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Chapter 22: Q22-1E (page 1263)

Southeast Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet work part-time or have a second job, so employee turnover is high.

Assistant Manager/Controller Terry Dunn asked the new bookkeeper to help prepare the hotel鈥檚 master budget. The master budget is prepared once a year and is submitted to company headquarters for approval. Once approved, the master budget is used to evaluate the hotel鈥檚 performance. These performance evaluations affect hotel managers鈥� bonuses, and they also affect company decisions on which hotels deserve extra funds for capital improvements.

When the budget was almost complete, Dunn asked the bookkeeper to increase the amounts budgeted for labor and supplies by 15%. When asked why, Dunn responded that hotel manager Clay Murry told her to do this when she began working at the hotel. Murry explained that this budgetary cushion gave him flexibility in running the hotel. For example, because company headquarters tightly control capital improvement funds, Murry can use the extra money budgeted for labor and supplies to replace broken televisions or pay 鈥渂onuses鈥� to keep valued employees. Dunn initially accepted this explanation because she had observed similar behavior at the hotel where she worked previously.

Requirements Put yourself in Dunn鈥檚 position. In deciding how to deal with the situation, answer the following questions:

1. What is the ethical issue?

2. What are the options?

3. What are the possible consequences?

4. What should you do?

Short Answer

Expert verified

Answer

The ethical issue is that the assistant manager/controller Terry Dunn is increasing the budgeted figures for labor and supply by 15%.

Step by step solution

01

What is the ethical issue

The ethical issue is that the assistant manager/controller Terry Dunn is increasing the budgeted figures for labor and supply by 15%.

02

What are the options

The managers should review the budget and ask questions from the preparatory about the budgeted figures. Also, the past actual and budgeted figures should be

reviewed.

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Most popular questions from this chapter

Preparing an operating budget鈥攑roduction budget Bailey Company expects to sell 1,500 units of finished product in January and 1,750 units in February. The company has 180 units on hand on January 1 and desires to have an ending inventory equal to 80% of the next month鈥檚 sales. March sales are expected to be 1,820 units. Prepare Bailey鈥檚 production budget for January and February.

Match the following statements to the appropriate budgeting objective or benefit: developing strategies, planning, directing, controlling, coordinating and communicating, and benchmarking.

1. Managers are required to think about future business activities.

2. Managers use feedback to identify corrective action.

3. Managers use results to evaluate employees鈥� performance.

4. Managers work with managers in other divisions.

Question:Brooks Company expects to sell 8,500 units for \(175 each for a total of \)1,487,500 in January and 2,500 units for \(200 each for a total of \)500,000 in February. The company expects cost of goods sold to average 70% of sales revenue, and the company expects to sell 4,700 units in March for \(280 each. Brooks鈥檚 target ending inventory is \)20,000 plus 50% of the next month鈥檚 cost of goods sold. Prepare Brooks鈥檚 inventory, purchases, and cost of goods sold budget for January and February

Question: Preparing an operating budget鈥攕ales budget; inventory, purchases and COGS budget; and S&A expense budget Burton Office Supply鈥檚 March 31, 2018, balance sheet follows:

The budget committee of Burton Office Supply has assembled the following data: a. Sales in April are expected to be \(200,000. Burton forecasts that monthly sales will increase 2% over April sales in May. June鈥檚 sales will increase by 4% over April sales. July sales will increase 20% over April sales. b. Burton maintains inventory of \)15,000 plus 25% of the cost of goods sold budgeted for the following month. Cost of goods sold equal 50% of sales revenue. c. Monthly salaries amount to \(7,000. Sales commissions equal 5% of sales for that month. d. Other monthly expenses are as follows: 鈥� Rent: \)2,000 鈥� Depreciation: \(200 鈥� Insurance: \)100 鈥� Income tax: $2,200

Requirements

1. Prepare Burton鈥檚 sales budget for April and May 2018. Round all calculations to the nearest dollar.

2. Prepare Burton鈥檚 inventory, purchases, and cost of goods sold budget for April and May.

3. Prepare Burton鈥檚 selling and administrative expense budget for April and May.

Question: Preparing an operating budget鈥攕ales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets

The Langley Batting Company manufactures wood baseball bats. Langley鈥檚 two primary products are a youth bat, designed for children and young teens, and an adult bat, designed for high school and college-aged players. Langley sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for \(40; the adult bat sells for \)65. Langley鈥檚 highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Langley鈥檚 balance sheet for December 31, 2018, follows:

Other data for Langley Batting Company for the first quarter of 2019:

a. Budgeted sales are 1,200 youth bats and 2,600 adult bats.

b. Finished Goods Inventory on December 31, 2018, consists of 300 youth bats at \(14 each and 950 adult bats at \)18 each.

c. Desired ending Finished Goods Inventory is 350 youth bats and 300 adult bats; FIFO inventory costing method is used.

d. Direct materials requirements are 48 ounces of wood per youth bat and 56 ounces of wood per adult bat. The cost of wood is \(0.25 per ounce.

e. Raw Materials Inventory of December 31, 2018, consists of 24,000 ounces of wood at \)0.25 per ounce.

f. Desired ending Raw Materials Inventory is 24,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).

g. Each bat requires 0.7 hours of direct labor; direct labor costs average \(18 per hour. h. Variable manufacturing overhead is \)0.30 per bat.

i. Fixed manufacturing overhead includes \(1,300 per quarter in depreciation and \)20,140 per quarter for other costs, such as insurance and property taxes.

j. Fixed selling and administrative expenses include \(9,000 per quarter for salaries; \)2,500 per quarter for rent; \(1,000 per quarter for insurance; and \)200 per quarter for depreciation.

k. Variable selling and administrative expenses include supplies at 2% of sales.

Requirements

1. Prepare Langley鈥檚 sales budget for the first quarter of 2019.

2. Prepare Langley鈥檚 production budget for the first quarter of 2019.

3. Prepare Langley鈥檚 direct materials budget, direct labor budget, and manufacturing overhead budget for the first quarter of 2019. Round the predetermined overhead allocation rate to two decimal places. The overhead allocation base is direct labor hours.

4. Prepare Langley鈥檚 cost of goods sold budget for the first quarter of 2019.

5. Prepare Langley鈥檚 selling and administrative expense budget for the first quarter of 2019.
See all solutions

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