Posted: July 19th, 2016

Why does the budget not include sales revenue and net income?

What is the maximum amount that Brady should be willing to pay for the machine?Number of units 100,000 97,000
Direct materials cost $800,000 $792,000
Direct labor cost $400,000 $380,000
Variable manufacturing overhead $200,000 $199,000
Fixed manufacturing overhead $290,000 $292,000
Total $1,690,000 $1,663,000

Required:
a) Prepare a flexible budget for the department’s actual level of activity.
b) Use the flexible budget to evaluate Ms. Farr’s performance.
c) Why does the budget not include sales revenue and net income?

Problem #5
Bane Accounting Services planned to charge its customers $120 per hour in 2007. The chief operating officer expected that the company would provide 40,000 hours of service to clients. However, the vice president for marketing argued that the actual number of hours might range from 36,000 to 44,000 hours. Bane’s standard variable cost is $65 per hour, and its standard fixed cost is $1,500,000.
Required: Prepare flexible budgets for 36,000, 40,000, and 44,000 hours.
Answer
36,000 hours 40,000 hours 44,000 hours
Revenue
Variable cost
Contribution margin
Less fixed costs
Net income

Problem #6
Most large organizations establish responsibility centers (sections, departments, divisions, etc.) in order to delegate decision-making authority to the individuals who are best suited to make decisions in those particular centers. Consider the following responsibility centers and classify each as most likely being a cost center, profit center, or investment center.

Responsibility Center Description Type of Responsibility Center
1) Atlanta office of an investment banking services firm
2) Birmingham location of a major retail furniture chain