Warteg Warmo Inc., a manufacturer of breakfast cereals and snack bars, has experienced several years of steady growth in sales, profits and dividends while maintaining a relatively low level of debet. The boards of directors has adopted a long-run strategy to maximize the value of the shareholders investment. In order to achieve this goal, the board of directors established the following five-year financial objectives. Increase sales by 12 percent per year Increase income before taxes by percent per year Maintain long-term debt at maximum of 16 percent of assets. These financial objectives has been attained for the past three years. At the beginning of last year, the president of Warteg Warmo, , Mas Mojok added a fouth financial objectives of maintaining cost of goods sold at a maximum of 70 percent of sales. This goal also was attained last year. The Company’s budgeting process is to directed toward attaining these goals for the forthcoming year, a difficult task with the economy in a prolonged recession. In addition, the increased emphasis on eating healthful foods has driven up the price of ingredients used by the company significantly faster than the expected rate of inflation. Kang Setyo, cost accountant at Warteg Warmo, has responsibility for preparation on the profit plan for next year. Setyo assured Mojok that he could overestimate the ending inventory and reclassify fruit and grain inspection costs as administrative rathet than production costs to attain the desired objective. The actual statements for 2014 and the budgeted statements for 2015 that Setyo prepared are as follows : Warteg Warmo Inc Income Statement 2014 Actual 2015 Actual Sales $ 1,700,000 $ 1,895,000 Less: Variable Cost: Cost Of Goods Sold $ 1,020,000 $ 1,149,450 Selling and Administrative $ 180,000 $ 175,000 Contribution Margin $ 500,000 $ 571,050 Less: Fixed Cost: Production $ 170,000 $ 189,550 Selling and Administrative $ 120,000 $ 140,000 Income Before Taxes $ 210,000 $ 241,500 Warteg Warmo Inc Balance Sheet 2014 Actual 2015 Actual Asset: Cash $ 20,000 $ 34,000 Accounts Receivable $ 120,000 $ 136,000 Inventory $ 600,000 $ 730,000 PPE (Net) $ 3,260,000 $ 3,200,000 Total $ 4,000,000 $ 4,100,000 Liabilities: Accounts Payable $ 220,000 $ 244,000 Long-Term Debt $ 640,000 $ 616,000 Stockholders Equity: Common Stock $ 800,000 $ 800,000 Retained Earnings $ 2,340,000 $ 2,440,000 Total $ 4,000,000 $ 4,100,000 The company paid dividens of $ 55,440 in 2014, and the expected rate for 2015 is 34 percent. Required : Describe the role of budgeting in a firm’s strategic planning. For each of the financial objectives established by the board of directors and the president of Warteg Warmo Inc. Determine whether Kang Setyo’s budget attains these objectives. Support your conclusion in each case by presenting appropriate calculations, and use the following format for your answer. Objective Attained/Not Attained Calculations 3. Explain the adjustments comremplated by Kang Setyo are unethical, citing specific standard of ethical conduct for management accountants.

Warteg Warmo Inc., a manufacturer of breakfast cereals and snack bars, has experienced several years of steady growth in sales, profits and dividends while maintaining a relatively low level of debet. The boards of directors has adopted a long-run strategy to maximize the value of the shareholders investment. In order to achieve this goal, the board of directors established the following five-year financial objectives. Increase sales by 12 percent per year Increase income before taxes by percent per year Maintain long-term debt at maximum of 16 percent of assets. These financial objectives has been attained for the past three years. At the beginning of last year, the president of Warteg Warmo, , Mas Mojok added a fouth financial objectives of maintaining cost of goods sold at a maximum of 70 percent of sales. This goal also was attained last year. The Company’s budgeting process is to directed toward attaining these goals for the forthcoming year, a difficult task with the economy in a prolonged recession. In addition, the increased emphasis on eating healthful foods has driven up the price of ingredients used by the company significantly faster than the expected rate of inflation. Kang Setyo, cost accountant at Warteg Warmo, has responsibility for preparation on the profit plan for next year. Setyo assured Mojok that he could overestimate the ending inventory and reclassify fruit and grain inspection costs as administrative rathet than production costs to attain the desired objective. The actual statements for 2014 and the budgeted statements for 2015 that Setyo prepared are as follows : Warteg Warmo Inc Income Statement 2014 Actual 2015 Actual Sales $ 1,700,000 $ 1,895,000 Less: Variable Cost: Cost Of Goods Sold $ 1,020,000 $ 1,149,450 Selling and Administrative $ 180,000 $ 175,000 Contribution Margin $ 500,000 $ 571,050 Less: Fixed Cost: Production $ 170,000 $ 189,550 Selling and Administrative $ 120,000 $ 140,000 Income Before Taxes $ 210,000 $ 241,500 Warteg Warmo Inc Balance Sheet 2014 Actual 2015 Actual Asset: Cash $ 20,000 $ 34,000 Accounts Receivable $ 120,000 $ 136,000 Inventory $ 600,000 $ 730,000 PPE (Net) $ 3,260,000 $ 3,200,000 Total $ 4,000,000 $ 4,100,000 Liabilities: Accounts Payable $ 220,000 $ 244,000 Long-Term Debt $ 640,000 $ 616,000 Stockholders Equity: Common Stock $ 800,000 $ 800,000 Retained Earnings $ 2,340,000 $ 2,440,000 Total $ 4,000,000 $ 4,100,000 The company paid dividens of $ 55,440 in 2014, and the expected rate for 2015 is 34 percent. Required : Describe the role of budgeting in a firm’s strategic planning. For each of the financial objectives established by the board of directors and the president of Warteg Warmo Inc. Determine whether Kang Setyo’s budget attains these objectives. Support your conclusion in each case by presenting appropriate calculations, and use the following format for your answer. Objective Attained/Not Attained Calculations 3. Explain the adjustments comremplated by Kang Setyo are unethical, citing specific standard of ethical conduct for management accountants.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Increase sales by 12 percent per year
Increase income before taxes by percent per year
Maintain long-term debt at maximum of 16 percent of assets.

These financial objectives has been attained for the past three years. At the beginning of last year, the president of Warteg Warmo, , Mas Mojok added a fouth financial objectives of maintaining cost of goods sold at a maximum of 70 percent of sales. This goal also was attained last year.

The Company’s budgeting process is to directed toward attaining these goals for the forthcoming year, a difficult task with the economy in a prolonged recession. In addition, the increased emphasis on eating healthful foods has driven up the price of ingredients used by the company significantly faster than the expected rate of inflation.

Kang Setyo, cost accountant at Warteg Warmo, has responsibility for preparation on the profit plan for next year. Setyo assured Mojok that he could overestimate the ending inventory and reclassify fruit and grain inspection costs as administrative rathet than production costs to attain the desired objective. The actual statements for 2014 and the budgeted statements for 2015 that Setyo prepared are as follows :

Warteg Warmo Inc

Income Statement

	2014 Actual	2015 Actual
Sales	$ 1,700,000	$ 1,895,000
Less: Variable Cost:
Cost Of Goods Sold	$ 1,020,000	$ 1,149,450
Selling and Administrative	$ 180,000	$ 175,000
Contribution Margin	$ 500,000	$ 571,050
Less: Fixed Cost:
Production	$ 170,000	$ 189,550
Selling and Administrative	$ 120,000	$ 140,000
Income Before Taxes	$ 210,000	$ 241,500

Warteg Warmo Inc

Balance Sheet

	2014 Actual	2015 Actual
Asset:
Cash	$ 20,000	$ 34,000
Accounts Receivable	$ 120,000	$ 136,000
Inventory	$ 600,000	$ 730,000
PPE (Net)	$ 3,260,000	$ 3,200,000
Total	$ 4,000,000	$ 4,100,000

Liabilities:
Accounts Payable	$ 220,000	$ 244,000
Long-Term Debt	$ 640,000	$ 616,000
Stockholders Equity:
Common Stock	$ 800,000	$ 800,000
Retained Earnings	$ 2,340,000	$ 2,440,000
Total	$ 4,000,000	$ 4,100,000

The company paid dividens of $ 55,440 in 2014, and the expected rate for 2015 is 34 percent.

Required :

Describe the role of budgeting in a firm’s strategic planning.
For each of the financial objectives established by the board of directors and the president of Warteg Warmo Inc. Determine whether Kang Setyo’s budget attains these objectives. Support your conclusion in each case by presenting appropriate calculations, and use the following format for your answer.

Objective Attained/Not Attained Calculations

3. Explain the adjustments comremplated by Kang Setyo are unethical, citing specific standard of ethical conduct for management accountants.

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