FOR TUTORS ONLY. DO NOT COPY FOR STUDENTS.

ACC2002 Managerial Accounting (S2, 2010/11)

Tutorial 5
For week beginning 7 March 2011

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SUPPLEMENT QUESTION 1
1. Schedule of cash receipts:
Cash salesJune ...............................................
Collections on accounts receivable:
May 31 balance ..............................................
June (50% 190,000) ....................................
Total cash receipts .............................................

$ 60,000
72,000
95,000
$227,000

Schedule of cash payments for purchases:

May 31 accounts payable balance .......................
June purchases (40% 200,000) ......................
Total cash payments ..........................................

$ 90,000
80,000
$170,000

Phototec, Inc.
Cash Budget
For the Month of June
Cash balance, beginning ....................................
Add receipts from customers (above) .................
Total cash available............................................
Less disbursements:
Purchase of inventory (above) .........................
Selling and administrative expenses .................
Purchases of equipment ..................................
Total cash disbursements ...................................
Excess of receipts over disbursements ................
Financing:
Borrowingsnote ...........................................
Repaymentsnote ..........................................
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$ 8,000
227,000
235,000
170,000
51,000
9,000
230,000
5,000
18,000
(15,000)

Interest ..........................................................
Total financing ..................................................
Cash balance, ending .........................................
2.

Phototec, Inc.
Budgeted Income Statement
For the Month of June
Sales .....................................................
Cost of goods sold:
Beginning inventory .............................
Add purchases .....................................
Goods available for sale .......................
Ending inventory..................................
Cost of goods sold ...............................
Gross margin .........................................
Selling and administrative expenses
($51,000 + $2,000) .............................
Net operating income .............................
Interest expense ....................................
Net income ............................................

3.

(500)
2,500
$ 7,500

$250,000
$ 30,000
200,000
230,000
40,000

190,000
60,000
53,000
7,000
500
$ 6,500

Phototec, Inc.
Budgeted Balance Sheet
June 30

Assets

Cash .......................................................................
Accounts receivable (50% 190,000) ......................
Inventory ................................................................
Buildings and equipment, net of depreciation
($500,000 + $9,000 $2,000) ..............................
Total assets .............................................................

Liabilities and Equity

Accounts payable (60% 200,000) .........................

Note payable...........................................................
Capital stock ...........................................................
Retained earnings ($85,000 + $6,500) .....................
Total liabilities and equity .........................................
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$ 7,500
95,000
40,000
507,000
$649,500
$120,000
18,000
420,000
91,500
$649,500

SUPPLEMENT QUESTION 2
1.

Strategic planning identifies the overall objective of an organization and generally

considers the impact of external factors such as competitive forces, market
demand, and technological changes when identifying overall objectives.
Budgeting is the quantitative expression of plans evolving from strategic
planning. The time horizon for budgeting is generally a year, or an operating
cycle, and greater attention is focused on internal factors than on external
factors.

2.

For each of the financial objectives established by the board of directors and
president of Fit-for-Life, Inc., the calculations to determine whether John
Winslows budget attains these objectives are presented in the following table.
CALCULATION OF FINANCIAL OBJECTIVES: FIT-FOR-LIFE, INC.

Objective
Increase sales by 12%
($1,700,000 1.12 = $1,904,000)

Attained/
Not Attained
Not attained

Calculations
($1,895,500$1,700,000)/$1,700,000 = 11.5%

Increase before-tax income by 15%

($210,000 1.15 = $241,500)

Attained

($241,500$210,000)/$210,000 = 15%

Maintain long-term debt at or below

16% of assets
($4,100,000 .16 = $656,000)

Attained

$616,000/$4,100,000 = 15% (rounded)

Maintain cost of goods sold at or

below 70% of sales
($1,895,500 .70 = $1,326,850)

Not attained

$1,339,000*/$1,895,500 = 70.6% (rounded)

*Variable cost of goods sold + fixed manufacturing cost = $1,149,450 + $189,550 = $1,339,000

3.

The accounting adjustments contemplated by John Winslow are unethical

because they will result in intentionally overstating income by understating the
cost of goods sold. The specific standards of ethical conduct for management
accountants violated by Winslow are as follows:
Integrity. Winslow violated the integrity standard by engaging in an activity that
prejudiced his ability to carry out his duties ethically, by not communicating
unfavorable as well as favorable information, and by engaging in an activity that
appears to be a conflict of interest.

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Competence. By making the accounting adjustments, Winslow violated the

competency standard by not preparing financial statements in accordance with
technical standards.
Objectivity. By overstating the inventory and reclassifying certain costs, Winslow has
violated the objectivity standard. He has failed to communicate information fairly and
objectively and has failed to disclose all relevant information that would influence the
users understanding of the report.

SUPPLEMENT QUESTION 3
The budgeted revenues and the total hours for each of the returns for the coming year follow:
Budgeted
Revenue
Business returns
Individual returns:
Simple returns
Complex returns
Total

$1,000,000

Hourly
Charge
Rate
$250

$1,640,000
$1,200,000

$50
$100

Required
Hours
=

4,000

=
=

32,800
12,000
48,800

Senior
Consultant
2,400
4,800
3,280
10,480
40
262
45
6
5

Consultant

The following table shows the staff requirements for the budgeted revenue:

Business returns
Complex individual returns
Simple individual returns
Total hours
Hours per week (given)
Number of weeks worth of work
Weeks per year/employee
Number of employees needed
Number of employees currently
have

Total Hours

Partner

4,000
12,000
32,800
48,800

1,600
1,200
-2,800
50
56
40
2
2

-6,000
29,520
35,520
40
888
48
19
16

The budget shows that AccuTax does not have sufficient staff to support the expected activity.
AccuTax should hire 1 more senior consultant and 3 more consultants.

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