CHAPTER 9 Budgetary Planning ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Exercises Do It Exercises Problems Problems Brief A B 1 2 3 4 5 6 Indicate the benefits of budgeting State the essentials of effective budgeting Identify the budgets that comprise the master budget Describe the sources for preparing the budgeted income statement 1 2 4 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 8 9 Explain the principal sections of a cash budget 19 20 Indicate the applicability of budgeting in nonmanufacturing companies 21 22 10 1 2 3 4 5 6 7 1 2 3 1A 2A 3A 1B 2B 3B 1 1 1 2 3 4 5 6 7 8 9 10 11 12 13 1 4 5 1A 2A 3A 6A 1B 2B 3B 14 15 16 17 18 19 4A 6A 3 18 19 20 5A 4B 5B 9 1 Copyright 2012 John Wiley Sons Inc Weygandt Managerial Accounting 6 e Solutions Manual For Instructor Use Only ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted min Simple 30 40 1A 2A 3A 4A 5A 6A 1B 2B 3B 4B 5B Prepare budgeted income statement and supporting budgets Prepare sales production direct materials direct labor and income statement budgets Simple 40 50 Prepare sales and production budgets and compute cost per unit under two plans Moderate 30 40 Prepare cash budget for two months Prepare purchases and income statement budgets for a merchandiser Moderate Simple Prepare budgeted income statement and balance sheet Complex Prepare budgeted income statement and supporting budgets Simple 30 40 30 40 40 50 30 40 Prepare sales production direct materials direct labor and income statement budgets Simple 40 50 Prepare sales and production budgets and compute cost per unit under two plans Moderate 30 40 Prepare cash budget for two months Prepare purchases and income statement budgets for a merchandiser Moderate Simple 30 40 30 40 9 2 Copyright 2012 John Wiley Sons Inc Weygandt Managerial Accounting 6 e Solutions Manual For Instructor Use Only B L O O M S T A X O N O M Y T A B L E Correlation Chart between Bloom s Taxonomy Learning Objectives and End of Chapter Exercises and Problems Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation Q9 4 E9 1 Q9 7 Q9 8 E9 1 Q9 1 Q9 2 Q9 3 Q9 5 Q9 6 Q9 9 Q9 10 Q9 11 E9 1 Q9 18 1 Indicate the benefits of budgeting 2 State the essentials of effective budgeting 3 Identify the budgets that comprise the master budget DI9 1 DI9 1 4 Describe the sources for preparing the budgeted income statement 5 Explain the principal sections of a cash budget Q9 19 6 Indicate the applicability of budgeting in nonmanufacturing companies Q9 21 Q9 22 Broadening Your Perspective BE9 7 DI9 2 DI9 3 E9 2 E9 3 E9 4 E9 5 E9 6 E9 7 E9 8 E9 13 P9 1A P9 2A E9 15 E9 17 E9 18 E9 19 E9 9 E9 10 E9 11 E9 12 P9 1A P9 2A P9 1B P9 2B P9 6A P9 1B P9 2B P9 4A P9 6A P9 4B E9 20 P9 5A P9 5B Q9 12 Q9 13 Q9 14 Q9 15 Q9 16 BE9 2 BE9 3 BE9 4 BE9 5 BE9 6 Q9 17 BE9 8 DI9 4 Q9 20 BE9 9 DI9 5 E9 14 BE9 10 E9 3 E9 18 E9 19 BYP9 1 BE9 1 E9 16 BYP9 3 BYP9 4 BYP9 5 BYP9 6 P9 3A P9 3B P9 3A P9 3B BYP9 2 BYP9 7 BYP9 8 BYP9 9 C o p y r i g h t 2 0 1 2 i l J o h n W e y S o n s I n c W e y g a n d t M a n a g e r i a l A c c o u n t i n g 6 e l S o u t i o n s M a n u a l F o r I n s t r u c t o r U s e O n y l 9 3 ANSWERS TO QUESTIONS 2 3 4 5 7 1 a A budget is a formal written statement of management s plans for a specified future time period expressed in financial terms b A budget aids management in planning because it represents the primary method of commu nicating agreed upon objectives throughout the organization Once adopted a budget becomes an important basis for evaluating performance The primary benefits of budgeting are 1 2 3 It requires all levels of management to plan ahead and to formalize goals on a recurring basis It provides definite objectives for evaluating performance at each level of responsibility It creates an early warning system for potential problems so that management can make changes before things get out of hand It facilitates the coordination of activities within the business by correlating the goals of each segment with overall company objectives It results in greater management awareness of the entity s overall operations and the impact of external factors such as economic trends It motivates personnel throughout the organization to meet planned objectives 4 5 6 The essentials of effective budgeting are 1 a sound organizational structure 2 research and analysis and 3 acceptance by all levels of management a Disagree Accounting information makes major contributions to the budgeting process Accounting provides the starting point of budgeting by providing historical data on revenues costs and expenses An accountant becomes the translator of the budget and communicates the budget to all areas of responsibility Accountants also prepare periodic budget reports that compare actual results with planned objectives and provide a basis for evaluating performance b The budget itself and the administration of the budget are the responsibility of management The budget period should be long enough to provide an attainable goal under normal business conditions The budget period should minimize the impact of seasonal and cyclical business fluctuations but it should not be so long that reliable estimates are impossible The most common budget period is one year 6 Disagree Long range planning usually encompasses a period of at least five years It involves the selection of strategies to achieve long term goals and the development of policies and plans to implement the strategies In addition long range planning reports contain considerably less detail than budget reports Participative budgeting involves the use of a bottom to top approach which requires input from lower level management during the budgeting process so as to involve employees from various levels and areas within the company The potential benefits of this approach are lower level managers have more detailed knowledge of the specifics of their job and thus should be able to provide better budgetary estimates In addition by involving lower level managers in the process it is more likely that they will perceive the budget as being fair and reasonable One disadvantage of participative budgeting is that it takes more time and thus costs more Another disadvantage of participative …