MBA 640-Describe the benefits to an organization of preparing

MBA 640-Describe the benefits to an organization of preparing

Subject: Business    / Accounting
Question
Week 5
Chapter 6
1. Describe the benefits to an organization of preparing an operating budget.
Answer:
2. Picture Pretty manufactures picture frames. Sales for August are expected to be 10,000 units
of various sizes. Historically, the average frame requires four feet of framing, one square foot
of glass, and two square feet of backing. Beginning inventory includes 1,500 feet of framing,
500 square feet of glass, and 500 square feet of backing. Current prices are $0.90 per foot of
framing, $8.00 per square foot of glass, and $4 per square foot of backing. Ending inventory
of materials should be 150% of beginning inventory. Purchases are paid for in the month
acquired.
Required:
a. Determine the quantity of framing, glass, and backing that is to be purchased during
August.
b. Determine the total costs of direct materials for August purchases.
Answer: 3. Christy Enterprises reports the year-end information from 2011 as follows:
Sales (100,000 units)
$500,000
Less: Cost of goods sold
300,000
Gross profit
200,000
Operating expenses (includes $20,000 of Depreciation) 120,000
Net income
$ 80,000
Christy is developing the 2012 budget. In 2012 the company would like to increase
selling prices by 10%, and as a result expects a decrease in sales volume of 5%. Cost of
goods sold as a percentage of sales is expected to increase to 62%. Other than
depreciation, all operating costs are variable.
Required:
Prepare a budgeted income statement for 2012.
Answer: Chapter 7
4. Explain the difference between a static budget and a flexible budget. Explain what is meant
by a static budget variance and a flexible budget variance.
Answer: 5. The textbook discusses three levels of variances, Level 0, Level 1, Level 2, and Level 3.
Briefly explain the meaning of each of those levels and provide an example of a variance at
each of those levels.
Answer: