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Business Accounting EBK ACCOUNTING:TOOLS F/BUSINESS...

(a) Prepare the flexible budget. Flexible budget of Company R is as follows: Company R Flexible Budget For the Year 2017 Particulars Amount ($) Amount ($) Amount ($) Direct Labor Hours 550 600 700 Variable Costs: Grooming Supplies 2,750 3,000 3,500 Direct Labor 7,700 8,400 9,800 Overheads 550 600 700 Total Variable Cost 11,000 12,000 14,000 Fixed Costs: Overheads 10,000 10,000 10,000 Total Fixed Cost 10,000 10,000 10,000 Total Costs 21,000 22,000 24,000 Table (1) Flexible Budget: Due to change in the sales activity, a budget which can be significantly adjusted is known as flexible budget. Working note: Calculation of budgeted values Costs Equation Activity Level (Units) Substitution of Cost Budgeted Amount ($) Fixed Cost Variable Cost Grooming Supplies y = $ 0 + $ 5 x 550 y = $ 0 + $ 5 × 550 0 2,750 Grooming Supplies y = $ 0 + $ 5 x 600 y = $ 0 + $ 5 × 600 0 3,000 Grooming Supplies y = $ 0 + $ 5 x 700 y = $ 0 + $ 5 × 700 0 3,500 Direct Labor y = $ 0 + $ 14 x 550 y = $ 0 + $ 14 × 550 0 7,700 Direct Labor y = $ 0 + $ 14 x 600 y = $ 0 + $ 14 × 600 0 8,400 Direct Labor y = $ 0 + $ 14 x 700 y = $ 0 + $ 14 × 700 0 9800 Overhead y = $ 10 , 000 + $ 1 x 550 y = $ 10 , 000 + $ 1 × 550 10,000 550 Overhead y = $ 10 , 000 + $ 1 x 600 y = $ 10 , 000 + $ 1 × 600 10,000 600 Overhead y = $ 10 , 000 + $ 1 x 700 y = $ 10 , 000 + $ 1 × 700 10,000 700 Table (2) Hence, the total cost at 550 direct labor hours is $21,000, at 600 direct labor hours is $22,000 and at 700 direct labor hours is $24,000. (b) Describe the difference between flexible budget and static budget on the basis of information. The flexible budget has more information than static budget and reasons are as follows: When the activity levels of the costs are same, the static budget is useful. When the activity levels change during the year, flexible budget is useful. The information provided by the flexible is more informative as it shows the performance of the company at all activity levels. When the level changes during the year, static budget doesn’t show the different changes. Hence, as the data is provided by the flexible budget is more informative. (c) Compute the total cost per direct labor hour. The following table shows the computation of total cost per direct labor hours and refers part (a) for the calculation of total cost Total Cost ($) (A) Activity Level (Hours) (B) Per Direct Labor Hour Cost ($) ( A ) ( B ) 21,000 550 38.18 22,000 600 36.67 24,000 700 34.29 Table (3) Hence, the total cost per direct labor hour at 550 activity level is $38.18, at 600 is $36.67 and at 700 is $34.29. (d) Identify the costs that should be charged for grooming each per owner. Statement to compute the total variable cost Particulars Amount ($) Cost of Grooming Supplies 5 Cost of Direct Labor 14 Cost of Overhead 1 Total Variable Cost 20 Table (4) The total variable cost is $20. Compute total cost for 650 direct labor hours. The total labor direct hour is 650 hours. (Given) The fixed cost is $10,000. (Calculated in part (a)) The variable cost is $20. (Calculated) Formula to calculate total cost, Total Cost = Total Fixed Cost + ( Variable Cost × Number of Direct Labor Hours ) Substitute $10,000 for fixed cost, $20 for variable cost and 650 for number of direct labor cost. Total Cost = $ 10 , 000 + ( $ 20 × 650 ) = $ 10 , 000 + $ 13 , 000 = $ 23 , 000 The total cost of 650 direct labor hours is $23,000. Compute the number of clients to be served. Given, The total numbers of hours are 650 hours. The number of hours per client is 1.3 hours. Formula to calculate number of client to be served, Number of Clients Served = Number of Total Hours Number of Hours per Client Substitute 650 for number of total hours and 1.3 for number of hours per client. Number of Clients Served = 650 1.3 = 500 clients The total numbers of clients to be served are 500 clients. Compute the cost per client. Total cost is $23,000. (Calculated) Number of clients are 500. (Calculated) Formula to calculate the cost per client, Cost per Client = Total Cost Number of Clients Substitute $23,000 for total cost and 500 for number of clients. Cost per Client = $ 23 , 000 500 clients = $ 46 The cost per client is $46. The company wants to earn 40% so compute the charge per client for the company. Cost per client is $46. (Calculated) The profit percentage is 40%. (Calculated) Formula to calculate charge per client, Charge per Client = Cost per Client + ( Cost per Client × Profit Rate ) Substitute $ 46 for cost per client and 0.40 for profit rate. Charge per Client = $ 46 + ( $ 46 × 0.40 ) = $ 46 + 18.40 = $ 64.40 The charge per client is $64.40. Hence, the charge per client is $64.40.

(a) Prepare the flexible budget. Flexible budget of Company R is as follows: Company R Flexible Budget For the Year 2017 Particulars Amount ($) Amount ($) Amount ($) Direct Labor Hours 550 600 700 Variable Costs: Grooming Supplies 2,750 3,000 3,500 Direct Labor 7,700 8,400 9,800 Overheads 550 600 700 Total Variable Cost 11,000 12,000 14,000 Fixed Costs: Overheads 10,000 10,000 10,000 Total Fixed Cost 10,000 10,000 10,000 Total Costs 21,000 22,000 24,000 Table (1) Flexible Budget: Due to change in the sales activity, a budget which can be significantly adjusted is known as flexible budget. Working note: Calculation of budgeted values Costs Equation Activity Level (Units) Substitution of Cost Budgeted Amount ($) Fixed Cost Variable Cost Grooming Supplies y = $ 0 + $ 5 x 550 y = $ 0 + $ 5 × 550 0 2,750 Grooming Supplies y = $ 0 + $ 5 x 600 y = $ 0 + $ 5 × 600 0 3,000 Grooming Supplies y = $ 0 + $ 5 x 700 y = $ 0 + $ 5 × 700 0 3,500 Direct Labor y = $ 0 + $ 14 x 550 y = $ 0 + $ 14 × 550 0 7,700 Direct Labor y = $ 0 + $ 14 x 600 y = $ 0 + $ 14 × 600 0 8,400 Direct Labor y = $ 0 + $ 14 x 700 y = $ 0 + $ 14 × 700 0 9800 Overhead y = $ 10 , 000 + $ 1 x 550 y = $ 10 , 000 + $ 1 × 550 10,000 550 Overhead y = $ 10 , 000 + $ 1 x 600 y = $ 10 , 000 + $ 1 × 600 10,000 600 Overhead y = $ 10 , 000 + $ 1 x 700 y = $ 10 , 000 + $ 1 × 700 10,000 700 Table (2) Hence, the total cost at 550 direct labor hours is $21,000, at 600 direct labor hours is $22,000 and at 700 direct labor hours is $24,000. (b) Describe the difference between flexible budget and static budget on the basis of information. The flexible budget has more information than static budget and reasons are as follows: When the activity levels of the costs are same, the static budget is useful. When the activity levels change during the year, flexible budget is useful. The information provided by the flexible is more informative as it shows the performance of the company at all activity levels. When the level changes during the year, static budget doesn’t show the different changes. Hence, as the data is provided by the flexible budget is more informative. (c) Compute the total cost per direct labor hour. The following table shows the computation of total cost per direct labor hours and refers part (a) for the calculation of total cost Total Cost ($) (A) Activity Level (Hours) (B) Per Direct Labor Hour Cost ($) ( A ) ( B ) 21,000 550 38.18 22,000 600 36.67 24,000 700 34.29 Table (3) Hence, the total cost per direct labor hour at 550 activity level is $38.18, at 600 is $36.67 and at 700 is $34.29. (d) Identify the costs that should be charged for grooming each per owner. Statement to compute the total variable cost Particulars Amount ($) Cost of Grooming Supplies 5 Cost of Direct Labor 14 Cost of Overhead 1 Total Variable Cost 20 Table (4) The total variable cost is $20. Compute total cost for 650 direct labor hours. The total labor direct hour is 650 hours. (Given) The fixed cost is $10,000. (Calculated in part (a)) The variable cost is $20. (Calculated) Formula to calculate total cost, Total Cost = Total Fixed Cost + ( Variable Cost × Number of Direct Labor Hours ) Substitute $10,000 for fixed cost, $20 for variable cost and 650 for number of direct labor cost. Total Cost = $ 10 , 000 + ( $ 20 × 650 ) = $ 10 , 000 + $ 13 , 000 = $ 23 , 000 The total cost of 650 direct labor hours is $23,000. Compute the number of clients to be served. Given, The total numbers of hours are 650 hours. The number of hours per client is 1.3 hours. Formula to calculate number of client to be served, Number of Clients Served = Number of Total Hours Number of Hours per Client Substitute 650 for number of total hours and 1.3 for number of hours per client. Number of Clients Served = 650 1.3 = 500 clients The total numbers of clients to be served are 500 clients. Compute the cost per client. Total cost is $23,000. (Calculated) Number of clients are 500. (Calculated) Formula to calculate the cost per client, Cost per Client = Total Cost Number of Clients Substitute $23,000 for total cost and 500 for number of clients. Cost per Client = $ 23 , 000 500 clients = $ 46 The cost per client is $46. The company wants to earn 40% so compute the charge per client for the company. Cost per client is $46. (Calculated) The profit percentage is 40%. (Calculated) Formula to calculate charge per client, Charge per Client = Cost per Client + ( Cost per Client × Profit Rate ) Substitute $ 46 for cost per client and 0.40 for profit rate. Charge per Client = $ 46 + ( $ 46 × 0.40 ) = $ 46 + 18.40 = $ 64.40 The charge per client is $64.40. Hence, the charge per client is $64.40.

EBK ACCOUNTING:TOOLS F/BUSINESS...

EBK ACCOUNTING:TOOLS F/BUSINESS...

7th Edition

ISBN: 9781119494799

Author: Kimmel

Publisher: WILEY

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EBK ACCOUNTING:TOOLS F/BUSINESS...

Ch. 22 - Prob. 1Q Ch. 22 - Prob. 2Q Ch. 22 - Prob. 3Q Ch. 22 - Prob. 4Q Ch. 22 - Prob. 5Q Ch. 22 - Prob. 6Q Ch. 22 - Prob. 7Q Ch. 22 - Prob. 8Q Ch. 22 - Prob. 9Q Ch. 22 - Prob. 10Q

Ch. 22 - Prob. 11Q Ch. 22 - Prob. 12Q Ch. 22 - Prob. 13Q Ch. 22 - Prob. 14Q Ch. 22 - Prob. 15Q Ch. 22 - Prob. 16Q Ch. 22 - Prob. 17Q Ch. 22 - Prob. 18Q Ch. 22 - Prob. 19Q Ch. 22 - Prob. 20Q Ch. 22 - Prob. 21Q Ch. 22 - Prob. 22Q Ch. 22 - Prob. 23Q Ch. 22 - Prob. 24Q Ch. 22 - Prob. 25Q Ch. 22 - Prob. 26Q Ch. 22 - Prob. 1BE Ch. 22 - Prob. 2BE Ch. 22 - Prob. 3BE Ch. 22 - Prob. 4BE Ch. 22 - Prob. 5BE Ch. 22 - Prob. 6BE Ch. 22 - Prob. 7BE Ch. 22 - Prob. 8BE Ch. 22 - Prob. 9BE Ch. 22 - Prob. 10BE Ch. 22 - Prob. 11BE Ch. 22 - Prob. 12BE Ch. 22 - Prob. 1DIE Ch. 22 - Prob. 2DIE Ch. 22 - Prob. 3DIE Ch. 22 - Prob. 4DIE Ch. 22 - Prob. 1E Ch. 22 - Prob. 2E Ch. 22 - Prob. 3E Ch. 22 - Prob. 4E Ch. 22 - Prob. 5E Ch. 22 - Prob. 6E Ch. 22 - Prob. 7E Ch. 22 - Prob. 8E Ch. 22 - Prob. 9E Ch. 22 - Prob. 10E Ch. 22 - Prob. 11E Ch. 22 - Prob. 12E Ch. 22 - Prob. 13E Ch. 22 - Prob. 14E Ch. 22 - Prob. 15E Ch. 22 - Prob. 16E Ch. 22 - Prob. 17E Ch. 22 - Prob. 18E Ch. 22 - Prob. 19E Ch. 22 - Prob. 20E Ch. 22 - Prob. 21E Ch. 22 - Prob. 1AP Ch. 22 - Prob. 2AP Ch. 22 - Prob. 3AP Ch. 22 - Prob. 4AP Ch. 22 - Prob. 5AP Ch. 22 - Prob. 6AP Ch. 22 - Prob. 7AP Ch. 22 - Prob. 22CD Ch. 22 - Prob. 1EYCT Ch. 22 - Prob. 2EYCT Ch. 22 - Prob. 3EYCT Ch. 22 - Prob. 5EYCT Ch. 22 - Prob. 6EYCT Ch. 22 - Prob. 8EYCT

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