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1. Preparing a Sales Budget Patrick
Inc/Preparing
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Preparing a Sales BudgetPatrick Inc
Preparing a Sales Budget
Patrick Inc. sells industrial solvents in five-gallon drums.Patrick expects the following units to be sold in the first three
months ofthe coming year:
The average price for a drum is $35.
Hide
Prepare a sales budgetfor the first three months ofthe coming year, showing units and sales revenue by month and
in total for the quarter. Do not include a multiplication symbol as partofyour answer.
Patrick, Inc.
Sales Budget
For the Coming Quarter
January
February
March

2. 1stQuarter
Total
Units
Price
$
$
$
$
Sales
$
$
$
$
Preparing a Production Budget
Patrick Inc. makes industrial solvents.In the first four months ofthe coming year, Patrick expects the following unit
sales:
Patrick’s policy is to have 25 percent of next month’s sales in ending inventory.On January 1, it is expected that there
will be 6,700 drums ofsolventon hand.
Hide
Prepare a production budgetfor the first quarter of the year. Show the number of drums thatshould be produced
each month as well as for the quarter in total.
Patrick, Inc.
Production Budget
For the Coming Quarter
January
February
March
Total

3. Sales
Desired ending inventory
Total needs
Less:Beginning inventory
Units produced
Preparing a Selling and Administrative Expenses Budget
You may use any of the Additional Resources listed in the drop-down menu above to help you complete this activity,
but you are not required to do so.To access each resource,click on its name in the drop-down menu above.
Fazel Companymakes and sells paper products.In the coming year, Fazel expects total sales of$19,730,000.There
is a 3 percentcommission on sales.In addition,fixed expenses ofthe sales and administrative offices include the
following:
Hide
Prepare a selling and administrative expenses budgetfor Fazel Companyfor the coming year.
Fazel Company
Selling and Administrative Expenses Budget
For the Coming Year
Variable selling expenses
$
Fixed expenses:
Salaries
$
Utilities
Office space
Advertising
Total fixed expenses

4. Total selling and administrative expenses
$
Preparing a Direct Materials Purchases Budget
Patrick Inc. makes industrial solvents sold in five-gallon drums.Planned production in units for the first three months
of the coming year is:
Each drum requires 5.5 gallons ofchemicals and one plastic drum.Companypolicyrequires that ending inventories
of raw materials for each month be 15 percentof the next month’s production needs.Thatpolicy was metfor the
ending inventory of December in the prior year. The costof one gallon ofchemicals is $2.00.The costof one drum is
$1.60.
1. Calculate the ending inventory of chemicals in gallons for December ofthe prior year, and for January and
February. What is the beginning inventory of chemicals for January? Round your answers to the nearestwhole
gallon.
Ending inventory for December:gallons
Ending inventory for January: gallons
Ending inventory for February: gallons
Beginning inventory for January: gallons
Hide
2. Prepare a direct materials purchases budgetfor chemicals for the months ofJanuary and February. Round Gallons
per unitto one decimal place.Round Price per gallon to the nearestcent. Round Dollar purchases to the nearest
dollar.Round all the other values to the nearestwhole unit.Do not include a multiplication symbol as partofyour
answer.
Patrick, Inc.
Direct Materials Purchases Budget – Chemicals in Gallons
For the Months of January and February
January
February
Production in units
Gallons per unit
Gallons for production
Desired ending inventory

5. Needed
Less:Beginning inventory
Direct materials to be purchased
Price per gallon
$
$
Dollar purchases
$
$
3. Calculate the ending inventory of drums for December ofthe prior year, and for January and February. Round your
answers to the nearestwhole drum.
Ending inventory for December:drums
Ending inventory for January: drums
Ending inventory for February: drums
Hide
4. Prepare a direct materials purchases budgetfor drums for the months ofJanuary and February. Round Drums per
unit to one decimal place.Round Price per drum to the nearestcent.Round Dollar purchases to the nearestdollar.
Round all the other values to the nearestwhole unit.Do not include a multiplication symbol as partofyour answer.
Patrick, Inc.
Direct Materials Purchases Budget – Drums
For the Months of January and February
January
February
Production in units
Drums per unit
Drums for production

6. Desired ending inventory
Needed
Less:Beginning inventory
Direct materials to be purchased
Price per drum
$
$
Dollar purchases
$
$
Preparing a Budgeted Income Statement
You may use any of the Additional Resources listed in the drop-down menu above to help you complete this activity,
but you are not required to do so.To access each resource,click on its name in the drop-down menu above.
Oliver Companyprovided the following information for the coming year:
Hide
Prepare a budgeted income statementfor Oliver Companyfor the coming year. (Note: Round all income statement
amounts to the nearestdollar.)
Oliver Company
Budgeted Income Statement
For the Coming Year
$
$
$
$

7. Total Materials Variance
Lata Inc., produces aluminum cans.Production of12-ounce cans has a standard unitquantity of 4.7 ounces of
aluminum per can.During the month of April, 350,000 cans were produced using 1,150,000 ounces ofaluminum.The
actual cost of aluminum was $0.2 per ounce and the standard price was $0.11 per ounce. There are no beginning or
ending inventories ofaluminum.
Calculate the total variance for aluminum for the month of April.
$
Materials Variances
Lata Inc., produces aluminum cans.Production of9-ounce cans has a standard unitquantity of 4.4 ounces of
aluminum per can.During the month of April, 297,000 cans were produced using 1,245,000 ounces ofaluminum.The
actual cost of aluminum was $0.19 per ounce and the standard price was $0.1 per ounce. There are no beginning or
ending inventories ofaluminum.
Calculate the materials price and usage variances using the columnar and formula approaches.
Materials Price Variance: $
Material usage Variance:$
Total Labor Variance
Botella,Inc. produces plastic bottles.Each bottle has a standard labor requirementof0.015 hours.During the month
of April, 470,000 bottles were produced using 13,000 labor hours @ $10.25.The s tandard wage rate is $7.75 per
hour.
Calculate the total variance for production labor for the month of April. If required,round your answer to the nearest
cent.
$
Labor Rate and Efficiency Variances
Botella,Inc. produces plastic bottles.Each bottle has a standard labor requirementof0.023 hours.During the month
of April, 502,000 bottles were produced using 14,100 labor hours @ $8.5.The standard wage rate is $7.5 per hour.
Calculate the labor rate and efficiency variances using the columnar and formula approaches.If required,round your
answers to the nearestcent.
Labor Rate Variance: $
Labor Efficiency Variance: $
Flexible BudgetWith Different Levels of Production
Bowling Companybudgeted the following amounts:
Variable costs of production:
Direct materials 4 pounds @ 0.6 per pound
Direct labor 0.8 hr. @ $15.5 per hour

8. VOH: 0.3 hr. @ $2.00
FOH:
Materials handling $6,400
Depreciation $2,600
Hide
Prepare a flexible budgetfor 2,500 units,3,000 units,and 3,500 units.
Bowling Company
Flexible Budget
2500 units
3000 units
3500 units
Direct materials
Direct labor
Variable overhead
Fixed overhead:
Materials handling
Depreciation
Total
Performance Report
Bowling Companybudgeted the following amounts:
Variable costs of production:
Direct materials 7 pounds @ 0.5 per pound
Direct labor 0.5 hr. @ $17.00 per hour
VOH 0.2 hr. @ $2.30
FOH:
Materials handling $6,250
Depreciation $2,580
At the end of the year, Bowling had the following actual costs for production of 3,800 units:

9. Direct materials $6,800
Direct labor 30,500
Variable overhead 4,200
Fixed overhead:
Materials handling 6,300
Depreciation 2,580
Hide
Prepare a performance reportusing a budgetbased on the actual level of production.In the variance type column,
type “F” for favorable and “U” for unfavorable. If the variance is zero, enter (“0”) in the variance amountcolumn and
“N” for neither in the variance type column.(Note:Be sure to use capital letters.)
Performance Report
Actual
Budgeted
Variance:
Amount Type (F,U,N)
Units produced
Direct materials
Direct labor
Variable overhead
Fixed overhead:
Materials handling
Depreciation
Total
Margin, Turnover, Return on Investment, Average Operating Assets
Elway Companyprovided the following income statementfor lastyear:
At the beginning oflastyear, Elway had $44,500 in operating assets.At the end of the year, Elway had $33,900 in
operating assets.

10. 1. Compute average operating assets.
$
2. Compute the margin (as a percent) and turnover ratios for lastyear.
Margin: %
Turnover:
3. Compute ROI as a percent.
%
4. Conceptual Connection:Briefly explain the meaning ofROI.
5. Conceptual Connection:Commenton why the ROI for Elway Companyis relatively high (as compared to the lower
ROI of a typical manufacturing company).
Residual Income
The Tuxedo Division of Shamus O’Toole Companyhad operating income lastyear of $340,000 and operating assets
of $3,500,000.O’Toole’s minimum acceptable rate ofreturn is 7 percent.
1. Calculate the residual income for the Tuxedo Division.
$
2. Was the ROI for the Tuxedo Division greater than, less than,or equal to 7 percent?
Transfer Pricing
Links to learning objectives referenced bythis question can be accessed in the “Additional Resources” drop -down
menu above.
Aulman Inc. has a number of divisions,including a Furniture Division and a Motel Division.The Motel Division owns
and operates a line of budgetmotels located along major highways.Each year, the Motel Division purchases furniture
for the motel rooms.Currently,it purchases a basic dresser from an outside supplier for $40. The manager ofthe
Furniture Division has approached the manager ofthe Motel Division aboutselling dressers to the Motel Division.The
full productcostof a dresser is $29.The Furniture Division can sell all of the dressers itmakes to outsid e companies
for $40. The Motel Division needs 10,000 dressers per year;the Furniture Division can make up to 50,000 dressers
per year.
Also, although the Furniture Division has been operating atcapacity (50,000 dressers per year), it expects to produce
and sell only 40,000 dressers for $40 each next year. The Furniture Division incurs variable costs of$14 per dresser.
The companypolicy is that all transfer prices are negotiated by the divisions involved.
1. What is the maximum transfer price?
$
Which division sets it?

11. 2. What is the minimum transfer price?
$
Which division sets it?
3. Suppose thatthe two divisions agree on a transfer price of $35. What is the change in operating income for the
Furniture Division? For the Motel Division? For Aulman Inc. as a whole?
Benefit to Furniture Division $
Benefit to Motel Division $
Benefit to company$
Structuring a Make-or-Buy Problem
Fresh Foods,a large restaurantchain,needed to determine ifit would be cheaper to produce 5,000 units of its main
food ingredientfor use in its restaurants or to purchase them from an outside supplier for $12 each.Costinformation
on internal production includes the following:
Total CostUnit Cost
Direct materials $25,000 $5.00
Direct labor 15,000 3.00
Variable manufacturing overhead 7,500 1.50
Variable marketing overhead 12,000 2.40
Fixed plantoverhead 30,000 6.00
Total $89,500 17.90
Fixed overhead will continue whether the ingredientis produced internallyor externally. No additional costs of
purchasing will be incurred beyond the purchase price.If required,round your answers to the nearestwhole number.
1. What are the alternatives for Fresh Foods?
2. Listthe relevant cost(s) of internal production and of external purchase.
The inputin the box below will not be graded,but may be reviewed and considered byyour instructor.
blank
3. Which alternative is more costeffective and by how much? (Use total costwhen giving your answer.)
$
4. Now assume that40% of the fixed overhead can be avoided if the ingredientis purchased externally.Which
alternative is more costeffective and by how much? (Use total costwhen giving your answer.)
$
Structuring a Special-Order Problem
Harrison Ford Companyhas been approached bya new customer with an offer to purchase 10,000 units ofits model
IJ4 at a price of $3.80 each. The new customer is geographicallyseparated from the company’s other customers,and
existing sales would notbe affected. Harrison normallyproduces 75,000 units ofIJ4 per year but only plans to
produce and sell 60,000 in the coming year. The normal sales price is $12 per unit.Unit costinformation for the
normal level of activity is as follows:

12. Fixed overhead will not be affected by whether or not the special order is accepted.
1. What are the relevant costs and benefits of the two alternatives?
The inputin the box below will not be graded,but may be reviewed and considered byyour instructor.
blank
Accept or Rejectthe special order?
2. By how much will operating income increase or decrease ifthe order is accepted?
by $
Structuring a Keep-or-Drop ProductLine Problem
Shown below is a segmented income statementfor Orzo Company’s three laminated flooring productlines.
Orzo’s managementis deciding whether to keep or drop the Parquetproductline. Orzo’s parquetflooring productline
has a contribution margin of$50,000 (sales of$300,000 less total variable costs of$250,000).All variable costs are
relevant. Relevant fixed costs associated with this line include $30,000 in machine rentand $4,700 in supervision
salaries.
1. Listthe alternatives being considered with respectto the parquetflooring line.
2. Listthe relevant benefits and costs for each alternative.
The inputin the box below will not be graded,but may be reviewed and considered byyour instructor.
blank
3. Which alternative is more costeffective and by how much?
by $
Structuring the Sell-or-Process-Further Decision
Jack’s Lumber Yard receives 8,000 large trees each period that it subsequentlyprocesses into rough logs by
stripping offthe tree bark and leaves.Jack’s then mustdecide whether to sell its rough logs (for use in log cabin
construction) atsplit-offor to process them further into refined lumber (for use in regular construction framing).Jack’s
normallysells logs for a per-unitprice of $500.Alternately, each log can be processed further into 800 feet of lumber
at an additional costof$0.05 per board foot. Also, lumber can be sold for $0.75 per board foot. (Note: One tree is
equal to one rough log.)
1. What is the total contribution to income from selling the logs for log cabin construction?
$
2. What is the total contribution to income from processing the logs into lumber?
$

13. Determining the Optimal ProductMix with One Constrained Resource
Casual Essentials,Inc. manufactures two types of team shirts,the Homerun and the Goalpost,with unit contribution
margins of$7 and $15, respectively. Regardless oftype, each team shirtmustbe fed through a stitching machine to
affix the appropriate team logo.The firm leases seven machines thateach provide 1,000 hours of machine time per
year. Each Homerun shirtrequires 6 minutes ofmachine time,and each Goalpostshirtrequires 30 minutes of
machine time.
Assume thatthere are no other constraints.
If required,round your answers to the nearest whole number.Ifan amountis zero, enter “0”.
1. What is the contribution margin per hour of machine time for each type of team shirt?
Homerun $
Goalpost$
2. What is the optimal mixof team shirt?
Homerun units
Goalpostunits
3. What is the total contribution margin earned for the optimal mix?
$
Payback Period
Kilebrew Manufacturing is considering an investmentin a new automated manufacturing system.The new system
requires an investmentof$2,400,000 and either has:
Even cash flows of$200,000 per year or
The following expected annual cash flows:$300,000,$300,000,$800,000,$800,000,and $200,000.
Calculate the payback period for each case.
a. years
b. years
Accounting Rate of Return
Vanderhoort Companyinvested $10,150,000 in a new product line.The life cycle of the productis projected to be
seven years with the following netincome stream:$200,000,$600,000,$1,000,000,$1,200,000,$1,600,000,
$2,200,000,and $1,600,000.
Calculate the accounting rate of return. Enter your answer as a decimal,do not convert to a percent. Round your
answer to two decimal places.
Net PresentValue

14. Holland,Inc., has justcompleted developmentofa new cell phone.The new product is expected to produce annual
revenues of $1,350,000.Producing the cell phone requires an investmentin new equipment,costing $1,440,000.The
cell phone has a projected life cycle of five years. After five years, the equipmentcan be sold for $180,000.Working
capital is also expected to increase by $180,000,which Holland will recover by the end of the new product’s life cycle.
Annual cash operating expenses are estimated at$810,000.The required rate of return is 8 percent.
Hide
1. Prepare a schedule ofthe projected annual cash flows.
Holland,Inc.
Annual cash flows
For Five Years
Years and Items
Cash Flow
Year 0
$
Total
$
Year 1-4
$
Total
$
Year 5
$
Total
$
2. Calculate the NPV using onlydiscountfactors from Exhibit 14B-1. Round presentvalue calculations and your final
answer to the nearestwhole dollar.
$
3. Calculate the NPV using discountfactors from both Exhibit 14B-1 and Exhibit 14B-2.Round presentvalue
calculations and your final answer to the nearestwhole dollar.
$

15. NPV and IRR, Mutually Exclusive Projects
Follow the formatshown in Exhibit 14B-1 and Exhibit 14B-2 as you complete the requirements below.
Hardy Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment:CAM X and
CAM Y. Both CAM X and CAM Y models have a project life of 10 years. The purchase price of the CAM X model is
$3,000,000,and it has a net annual after-tax cash inflow of $750,000.The CAM Y model is more expensive,selling
for $3,500,000,but it wil produce a net annual after-tax cash inflow of $875,000.The cost of capital for the company
is 10 percent.
1. Calculate the NPV for each project. Round presentvalue calculations and your final answers to the nearestdollar.
CAM X: $
CAM Y: $
Net PresentValue
Use the Exhibit 14B-1 and Exhibit 14B-2 to locate the presentvalue of an annuity of $1, which is the amountto be
multiplied times the future annual cash flow amount.
Each of the following scenarios is independent.Assume thatall cash flows are after-tax cash flows.
Southward Manufacturing is considering the purchase ofa new welding system.The cash benefits will be $400,000
per year. The system costs $2,250,000 and will last10 years.
Kaylin Day is interested in investing in a women’s specialtyshop.The cost of the investmentis $180,000.She
estimates that the return from owning her own shop will be $35,000 per year. She estimates thatthe shop will have a
useful life of six years.
Goates Companycalculated the NPV of a projectand found it to be $21,300.The project’s life was estimated to be
eightyears. The required rate of return used for the NPV calculation was 10 percent.The projectwas expected to
produce annual after-tax cash flows of $45,000.
1. Compute the NPV for Southward Manufacturing,assuming a discountrate of 12 percent. Round to the neares t
dollar.
$
Should the companybuy the new welding system?
2. Conceptual Connection:Assuming a required rate of return of 8 percent,calculate the NPV for Kaylin Day’s
investment.Round to the nearestdollar.
$
Should she invest?
Calculate the NPV assuming the estimated return was $45,000 per year.Round to the nearestdollar.
$
Would this affect the decision? Whatdoes this tell you about your analysis?

16. blank
3. What was the required investmentfor Goates Company’s project? Round to the nearestdollar.
$