ACC 222 Exam 2 Miami University with complete solution

Master Budget Order of Preparation 1. Sales Budget 2. Production Budget 3. Direct Materials Budget 4. Direct Labor Budget 5. Manufacturing Overhead Budget 6. Ending Finished Goods Inventory Budget 7. Selling and Administrative Expense Budget 8. Cash Budget Sales Budget Shows the expected sales for the budgeted period. Production Budget Lists the number of units that must be produced to satisfy sales needs and to provide for desired finished goods inventory. Direct Materials Budget Details raw materials that must be purchased to fulfill the production budget and provide adequate inventories. Direct Labor Budget Shows the direct labor hours required to satisfy the production budget. Manufacturing Overhead Budget Lists all costs of production other than direct materials and direct labor. Ending Finished Goods Inventory Budget Shows the cost of unsold units. Selling and Administrative Expense Budget Lists budgeted expenses for areas other than manufacturing. Cash Budget 4 Major Sections: - Receipts - Disbursements - Cash Excess/ Deficiency - Financing Desired Ending Inventory Formula Desired Ending Inventory= Next Month's Sales X Desired % of Ending Inventory Beginning Inventory Formula Beginning Inventory= This Month's Sales X Desired of Ending Inventory Each Month Required Unit Production Formula Required Unit Production= This Month's Unit Sales + Desired Ending Inventory - Beginning Inventory Accounts Payable Balance Formula Accounts Payable Balance= Purchases X % to be Paid in the Current Month Cash Excess/ Deficiency Formula Cash Excess/ Deficiency= Beginning Cash Balance + Cash Receipts - Cash Disbursements Units of Raw Materials to be Purchased Formula Units of Raw Materials to be Purchased= (Required Production in Units of Finished Goods X Units of Raw Material Needed Per Unit of Finished Goods) + Desired Units of Ending Raw Materials Inventory - Beginning Raw Materials Inventory Calculation of the Activity Variance Determining the difference between the planning budget and the flexible budget. Calculation of the Revenue/ Spending Variance Determining the difference of the flexible budget (which is adjusted to the actual level of activity, aka what costs should have been) and the actual costs for the period. Favorable Variance The result of the standard cost allowed for the actual output being less than the standard cost allowed for the planned output (negative numbers) Unfavorable Variance The result of the actual level of activity being greater than the planned level of activity (positive number) Materials Price Variance Formula Materials Price Variance= (Input's Actual Price- Input's Standard Price) X the Actual Quantity of Purchases Materials Quantity Variance Formula Materials Quantity Variance= (Actual Quantity of Materials Used in Production- Standard Quantity of Materials Allowed for the Actual Output) X the Standard Price Per Unit of Input Standard Quantity Formula Standard Quantity= Standard Price Per Unit X Actual Units Produced Standard Quantity for Actual Output Formula Standard Quantity for Actual Output= Actual Output X Standard Quantity Labor Rate Variance Formula Labor Rate Variance= Actual Hours of Input (Actual Rate- Standard Rate) Labor Efficiency (Quantity) Variance Formula Labor Efficiency (Quantity) Variance= Standard Rate (Actual Hours of Output- Standard Hours Allowed for Output) Total Direct Labor Variance Formula Total Direct Labor Variance= (Standard Rate X Standard Hours Allowed for Output) - (Actual Rate X Actual Hours of Output) Standard Quantity Per Unit The amount of direct materials that should go into each unit of finished product **including an allowance for normal inefficiencies such as scrap and spoilage** Standard Price Per Unit The price that should be paid for the standard quantity per unit, or the amount of direct materials for each unit of goods. It should reflect the final, delivered cost of those materials. Standard Hours Per Unit The amount of direct labor hours that should be used to produce one unit of finished goods. Standard Rate Per Hour The company's expected direct labor wage rate per hour **including employee payroll taxes and fringe benefits*** Units Produced Using the Standard Cost Variance Model- Formula Units Produced= Total Direct Labor Hours Allowed/ Standard Direct Labor Hours Per Unit Units Produced Using the Standard Cost Variance Model- Formula Units Produced= Total Standard Direct Labor Cost/ (Standard Direct Labor Rate Per Hour X Standard Hours Per Unit)