determines
whether or not the firm will follow them. In this case, the manager would be
unlikely to pursue the grade 4A material because of the negative effect on
the bonus calculation. As a result, the overall possibility of offsetting higher
purchase costs with savings in yield and productivity would not materialize.
PROBLEM 19
A. Purchase price per drum P45.00
Less: 2% discount (0.90)
P44.10
Shipping fee per drum (P420 ÷ 200 2.10
drums)
Total P46.20
B. Three quarts of Proctol are required for each gallon of Lush 'N Green;
however, 4% of Proctol input is lost through evaporation and spills.
Thus, the standard input is 3.125 quarts (3 ÷ 0.96).
PROBLEM 20
B. Yes. A tight labor market often means that premium wages are needed to
attract qualified employees. These wages would give rise to an unfavorable
rate variance.
C. Ventura has two favorable variances: labor efficiency and material (paint)
quantity. The favorable efficiency variance indicates that the crew is
spending less time than budgeted, perhaps rushing the jobs and being a bit
sloppy. It is also possible that employees are being somewhat skimpy in
their use of paint, using less than expected (e.g., applying one coat rather
than two in certain applications).
PROBLEM 22
A. No. The variance is favorable and small, being less than 2% of the budgeted
amount.
B.
Actual Labor Cost Standard Labor Cost
Actua Actua
Actual Standar Standar Standar
l x l x x
Rate d Rate d Hours d Rate
Hours Hours
42,00 P18.00 42,00 55,000
x x P14.00 x P14.00
0 * 0 #
P756,00 P588,00 P770,00
0 0 0
P168,000U P182,000F
Direct-labor Direct-labor
rate variance efficiency variance
*P756,000 ÷ 42,000 hours
#20,000 units x 2.75 hours
D. The favorable efficiency variance means that the company is producing units
by consuming fewer hours than expected. This may be the result of the
team-building/morale-boosting exercises, as a contented, well-trained work
force tends to be efficient in nature. However, another totally plausible
explanation could be that Diablo is paying premium wages (as indicated by
the unfavorable rate variance) to hire laborers with above-average skill
levels.
PROBLEM 23
PROBLEM 24
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