What if the Audit and Tax departments used 92,000 and 65,000 pages, respectively, but the MAS Department only used 111,000 pages? How much would have been charged out to the three departments?

The HOW and WHY of Calculating and Using a Single Charging
Rate
Information:
The expected (budgeted) cost of Parminder and Lopez’s Photocopying Department
for the coming year includes:
Fixed costs (machine rental, salaries): $26,190 per year
Variable costs (paper and toner): $0.023 per page copied
326 Chapter 7 Allocating Costs of Support Departments and Joint Products

Estimated (budgeted) usage by:
Audit Department 94,500
Tax Department 67,500
MAS Department 108,000
Total pages 270,000
Actual usage by:
Audit Department 92,000
Tax Department 65,000
MAS Department 115,000
Total pages 272,000
Why:
Many companies want to charge the costs of using support departments to the
using departments. This makes the using departments responsible for their usage
and helps to prevent overuse of resources.

Required:
1. Calculate a single charging rate for the Photocopying Department.

2. Use this rate to assign the costs of the Photocopying Department to the user
departments based on actual usage. Calculate the total amount charged for
photocopying for the year.

3. What if the Audit and Tax departments used 92,000 and 65,000 pages,
respectively, but the MAS Department only used 111,000 pages? How much
would have been charged out to the three departments?

DISCUSSION QUESTIONS
1. Define budget. How are budgets used in planning?

2. Define control. How are budgets used to control?

3. Discuss some of the reasons for budgeting.

4. What is the master budget? An operating budget? A financial budget?

5. Explain the role of a sales forecast in budgeting. What is the difference between a sales fore-cast and a sales budget?

6. All budgets depend on the sales budget. Is this true? Explain.

7. What is an accounts receivable aging schedule? Why is it important?

8. Suppose that the vice president of sales is a particularly pessimistic individual. If you were in charge of developing the master budget, how, if at all, would you be influenced by this knowledge?

9. Suppose that the controller of your company’s largest factory is a particularly optimistic individual. If you were in charge of developing the master budget, how, if at all, would you be influenced by this knowledge?

10. What impact does the learning curve have on budgeting? What specific budgets might be affected? (Hint: Refer to Chapter 3 for material on the learning curve.)

11. While many small firms do not put together a complete master budget, nearly every firm cre-ates a cash budget. Why do you think that is so?

12. Discuss the shortcomings of the traditional master budget. In what situations would the master budget perform well?

13. Define static budget. Give an example that shows how reliance on a static budget could mis-lead management.

14. What are the two meanings of a flexible budget? How is the first type of flexible budget used? The second type?

15. What are the steps involved in building an activity-based budget? How do these steps differ-entiate the ABB from the master budget?

What if the Audit and Tax departments used 92,000 and 65,000 pages, respectively, but the MAS Department only used 111,000 pages? How much would have been charged out to the three departments?