HORNGRENS COST ACCOUNTING W/ACCESS
16th Edition
ISBN: 9781323687604
Author: Datar
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 6, Problem 6.38P
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?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Assume the average cost of computer equipment fell 24.5 percent between 2016 and 2017. Let’s see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2017. 2017 2016 Sales Revenues $ 100,300 $ 128,468 Cost of Goods Sold 61,700 77,081 Gross Profit 38,600 51,387 Selling, General, and Administrative Expenses 30,200 30,200 Interest Expense 586 480 Income Before Income Tax Expense 7,814 20,707 Income Tax Expense 4,708 6,737 Net Income $ 3,106 $ 13,970 Required: 1-a. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages. (Round your "Percentage" to 1 decimal place. Any decrease in amounts should be indicated with minus sign)
According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2016. Let’s see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2016.
2016
2015
Sales Revenue
$
120,000
$
150,000
Cost of Goods Sold
70,000
79,500
Gross Profit
50,000
70,500
Selling, General, and Administrative Expenses
38,000
41,000
Interest Expense
700
575
Income before Income Tax Expense
11,300
28,925
Income Tax Expense
2,500
7,000
Net Income
$
8,800
$
21,925
Required:
Compute the gross profit percentage for each year. Assuming that the change from 2015 to 2016 is the beginning of a sustained trend, is Computer Tycoon likely to earn more or less gross profit from each dollar of sales in 2017?
Compute the net profit margin…
Accounting. The tiger company collected the following
Chapter 6 Solutions
HORNGRENS COST ACCOUNTING W/ACCESS
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. 6.12QCh. 6 - Explain how the choice of the type of...Ch. 6 - What are some additional considerations that arise...Ch. 6 - Prob. 6.15QCh. 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. 6.39PCh. 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...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2018. Let's see whether these changes are reflected in the income statement of Wizard Computers for the year ended December 31, 2018. Sales Revenue Cost of Goods Sold Gross Profit Selling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense Income Tax Expense Net Income Required: 2018 $ 114,000 67,000 2017 $ 141,000 77,100 47,000 63,900 37,400 39,800 640 545 8,960 2,000 23,555 6,400 $ 6,960 $ 17,155 1. Compute the times interest earned ratios for 2018 and 2017. 2. Does Wizard generate sufficient net income in both years (before taxes and interest) to cover the cost of debt financing? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the times interest earned ratios for 2018 and 2017. (Round your answers to 1 decimal place.) Times…arrow_forwardAccording to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2018. Let's see whether these changes are reflected in the income statement of Wizard Computers for the year ended December 31, 2018. 2018 2017 Sales Revenue $ 118,000 $ 147,000 Cost of Goods Sold 69,000 78,700 Gross Profit 49,000 68,300 Selling, General, and Administrative Expenses 37,800 40,600 Interest Expense 680 565 Income before Income Tax Expense 10,520 27,135 Income Tax Expense 2,500 6,800 Net Income $ 8,020 $ 20,335 Required: Compute the times interest earned ratios for 2018 and 2017. Does Wizard generate sufficient net income in both years (before taxes and interest) to cover the cost of debt financing? yes or noarrow_forwardAccording to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2016. Required: ts 1. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Computer Tycoon Inc. for the year ended December 31, 2016. 2-a. Conduct a vertical analysis by expressing each line as a percentage of total revenues. 2-b. Excluding income tax, interest, and operating expenses, did Computer Tycoon earn more profit per dollar of sales in 2016 compared to 2015? еВook Hint Print Complete this question by entering your answers in the tabs below. eferences Req 1 Reg 2A Reg 2B Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Computer Tycoon Inc. for the year ended December 31, 2016. (Decreases…arrow_forward
- 7 According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2016. Let's see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2016. 2016 2015 Sales Revenue $113,000 66,500 46,500 $139,500 76,700 62,800 Cost of Goods Sold Gross Profit Вook Selling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense Income Tax Expense 37,300 39,600 630 540 Hint 8,570 2,000 $ 6,570 22,660 6,300 $ 16,360 Print Net Income erences Required: 1. Compute the gross profit percentage for each year. Assuming that the change from 2015 to 2016 is the beginning of a sustained trend, is Computer Tycoon likely to earn more or less gross profit from each dollar of sales in 2017? 2. Compute the net profit margin for each year. Given your calculations here and in requirement 1, explain whether Computer…arrow_forwardLaAnn Sands wants to conduct revenue breakeven analyses of Salza Technology Corporation for 2013. For 2013, the firm’s cost of goods sold is considered to be variable costs, and operating expenses are considered to be fixed cash costs. Depreciation expenses in 2013 are expected to be fixed costs. Interest expenses in 2013 are expected to be fixed costs. Calculate Salza’s EBDAT breakeven in terms of survival revenues for 2013.arrow_forwardAccording to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2018. Let's see whether these changes are reflected in the income statement of Gonzalez Industries for the year ended December 31, 2018. Sales Revenue Cost of Goods Sold Gross Profit Selling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense Income Tax Expense Net Income Required 1 Required: 1. Compute the gross profit percentage for each year. Assuming the change from 2017 to 2018 is the beginning of a sustained trend, is Gonzalez likely to earn more or less gross profit from each dollar of sales in 2019? 2. Compute the net profit margin for each year. Did Gonzalez do a better or worse job of controlling operating expenses in 2018 relative to 2017? Required 2 2018 $ 105,000 62,500 42,500 36,500 3. Gonzalez reported average net fixed assets of $54,700 in 2018 and $45,600 in…arrow_forward
- The marketing department of Metroline Manufacturing estimates that its sales in 2016 will be $1.68 million. Interest expense is expected to remain unchanged at $35,000, and the firm plans to pay $66,000 in cash dividends during 2016. Metroline Manufacturing's income statement for the year ended December 31, 2015, is given along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components. a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2016. b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2016. c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2016 income? Explain why.arrow_forwardCustomer profitability, customer-cost hierarchy. Enviro-Tech has only two retail and two wholesale customers. Information relating to each customer for 2017 follows (in thousands): Enviro-Tech’s annual distribution-channel costs are $33 million for wholesale customers and $12 million for retail customers. The company’s annual corporate-sustaining costs, such as salary for top management and general-administration costs are $48 million. There is no cause-and-effect or benefits-received relationship between any cost-allocation base and corporate-sustaining costs. That is, Enviro-Tech could save corporate-sustaining costs only if the company completely shuts down.arrow_forwardThe new chief executive officer (CEO) of Richard Manufacturing has asked for a variety of information about the operations of the firm from last year. The CEO is given the following information, but with some data missing: (Click the icon to view the variety of operations information.) Read the requirements, Requirement 1. Find (a) total sales revenue, (b) selling price, (c) rate of return on investment, and (d) markup percentage on full cost for this product. (a) The total sales revenue is (Round your answer to the nearest cent.) (b) The selling price per unit is (Round the retum on investment to the nearest whole percent, X%.) (c) The rate of return on investment is (d) Calculate the markup percentage on full cost for this product. (Round your intermediary calculations to the nearest cent and the markup to the nearest hundredth percent XXX%) The markup percentage on full cost for this product is Requirement 2. The new CEO has a plan to reduce fixed costs by $200,000 and variable…arrow_forward
- Analyzing Operational ChangesOperating results for department B of Delta Company during 2016 are as follows: Sales $538,000 Cost of goods sold 378,000 Gross profit 160,000 Direct expenses 120,000 Common expenses 66,000 Total expenses 186,000 Net loss $(26,000) Suppose that department B could increase physical volume of product sold by 10% if it spent an additional $17,000 on advertising while leaving selling prices unchanged. What effect would this have on the department's net income or net loss? (Ignore income tax in your calculations.) Use a negative sign to indicate a net loss answer; otherwise do not use negative signs with your answers. Sales Answer Cost of goods sold Answer Gross profit Answer Direct expenses Answer Common expenses Answer Total expenses Answer Net income (loss) Answerarrow_forwardAccording to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2018. Let's see whether these changes are reflected in the income statement of Gonzalez Industries for the year ended December 31, 2018. Sales Revenue Cost of Goods Sold Gross Profit Selling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense Income Tax Expense Net Income Required 1 Required 2 2018 $ 117,000 68,500 48,500 37,700 Year 670 10, 130 2,500 $ 7,630 2017 2018 2017 $ 145,500 Required: 1. Compute the times interest earned ratios for 2018 and 2017. 2. Does Gonzalez generate sufficient net income in both years (before taxes and interest) to cover the cost of debt financing? 78,300 67,200 40,400 Complete this question by entering your answers in the tabs below. 560 26,240 6,700 $ 19,540 Compute the times interest earned ratios for 2018 and 2017. (Round your answers to 1…arrow_forwardNobility Homes, Incorporated, is a small maker of manufactured homes sold throughout the state of Florida. The following are selected financial data for the company for the period 2012-2016. Profit margin (%) Retention ratio (%) Asset turnover (X) Financial leverage (X) Growth rate in sales (%) Year 2012 2013 2014 2015 2016 2012 0.4 100.0 0.36 1.01 16.6 Sustainable Growth Rate % % % % % 2013 5.0 100.0 0.41 1.05 16.1 2014 4.6 100.0 0.46 1.08 13.6 2015 8.6 100.0 0.51 1.13 30.1 2016 Source: Data from Nobility Homes 2012 to 2016 annual reports a. Calculate Nobility Homes' annual sustainable growth rate for the years 2012 through 2016. Note: Round your answers to 1 decimal place. 16.6 100.0 0.56 1.21 21.6arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY