Homework Clinic
Social Science Clinic => Accounting => Topic started by: strangeaffliction on Jul 6, 2018
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A 800 payment for Rent Expense was incorrectly journalized and posted as a debit to Wages Expense for 800 and a credit to Cash for 800 . The correcting entry, using the one-step method, would include a
a. debit to Cash for 800.
b. credit to Rent Expense for 800.
c. credit to Wages Expense for 800.
d. credit to Cash for 800.
Question 2
Budgeted income statement.
(CMA, adapted) Smart Video Company is a manufacturer of videoconferencing products. Maintaining the videoconferencing equipment is an important area of customer satisfaction. A recent downturn in the computer industry has caused the videoconferencing equipment segment to suffer, leading to a decline in Smart Video's financial performance. The following income statement shows results for 2014:
Smart Video's management team is preparing the 2015 budget and is studying the following information:
1. Selling prices of equipment are expected to increase by 10 as the economic recovery begins. The selling price of each maintenance contract is expected to remain unchanged from 2014.
2. Equipment sales in units are expected to increase by 6, with a corresponding 6 growth in units of maintenance contracts.
3. Cost of each unit sold is expected to increase by 5 to pay for the necessary technology and quality improvements.
4. Marketing costs are expected to increase by 290,000, but administration costs are expected to remain at 2014 levels.
5. Distribution costs vary in proportion to the number of units of equipment sold.
6. Two maintenance technicians are to be hired at a total cost of 160,000, which covers wages and related travel costs. The objective is to improve customer service and shorten response time.
7. There is no beginning or ending inventory of equipment.
Required:
1. Prepare a budgeted income statement for the year ending December 31, 2015.
2. How well does the budget align with Smart Video's strategy?
3. How does preparing the budget help Smart Video's management team better manage the company?
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Answer to Question 1
c
Answer to Question 2
1.
Smart Video Company
Budgeted Income Statement for 2014
(in thousands)
Revenues
Equipment (8,000 1.06 1.10) 9,328
Maintenance contracts (1,900 1.06) 2,014
Total revenues 11,342
Cost of goods sold (4,000 1.06 1.05) 4,452
Gross margin 6,890
Operating costs:
Marketing costs (630 + 290) 920
Distribution costs (100 1.06) 106
Customer maintenance costs (1,100 + 160) 1,260
Administrative costs 920
Total operating costs 3,206
Operating income 3,684
2. The budget aligns with Videocom's key strategy of customer satisfaction through maintaining videoconferencing equipment by hiring maintenance technicians and increasing costs of customer maintenance by 14.55 (160,000 1,100,000) more than the 6 forecasted increase in sales.
3. Preparing a budget helps Videocom manage costs based on revenues and production needs, look for opportunities to increase efficiencies, reduce costs, particularly in areas where costs are high, coordinate and communicate across different parts of the organization, create a framework for judging performance and facilitating learning, and motivate managers and employees to achieve stretch targets of higher revenues and lower costs.