Assume that The AM Bakery is preparing a budget for the month ending November 30. Management prepares the budget by startin with the actual results for August that are shown below. Then, management considers what the differences in costs will be between August and November. Ingredients Flour Butter Oil Fruit Nuts Chocolate Other Total ingredients Labor Channel manager Other Utilities Rent Marketing Total bakery costs Revenues THE AM BAKERY Bakery Sales Actual Costs For the Month Ending August 31 Actual $ 4,100 3,700 1,900 1,400 940 840 440 $ 13,320 $4,600 10,900 2,550 3,750 250 $ 35,370 $ 57,200 Budgeted $ 3,860 3,540 2,040 1,090 880 840 310 $ 12,560 4,600 11,400 2,410 3,750 140 $ 34,860 $ 57,200 Difference $240 160 (140) 310 60 130 $ 760 (500) 140 110 $510 Management expects revenue in November to be 30 percent higher than in August, and it expects all ingredient costs (e.g., flour, butter, and so on) to be 25 percent higher in November than in August. Management expects "other" labor costs to be 30 percent higher in November than in August, partly because more labor will be required in November and partly because employees will get a pay raise. The manager will get a pay raise that will increase his salary from $4,600 in August to $5,100 in November. Rent, utilities, and marketing costs are not expected to change.
Assume that The AM Bakery is preparing a budget for the month ending November 30. Management prepares the budget by startin with the actual results for August that are shown below. Then, management considers what the differences in costs will be between August and November. Ingredients Flour Butter Oil Fruit Nuts Chocolate Other Total ingredients Labor Channel manager Other Utilities Rent Marketing Total bakery costs Revenues THE AM BAKERY Bakery Sales Actual Costs For the Month Ending August 31 Actual $ 4,100 3,700 1,900 1,400 940 840 440 $ 13,320 $4,600 10,900 2,550 3,750 250 $ 35,370 $ 57,200 Budgeted $ 3,860 3,540 2,040 1,090 880 840 310 $ 12,560 4,600 11,400 2,410 3,750 140 $ 34,860 $ 57,200 Difference $240 160 (140) 310 60 130 $ 760 (500) 140 110 $510 Management expects revenue in November to be 30 percent higher than in August, and it expects all ingredient costs (e.g., flour, butter, and so on) to be 25 percent higher in November than in August. Management expects "other" labor costs to be 30 percent higher in November than in August, partly because more labor will be required in November and partly because employees will get a pay raise. The manager will get a pay raise that will increase his salary from $4,600 in August to $5,100 in November. Rent, utilities, and marketing costs are not expected to change.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter10: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 1PB
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Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Transcribed Image Text:Now, fast-forward to early December and assume the following actual results occurred in November.
For the Month Ending November 30
Ingredients
Flour
Butter
Oil
Fruit
Nuts
THE AM BAKERY
Bakery Sales
Actual Costs
Chocolate
Other
Total ingredients
Labor
Channel manager
Other
Utilities
Rent
Marketing
Total bakery costs
Revenues
Required:
Actual
$5,250
4,880
2,220
1,650
1,300
1,130
500
$ 16,930
$ 5,100
14,400
2,550
3,750
250
$ 42,980
$ 74,550
a. Prepare a statement that compares the budgeted and actual costs for November.
b. Suppose that you have limited time to determine why actual costs are not the same as budgeted costs. Which three cost items
would you investigate to see why actual and budgeted costs are different?
Transcribed Image Text:Assume that The AM Bakery is preparing a budget for the month ending November 30. Management prepares the budget by starting
with the actual results for August that are shown below. Then, management considers what the differences in costs will be between
August and November.
Ingredients
Flour
Butter
Oil
Fruit
Nuts
Chocolate
Other
Total ingredients
Labor
Channel manager
Other
Utilities
Rent
Marketing
Total bakery costs
Revenues
THE AM BAKERY
Bakery Sales
Actual Costs
For the Month Ending August 31
Actual
$ 4,100
3,700
1,900
1,400
940
840
440
$ 13,320
$4,600
10,900
2,550
3,750
250
$ 35,370
$ 57,200
Budgeted
$ 3,860
3,540
2,040
1,090
880
840
310
$ 12,560
4,600
11,400
2,410
3,750
140
$ 34,860
$57,200
Difference
$240
160
(140)
310
60
130
$ 760
(500)
140
110
$510
Management expects revenue in November to be 30 percent higher than in August, and it expects all ingredient costs (e.g., flour,
butter, and so on) to be 25 percent higher in November than in August. Management expects "other" labor costs to be 30 percent
higher in November than in August, partly because more labor will be required in November and partly because employees will get a
pay raise. The manager will get a pay raise that will increase his salary from $4,600 in August to $5,100 in November. Rent, utilities,
and marketing costs are not expected to change.
Expert Solution
Step 1
Variance:
When the actual cost incurred does not match the budgeted cost. The difference calculated is referred to as variance and it helps in cost control and analysis which is a part of cost accounting.
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