Chapter 23 - Weygandt Financial and Managerial Accounting, 3e Challenge Exercises

Chapter 23 – Weygandt Financial and Managerial Accounting, 3e
Challenge Exercises
CE 23-1
As sales manager, Hank Short was given the following static budget report for selling expenses
in the Winter Sports Department of Jennings Outdoor Company for the month of November.
Jennings Outdoor Company

Winter Sports Department
Budget Report
For the Month Ended November 30, 2020
Difference
Favorable F
Budget Actual Unfavorable U
Sales in units 4,000 4,500 500 F
Variable expenses
Sales commissions $120,000 $128,000 $ 8,000 U
Advertising expense 38,000 41,250 3,250 U
Travel expense 185,000 202,125 17,125 U
Demonstration models given out 100,000 90,750 9,250 F
Total variable 443,000 462,125 19,125 U
Fixed expenses
Rent 7,500 7,500 -0-
Sales salaries 60,000 60,000 -0-
Office salaries 40,000 40,000 -0-
Depreciation – vans (sales staff) 2,500 3,000* 500 U
Total fixed 110,000 110,500 500 U
Total expenses $553,000 $572,625 $ 19,625 U
*The increase in depreciation was due to a new vehicle that had to be purchased as a result of
an accident driving on snowy roads on the way to visit a customer.
As a result of this budget report, Hank was called into the president’s office and congratulated
on his fine sales performance. He was reprimanded, however, for allowing his costs to get out
of control. Hank knew something was wrong with the performance report that he had been
given. However, he was not sure what to do, and comes to you for advice.
Instructions
(a) Prepare a budget report based on flexible budget data to help Hank.
(b) Should Hank have been reprimanded? Explain.
(c) After Hank because familiar with the flexible budget report, he began to analyze the
numbers. Hank feels that sales can be increased if Jennings Outdoor Company would
increase sales commissions to $31 per unit. This would allow them to reduce
advertising expense to $8.00 per unit. Hank thinks that these changes will motivate the
sales staff to sell at least 5,500 units. He is allowed to try his plan in December and had
the following results.
Prepare a budget report based on flexible budget data. The new depreciation amount
has been included in the budgeted fixed costs. Do you think the new plan is valid?
Explain.
CE 23-1 (cont.)
Jennings Outdoor Company

Winter Sports Department
Results
For the Month Ended December 31, 2020
Sales in units 5,500

Variable expenses
Sales commissions $164,000
Advertising expense 42,000
Travel expense 247,000
Demonstration models given out 116,000
Total variable 569,000
Fixed expenses
Rent 7,500
Sales salaries 60,000
Office salaries 40,000
Depreciation – vans (sales staff) 3,000
Total fixed 110,500
Total expenses $679,500
CE 23-2
The Camping Division of Custer Company is operated as a profit center. Sales for the division
were budgeted for 2020 at $700,000. The only variable costs budgeted for the division were
cost of goods sold ($340,000) and selling and administrative ($46,000). Fixed costs were
budgeted at $77,000 for cost of goods sold, $70,000 for selling and administrative, and $69,000
for noncontrollable fixed costs. Actual results for these items were:
Sales $678,000
Cost of goods sold
Variable 315,000
Fixed 81,000
Selling and administrative
Variable 47,000
Fixed 51,000
Noncontrollable fixed 69,000
Instructions
(a) Prepare a responsibility report for the Camping Division for 2020.
(b) Assume the division is an investment center, and average operating assets were
$1,000,000. The noncontrollable fixed costs are controllable at the investment center
level. Compute ROI.
(c) Upon further analysis, Custer Company determined that if it committed to a 12 month
advertising campaign costing $18,000, they could increase budgeted sales by 25%.
Variable costs also will increase by 25%. Fixed cost of goods sold would remain at
$77,000 and selling and administrative expenses increases by the $18,000 cost of this
contract to a total of $88,000. Noncontrollable fixed costs would remain at $69,000.
This plan resulted in the following results:
Sales $873,000
Cost of goods sold
Variable 420,000
Fixed 81,000
Selling and administrative
Variable 56,000
Fixed 71,000
Noncontrollable fixed 69,000
(1) Prepare a responsibility report for the Camping Division based on the new
projections. Did the increase in advertising benefit the company?
(2) Assume the division is an investment center, and average operating assets were
$1,000,000. The noncontrollable fixed costs are controllable at the investment
center level. Compute ROI. Discuss the impact of the change on ROI.

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Chapter 23 – Weygandt Financial and Managerial Accounting, 3e

Jennings Outdoor Company

Jennings Outdoor Company

Sales in units 5,500

This plan resulted in the following results:

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