Managerial Accounting Homework: Budgeting and Variance Analysis

This managerial accounting assignment provides solutions to various questions, including multiple-choice answers and problem-solving exercises. The assignment covers key concepts such as variance analysis, where the correlation between price and quantity variances is discussed, and the importance of holding department managers accountable for controllable variances. The assignment also features budgeting exercises, including the preparation of sales, production, direct materials, and direct labor budgets, along with the creation of a multi-step income statement. Additionally, the assignment explores the impact of changes in variable costs and operating assets on the Return on Investment (ROI). The solutions include detailed calculations and explanations, offering a comprehensive understanding of the topics covered.

MANAGERIAL ACCOUNTING 1
MANAGERIAL ACCOUNTING

MANAGERIAL ACCOUNTING 2
Question 1:
Answer 1:
Option D: there is no correlation between of favourable or unfavourable for price and
quantity variances.
The main reason behind the same is the fact that there could be more actual price and a lesser
standard price, which could result in an adverse price variance for the direct material.
And, there could be more actual quantity used and a lesser standard quantity for the
production of the same direct product, which could result in an adverse quantity variance for
the direct material.
There could be low price of the raw material and a higher quantity of the raw material used.
And it is also possible that the price is high and the quantity used is lower when compared
with the standard quantities. Hence, it could be stated that there is as such no co-relation
between them.
Answer 2:
Option C- Budgeted income statement only.
An operating budget is the one that starts with the preparation of the revenue and then shows
the expense that is expected to be incurred. This goes on to include the variable costs, and the
costs that changes with the level of sales and then it includes the fixed costs such monthly
rent for the space that is being used for office. Then it goes on to include the operating
expenses such as the interest which is being paid on the borrowed capital and the non-cash
expense or the amount of the depreciation. This helps the company in the preparation of the
net income and the net profit in % (Small business chron, 2019).
Answer 3:

MANAGERIAL ACCOUNTING 3
Option B- Control costs.
This is the only cost which seems not to be related with the sales forecast being made by the
company.
The concept of sales forecasting is the one wherein the company predicts the future sales of
it. An accurate picture of the sales can be made when the company makes the informed
decisions and also goes on to predict the short term and the long term performance of the
company. The company could use the data related with the past sales and also make the
comparisons within the industry and also consider the economic trends.
It is easy for the companies to estimate the future sales on the absis of the expeirne of the past
years. Also, the new companies could easily forecast their sales on the basis of less verified
information such as the research in the market and also by the way of considering the
competitive intelligence for the purposes of foresting their future decisions (Track maven,
2019).
Answer 4:
Option B- Department managers should be held accountable for the controllable
variances for their departments.
This is in light of the fact that the departmental managers do not have control over each and
everything that takes place in the market. There are certain factors such as the changes in the
prices of the raw materials, changes in the economic conditions, changes in the political
scenario of the company etc. due to such reasons, the variances could occur and these are
beyond the control of the departmental managers. So, holding them responsible for the
variances that they could control is still logical.

MANAGERIAL ACCOUNTING 4
Answer 5:
Option D- Indirect labour
The above is in the light of the fact that the selling expenses or the costs includes the
expenses that are connected with the sales of the products whereas the administrative
expenses would include the expenses that may be fixed or semi variable in nature. The
indirect labour is an expense or the cost which forms the part of the cost of conversion of
products from raw material. There is no chance of including the amount incurred towards the
indirect labour in the total amount of the selling and administrative expenses (Corporate
finance institute, 2019).
Answer 6:
Option A- Planning and control device.
A preparation of budget helps the management in thinking about the future which forms an
integral part of the budgetary planning and controlling of the system. There are a number of
forces that exists in the company that seeks to look ahead and sets out the detailed plans for
the purposes of achieving the targets for each one of the departments, operations of the
management and this helps in giving a purpose and a proper direction to the company. It
helps in the promotion of corporation and communication. It also helps in the defining the
different areas of responsibility. This requires the management to prepare the budget centres
for the purposes of achieving the business targets under personalised control. It also, helps in
providing a performance appraisal. It serves as a common yardstick which helps in the
measurement of an actual performance which is measured and assessed. Control is provided
by the way of comparing the actual results with the budget results or the plans (FAO, 2019).
Question 3:

MANAGERIAL ACCOUNTING 5
Part a:
The following is the desired report:
Particulars Budget Actual Variance
Sales
27,80,000.0
0
29,00,000.0
0
1,20,000.0
0
Less: variable costs
16,60,000.0
0
16,90,000.0
0
30,000.0
0
Contribution margin
11,20,000.0
0
12,10,000.0
0
90,000.0
0
Less: controllable fixed costs
4,10,000.0
0
4,10,000.0
0 -
Controllable margin
7,10,000.0
0
8,00,000.0
0
90,000.0
0
Part b:
The following are likely to be investigated by the top management:
 Sales
 Variable cost of goods sold
The reason being that the variances are unfavourable.

MANAGERIAL ACCOUNTING 6
Part c:
When variable costs of goods sold are decreased by 15%:
Particulars
Amounts in
$
Sales
27,80,000.0
0
Less: variable costs
14,63,500.0
0
Contribution margin
13,16,500.0
0
Less: fixed costs
4,10,000.0
0
Net income
9,06,500.0
0
Average operating assets
50,00,000.0
0
ROI 18.13%
When average operating assets are decreased by 20%:

MANAGERIAL ACCOUNTING 7
Particulars Amounts in $
Sales
27,80,000.0
0
Less: variable costs
16,60,000.0
0
Contribution margin
11,20,000.0
0
Less: fixed costs
4,10,000.0
0
Net income
7,10,000.0
0
Average operating assets
40,00,000.0
0
ROI 17.75%
Question 2:
(All amounts in $)
Sales budget
Qtr 1 Qtr 2
Forecasted unit sales 50,000.00 66,000.00

MANAGERIAL ACCOUNTING 8
Selling price 70.00 70.00
Sales budget 35,00,000.00 46,20,000.00
Production budget
Qtr 1 Qtr 2
Forecasted unit sales 50,000.00 66,000.00
+ Planned finished goods ending
inventory balance 16,000.00 19,000.00
Total production required 66,000.00 85,000.00
- Beginning finished goods
inventory 9,000.00 16,000.00
Products to be manufactured 57,000.00 69,000.00
Direct material budget (Powder)
Qtr 1 Qtr 2
Raw materials required for
production
57,000.0
0
69,000.
00
Required per unit of blush
5.0 5.

MANAGERIAL ACCOUNTING 9
0 00
+ Planned ending inventory balance
11,000.0
0
14,000.
00
Total raw materials required
2,96,000.0
0
3,59,000.
00
- Beginning raw materials inventory
10,000.0
0
11,000.
00
Raw materials to be purchased
2,86,000.0
0
3,48,000.
00
Raw material to be purchased:
Powder
10,01,000.0
0
12,18,000.
00
Glitter
2,97,000.0
0
4,39,500.
00
Total
12,98,000.0
0
16,57,500.
00
Direct labour
Qtr 1 Qtr 2
Products to be 57,000. 69,000.0

MANAGERIAL ACCOUNTING 10
manufactured 00 0
Number of direct labour
hours
0.
25
0.2
5
Rate per labour hour
15.
00
15.0
0
Direct labour budget
2,13,750.
00
2,58,750.0
0
Selling and
admin
Qtr 1 Qtr 2
10% of sales
3,50,000.0
0
4,62,000.0
0
Fixed
1,70,000.0
0
1,70,000.0
0
Selling and admin
budget
5,20,000.0
0
6,32,000.0
0
Multi step income statement:

MANAGERIAL ACCOUNTING 11
Particulars Qtr 1 Qtr 2
Sales
35,00,000.0
0
46,20,000.0
0
Cost of goods sold
15,11,750.0
0
19,16,250.0
0
Operating expenses:
Selling and
administrative expenses:
5,20,000.0
0
6,32,000.0
0
Non-operating
expenses:
Interest expense 150000 150000
Tax expense 395475 576525
Net Income
9,22,775.0
0
13,45,225.0
0

MANAGERIAL ACCOUNTING 12
References
Corporate Finance Institute. (2019). SG&A Expense (Selling, General & Administrative) -
Guide, Examples. [online] Available at:
https://corporatefinanceinstitute.com/resources/knowledge/accounting/what-is-sga/ [Accessed
26 Jun. 2019].
Fao.org. (2019). Chapter 4 - Budgetary control. [online] Available at:
http://www.fao.org/3/w4343e/w4343e05.htm [Accessed 26 Jun. 2019].
Smallbusiness.chron.com. (2019). What Is an Operating Budget?. [online] Available at:
https://smallbusiness.chron.com/operating-budget-61475.html [Accessed 26 Jun. 2019].
TrackMaven | The Marketing Insights Company. (2019). What Is Sales Forecasting? —
Definition — TrackMaven. [online] Available at: https://trackmaven.com/marketing-
dictionary/sales-forecasting/ [Accessed 26 Jun. 2019].