Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 29

Cost Data for Managerial Purposes—Budgeting

Refer to Exhibit 1.5. Assume that Carmen’s Cookies is preparing a budget for the month ending September 30. Management prepares the budget by starting with the actual results for April that appear in Exhibit 1.5. Then, management considers what the differences in costs will be between April and September.

Management expects cookie sales to be 20 percent greater in September than in April, and it expects all food costs (e.g., flour, eggs) to be 20 percent higher in September than in April because of the increase in cookie sales. Management expects “other” labor costs to be 25 percent higher in September than in April, partly because more labor will be required in September and partly because employees will get a pay raise. The manager will get a pay raise that will increase the salary from $3,000 in April to $3,500 in September. Utilities will be 5 percent higher in September than in April. Rent will be the same in September as in April.

Now, fast forward to early October and assume the following actual results occurred in September:

	A		B	C
1	CARMEN’S COOKIES
2	Retail Responsibility Center
3	Actual Costs For the
4	Month Ending September 30
5		Actual
6		(September)
7	Food
8	Flour	$ 2,700
9	Eggs	6,500
10	Chocolate	2,100
11	Nuts	2,300
12	Other	2,700
13	Total food	$ 16,300
14	Labor
15	Manager	$ 3,500
16	Other	1,850
17	Total labor	$ 5,350
18	Utilities	2,200
19	Rent	5,000
20	Total cookie costs	$ 28,850
21	Number of cookies sold	38,400
22

Required

a.Prepare a statement like the one in Exhibit 1.5 that compares the budgeted and actual costs for September.

---

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? Why would you choose those three costs?

Step 1 of 9

a.

The budgeted costs can be compared with the actual costs only when the actual cost data and budgeted cost data is available. The actual costs data for the month ending September 30 is given. Hence, calculate the budgeted costs for September month and prepare the budget for the month of September.

Prepare the budget statement for the month ending September 30, based on the actual costs incurred in the month of April.

The actual costs for the month ending April are as follows:

CS Cookies Retail Responsibility Center Actual costs Statement For the month ending April 30
Particulars	Amount
Food
Flour	$2,100
Eggs	$5,200
Chocolate	$2,000
Nuts	$2,000
Other	$2,200
Total Food	$13,500
Labor
Manager	$3,000
Other	$1,500
Total Labor	$4,500
Utilities	$1,800
Rent	$5,000
Total Cookie costs	$24,800
Number of cookies sold	32,000