This document provides exercises for Rutgers-University Accounting 101 PART 6 on budgetary control and responsibility accounting. It includes multiple examples of preparing flexible budgets, responsibility reports, and return on investment calculations for various companies and their departments. The goal is to help students learn how to develop and analyze budgets, track performance, and evaluate managers' control of costs.

1. Rutgers-University Accounting 101 PART
6
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Accounting 101 PART6 BUDGETARY CONTROLAND RESPONSIBILITY
ACCOUNTING
Exercises
Ex. 111
Golden Company's master budget reflects budgeted sales information for the month of June, 2002,
as follows:
Budgeted Quantity Budgeted Unit Sales Price
Product A 15,000 $7
Product B 18,000 $9
During June, the company actually sold 13,900 units of Product A at an average unit price of $7.30
and 18,800 units of Product B at an average unit price of $8.90.
Instructions
Prepare a Sales Budget Report for the month of June for Golden Company which shows whether
the company achieved its planned objectives.
Ex. 112

2. Heerey Company developed its annual manufacturing overhead budget for its master budget for
2002 as follows:
120,000 Direct
Expected annual operating capacity Labor Hours
Variable overhead costs
Indirect labor $ 480,000
Indirect materials 90,000
Factory supplies 60,000
Total variable costs 630,000
Fixed overhead costs
Depreciation 180,000
Supervision 144,000
Property taxes 96,000
Total fixed costs 420,000
Total costs $1,050,000
The relevant range for monthly activity is expected to be between 8,000 and 12,000 direct labor
hours.
Instructions
Prepare a flexible budget for a monthly activity level of 8,000 and 9,000 direct labor hours.
Ex. 113
Eaton Company has prepared the following monthly flexible manufacturing overhead budget for its
Mixing Department:
EATON COMPANY
Monthly Flexible Manufacturing Overhead Budget

3. Mixing Department
Activity level
Direct labor hours 3,000 4,000
Variable costs
Indirect materials $ 2,100 $ 2,800
Indirect labor 15,000 20,000
Factory supplies 6,900 9,200
Total variable costs 24,000 32,000
Fixed costs
Depreciation 20,000 20,000
Supervision 10,000 10,000
Property taxes 15,000 15,000
Total fixed costs 45,000 45,000
Total costs $69,000 $77,000
Instructions
Prepare a flexible budget at the 5,000 direct labor hours of activity.
Ex. 114
Drennon Company uses a flexible budget for manufacturing overhead based on machine hours.
Variable manufacturing overhead costs per machine hour are as follows:
Indirect Labor $8.00
Indirect Materials 2.50
Maintenance .80
Utilities .30

4. Fixed overhead costs per month are:
Supervision $600
Insurance 200
Property Taxes300
Depreciation 900
The company believes it will normally operate in a range of 2,000 to 4,000 machine hours per
month.
Instructions
Prepare a flexible manufacturing overhead budget for the expected range of activity, using
increments of 1,000 machine hours.
Ex. 115
Drennon Company uses a flexible budget for manufacturing overhead based on machine hours.
Variable manufacturing overhead costs per machine hour as follows:
Indirect Labor $8.00
Indirect Materials 2.50
Maintenance .80
Utilities .30
Fixed overhead costs per month are:
Supervision $600
Insurance 200
Property Taxes300
Depreciation 900
The company believes it will normally operate in a range of 2,000 to 4,000 machine hours per
month. During the month of August, 2002, the company incurs the following manufacturing overhead
costs:
Indirect Labor $22,000

5. Indirect Materials 8,100
Maintenance 2,500
Utilities 950
Supervision 720
Insurance 200
Property Taxes300
Depreciation 950
Instructions
Prepare a flexible budget report, assuming that the company used 3,000 machine hours during
August. The company expected to use 3,000 machine hours.
Ex. 116
Jeltz Company uses flexible budgets to control its selling expenses. Monthly sales are expected to
be from $300,000 to $360,000. Variable costs and their percentage relationships to sales are:
Sales commissions 6%
Advertising 4%
Traveling 5%
Delivery 1%
Fixed selling expenses consist of Sales Salaries $40,000 and Depreciation on Delivery Equip-ment
$10,000.
Instructions
Prepare a flexible budget for increments of $30,000 of sales within the relevant range.
Ex. 117
Jeltz Company uses flexible budgets to control its selling expenses. Monthly sales are expected to
be from $300,000 to $360,000. Variable costs and their percentage relationships to sales are:

6. Sales commissions 6%
Advertising 4%
Traveling 5%
Delivery 1%
Fixed selling expenses consist of Sales Salaries $40,000 and Depreciation on Delivery Equipment
$10,000.
Ex. 117 (cont.)
The actual selling expenses incurred in February, 2002, by Jeltz Company are as follows:
Sales commissions $20,600
Advertising 12,000
Traveling 16,900
Delivery 2,400
Fixed selling expenses consist of Sales Salaries $41,500 and Depreciation on Delivery Equip-ment
$10,000.
Instructions
Prepare a flexible budget performance report, assuming that February sales were $330,000.
Expected and actual sales are the same.
Ex. 118
A flexible budget graph for the Assembly Department shows the following:
1. At zero direct labor hours, the total budgeted cost line intersects the vertical axis at $60,000.
2. At normal capacity of 50,000 direct labor hours, the line drawn from the total budgeted cost
line intersects the vertical axis at $180,000.
Instructions

7. Develop the budgeted cost formula for the Assembly Department and identify the fixed and variable
costs.
Ex. 119
Duncan Company uses flexible budgeting to control manufacturing overhead. The budget belowwas
prepared for the month ending June 30, 2003.
Direct Labor Hours
12,000 15,000 18,000
Indirect materials $36,000 $45,000 $ 54,000
Indirect labor 9,000 11,250 13,500
Utilities 6,000 7,500 9,000
Total variable costs 51,600 63,700 76,500
Rent 10,000 10,000 10,000
Depreciation 8,000 8,000 8,000
Insurance 5,500 5,500 5,500
Total fixed costs 23,500 23,500 23,500
Total costs $74,500 $87,250 $100,000
During the month of June, 16,200 direct labor hours were worked and the following costs were
incurred:
Indirect materials $49,200
Indirect labor 11,980
Utilities 7,800
Rent 10,000
Depreciation 8,200
Insurance 5,620

8. Instructions
a. Prepare a flexible budget at the 16,200 direct labor hour level of activity.
b. Prepare a manufacturing overhead budget at the 16,200 direct labor hour level of activity.
Ex. 120
Data concerning manufacturing overhead for Friendly Company are presented below. The Mixing
Department is a cost center.
An analysis of the overhead costs reveals that all variable costs are controllable by the manager of
the Mixing Department and that 50% of supervisory costs are controllable at the department level.
The flexible budget formula and the cost and activity for the months of July and August are as
follows:
Ex. 120 (cont.)
Flexible Budget Per
Direct Labor Hour Actual Costs and Activity
July August
Direct labor hours 6,000 7,000
Overhead costs
Variable
Indirect materials $3.00 $ 17,600 $ 21,500
Indirect labor 6.00 39,500 40,700
Factory supplies 1.00 8,600 8,500
Fixed
Depreciation $20,000 15,000 15,000
Supervision 24,000 21,600 25,000
Property taxes 5,000 12,000 12,000

9. Total costs $114,300 $122,700
Instructions
(a) Prepare the responsibility reports for the Mixing Department for each month.
(b) Comment on the manager's performance in controlling costs during the two month period.
Ex. 121
Dreer Company's manufacturing overhead budget for the first quarter of 2002 contained the
following data:
Variable Costs
Indirect Materials $25,000
Indirect Labor 12,000
Utilities 14,000
Maintenance 6,000
Ex. 121 (cont.)
Fixed Costs
Supervisor's Salary $40,000
Depreciation 8,000
Property taxes 4,000
Actual variable costs for the first quarter were:
Indirect Materials $23,300
Indirect Labor 13,200
Utilities 14,600
Maintenance 5,300
Actual fixed costs were as expected except for property taxes which were $4,800. All costs are
considered controllable by the department manager except for the supervisor's salary.

10. Instructions
Prepare a manufacturing overhead responsibility performance report for the first quarter.
Ex. 122
The Ace Division, a profit center of Crowe Engineering Company, reported the following data for the
first quarter of 2002:
Sales $6,000,000
Variable costs 4,500,000
Controllable direct fixed costs 600,000
Noncontrollable direct fixed costs 400,000
Indirect fixed costs 150,000
Instructions
(a) Prepare a performance report for the manager of the Ace Division.
(b) What is the best measure of the manager's performance? Why?
(c) How would the responsibility report differ if the division was an investment center?
Ex. 123
Reese Company has two investment centers and has developed the following information:
Department A Department B
Departmental controllable margin $150,000 ?
Average operating assets ? $500,000
Sales 800,000 250,000
ROI 10% 12%
Instructions

11. Answer the following questions about Department A and Department B.
1. What was the amount of Department A's average operating assets? $____________.
2. What was the amount of Department B's controllable margin? $____________.
3. If Department B is able to reduce its operating assets by $100,000, Department B's new ROI
would be ____________.
4. If Department A is able to increase its controllable margin by $30,000 as a result of reducing
variable costs, Department A's new ROI would be _________________.
Ex. 124
The Appliance Division of Malone Manufacturing Company reported the following results for 2002:
Sales $4,000,000
Variable costs 3,200,000
Controllable fixed costs 200,000
Average operating assets 3,000,000
Management is considering the following independent alternative courses of action in 2003 in order
to maximize the return on investment for the division.
1. Reduce controllable fixed costs by 15% with no change in sales or variable costs.
2. Reduce average operating assets by 20% with no change in controllable margin.
3. Increase sales $600,000 with no change in the contribution margin percentage.
Instructions

12. (a) Compute the return on investment for 2002.
(b) Compute the expected return on investment for each of the alternative courses of action.
Ex. 125
Data for the following subsidiaries of Timmons Company which are operated as investment center s
are as follows:
Black Company Greer Company
Sales $3,000,000 $2,000,000
Controllable Margin (1) (3)
Average Operating Assets (2) 6,000,000
Contribution Margin 900,000 900,000
Controllable Fixed Costs 400,000 150,000
Return on Investment 10% (4)
Instructions
Compute the missing amounts using the ROI formula.
Ex. 126
The data for an investment center is given below.
1/1/02 12/31/02
Current Assets $ 400,000 $ 600,000
Plant Assets 3,000,000 4,000,000
Idle Plant Assets 250,000 330,000
Land held for future use 1,200,000 1,200,000
The controllable margin is $960,000. What is the return on investment for the center for 2002?
Ex. 127

13. The owner of Bronx Bagels has recently expanded his business in order to add additional product
lines. In addition to bagels, Bronx Bagels now sells muffins and sandwiches. The company has a
minimum rate of return of 16%.
Bagels Muffins Sandwiches
Sales $1,000,000 $75,000 $ 900,000
Controllable margin 350,000 15,750 270,000
Average operating costs 1,750,000 105,000 1,500,000
Instructions
a. Compute the return on investment (ROI) for each investment center.
b. Compute the residual income for each investment center.
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