Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)

16th Edition

ISBN: 9780134642468

Author: Srikant M. Datar, Madhav V. Rajan

Publisher: PEARSON

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Textbook Question

Chapter 6, Problem 6.38P

Budgeted income statement. (CMA, adapted) Smart Video Company is a manufacturer of videoconferencing products. Maintaining the videoconferencing equipment is an important area of customer satisfaction. A recent downturn in the computer industry has caused the videoconferencing equipment segment to suffer, leading to a decline in Smart Video’s financial performance. The following income statement shows results for 2017:

Smart Video Company Income Statement for the Year Ended December 31, 2017 (in thousands)

Revenues
Equipment	$8,000
Maintenance contracts	1,900
Total revenues		$9,900
Cost of goods sold		4,000
Gross margin		5,900
Operating costs
Marketing	630
Distribution	100
Customer maintenance	1,100
Administration	920
Total operating costs		2,750
Operating income		$3,150

Smart Video’s management team is preparing the 2018 budget and is studying the following information:

1. Selling prices of equipment are expected to increase by 10% as the economic recovery begins. The selling price of each maintenance contract is expected to remain unchanged from 2017.
2. Equipment sales in units are expected to increase by 6%, with a corresponding 6% growth in units of maintenance contracts.
3. Cost of each unit sold is expected to increase by 5% to pay for the necessary technology and quality improvements.
4. Marketing costs are expected to increase by $290,000, but administration costs are expected to remain at 2017 levels.
5. Distribution costs vary in proportion to the number of units of equipment sold.
6. Two maintenance technicians are to be hired at a total cost of $160,000, which covers wages and related travel costs. The objective is to improve customer service and shorten response time.
7. There is no beginning or ending inventory of equipment.
1. Prepare a budgeted income statement for the year ending December 31, 2018.

Required

2. How well does the budget align with Smart Video’s strategy?
3. How does preparing the budget help Smart Video’s management team better manage the company?

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Chapter 6, Problem 6.37P

Chapter 6, Problem 6.39P

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Chapter 6 Solutions

Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)

Ch. 6 - What are the four elements of the budgeting cycle?Ch. 6 - Define master budget.Ch. 6 - Strategy, plans, and budgets are unrelated to ore...Ch. 6 - Budgeted performance is a better criterion than...Ch. 6 - Production managers and marketing managers are...Ch. 6 - Budgets meet the cost-benefit test. They force...Ch. 6 - Define rolling budget. Give an example.Ch. 6 - Outline the steps in preparing an operating...Ch. 6 - The sales forecast is the cornerstone for...Ch. 6 - Prob. 6.10Q

Ch. 6 - Define Kaizen budgeting.Ch. 6 - Prob. 6.12Q Ch. 6 - Explain how the choice of the type of...Ch. 6 - What are some additional considerations that arise...Ch. 6 - Prob. 6.15Q Ch. 6 - Master budget. Which of the following statements...Ch. 6 - Operating and financial budgets. Which of the...Ch. 6 - Production budget. Superior Industries sales...Ch. 6 - Responsibility centers. Elmhurst Corporation is...Ch. 6 - Cash budget. Mary Jacobs, the controller of the...Ch. 6 - Sales budget, service setting. In 2017 Hart Sons,...Ch. 6 - Sales and production budget. The Coby Company...Ch. 6 - Direct material budget. Dawson Co. produces wine....Ch. 6 - Material purchases budget. The McGrath Company has...Ch. 6 - Revenues, production, and purchases budgets. The...Ch. 6 - Revenues and production budget. Saphire, Inc.,...Ch. 6 - Budgeting; direct material usage, manufacturing...Ch. 6 - Budgeting, service company. Ever Clean Company...Ch. 6 - Budgets for production and direct manufacturing...Ch. 6 - Activity-based budgeting. The Jerico store of...Ch. 6 - Kaizen approach to activity-based budgeting...Ch. 6 - Responsibility and controllability. Consider each...Ch. 6 - Responsibility, controllability, and stretch...Ch. 6 - Cash flow analysis, sensitivity analysis....Ch. 6 - Budget schedules for a manufacturer. Hale...Ch. 6 - Budgeted costs, Kaizen improvements environmental...Ch. 6 - Revenue and production budgets. (CPA, adapted) The...Ch. 6 - Budgeted income statement. (CMA, adapted) Smart...Ch. 6 - Prob. 6.39P Ch. 6 - Comprehensive problem with ABC costing. Animal...Ch. 6 - Cash budget (continuation of 6-40). Refer to the...Ch. 6 - Comprehensive operating budget. Skulas, Inc.,...Ch. 6 - Cash budgeting, budgeted balance sheet....Ch. 6 - Comprehensive problem; ABC manufacturing, two...Ch. 6 - Cash budget. (Continuation of 6-44) (Appendix)...Ch. 6 - Budgeting and ethics. Jayzee Company manufactures...Ch. 6 - Kaizen budgeting for carbon emissions. Apex...Ch. 6 - Comprehensive budgeting problem; activity-based...

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